In early 2020, California Resources Corp. (CRC), a major oil and gas producer in California, faced significant financial difficulties, with its stock plummeting and credit rating downgraded to junk bond status.
The pandemic further disrupted global oil markets, leading CRC and nearly 24 subsidiaries to file for bankruptcy by July 2020, citing “unprecedented market conditions” and nearly $5 billion in debt.
The Sierra Club and the Center for Biological Diversity expressed concerns to Gov. Gavin Newsom that CRC might leverage its bankruptcy to avoid environmental cleanup of its oil wells, which could leave California taxpayers with the bill.
After emerging from bankruptcy in October 2020, CRC left much of its debt behind, saw a quadrupling of its stock price, and completed a $2.1 billion merger with Aera Energy in July. This merger strengthened CRC’s position as the top oil producer in California and aided in its expansion into carbon removal and storage.
The merger also increased liabilities, as CRC and its affiliates are responsible for over 11,000 idle wells, nearly a third of the state’s total, potentially burdening California with cleanup costs. CRC reported to the Securities and Exchange Commission that the cleanup cost could exceed $1 billion, with $114.7 million set aside in bonds.
According to the California Geologic Energy Management Division (CalGEM), CRC met state bonding requirements, though experts argue these are insufficient, possibly leaving taxpayers liable.
Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis, highlighted CRC’s unfunded cleanup liability as a significant concern in a 2020 report.
Concerns also arise that CRC’s carbon storage plans might delay idle well cleanup, as some could be repurposed for carbon injection.
In response, CRC stated compliance with state bonding requirements and its ongoing management of idle wells. However, it remains unclear if idle wells will be used for CRC’s proposed carbon injection projects.
“Too Low”
California mandates that oil producers clean up non-productive wells, known as plugging, but allows wells to remain idle indefinitely. Cleanup costs range significantly, with annual idle well fees now higher, based on inactivity duration.
Funds set aside for well plugging are reportedly insufficient to cover likely cleanup costs. Recent legislation aims to increase bonding requirements, including a 2019 law allowing up to $30 million in additional onshore oil well bond collections.
Despite new laws, such as AB 1167, aiming at full cost coverage for well plugging, these were not applied to CRC’s merger with Aera due to operational considerations.
This decision has drawn criticism from environmental advocates and lawmakers like Assemblymember Wendy Carrillo, emphasizing the need for stricter enforcement to prevent unchecked industry influence.
A Steady Decline
The U.S. recently reached record oil production levels, yet California’s output has declined since the mid-1980s, producing only 118.3 million barrels in 2023. California’s future oil production is limited by geology, with reserves like Monterey Shale yielding much less oil than previously estimated.
Occidental Petroleum, CRC’s former parent company, had already spun off assets into CRC, shedding liabilities. With California’s aggressive climate policies aiming to phase out oil drilling by 2045, the number of idle wells is expected to rise.
Regulators are concerned that struggling producers may abandon wells, leading to pollution and financial burdens for the state. CRC’s production has declined since 2016, with reduced revenues despite increased operating income.
Industry experts question whether oil companies will have funds for decommissioning wells when necessary, with Clark Williams-Derry predicting financial strain could eventually leave taxpayers to cover cleanup costs.
A Strategy for Delay?
Post-bankruptcy, CRC announced carbon removal and storage projects in Kern County, aiming to store carbon dioxide underground. This initiative, approved by the county’s Board of Supervisors, faces legal challenges from environmental groups over climate and health concerns.
The U.S. Environmental Protection Agency is reviewing CRC’s applications, with outcomes not expected to be affected by the lawsuit. Globally, carbon storage projects are exploring ways to reduce emissions but face economic uncertainties.
CRC believes these projects can generate revenue, meet environmental goals, and aid California’s climate change efforts. However, experts warn that the move might delay well cleanup due to potential reuse for carbon storage.
While some view this skepticism as cynical, asserting that proper engineering will be required for such repurposing, others, like Williams-Derry, see it as a means to delay necessary environmental actions.
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Original Story at insideclimatenews.org