California’s Cleanup Law Fails Its First Major Test as Big Oil Finds a Loophole

California’s supposedly toughest oil well cleanup law just hit a snag, and it’s a big one. Here are the details.

California’s Oil Well Cleanup Law

Last October, California passed AB 1167, a law that deals with the massive number of unplugged and ownerless oil wells that are leaking pollutants into the environment. 

AB 1167

The idea was simple: if a company buys wells, it needs to set aside enough money to clean them up if things go south. No more leaving taxpayers with the bill.

The Plot Twist

This was supposed to be a game-changer, but guess what? The state’s regulators just decided it doesn’t apply to the biggest merger in California’s oil industry.

A Merger of Titans

Fast forward to June, and the California Geologic Energy Management Division (CalGEM) announced that the law doesn’t apply to the merger of California Resources Corp. (CRC) and Aera Energy. 

The Sleeping Giants

This merger created the largest oil company in the state, responsible for around 16,000 idle wells – 40% of California’s total idle wells. 

The Risk Of Orphan Wells

These wells aren’t producing, aren’t plugged, and are ticking time bombs waiting to become “orphan” wells (abandoned wells.) 

From Billions to Millions

If the law had been applied, CRC would have needed to put up a huge $2.4 billion in bonds to cover potential cleanup costs. Instead, they continue with just a $3 million bond – talk about a loophole.

The Official Explanation

David Shabazian, the Director of the California Department of Conservation, explained in a letter that the bonding requirements “do not apply to stock transfers,” and since Aera is still listed as the operator the state can’t enforce the new law. 

Assemblymember Carrillo Speaks Out

This reasoning hasn’t sat well with many, including Assemblymember Wendy Carrillo, who sponsored the law. “This deal is exactly why we passed AB 1167, the Orphaned Well Prevention Act. If a company is drilling for oil in California, they should be responsible for cleaning and closing that oil well. Not enforcing the law as intended sets-up our state for a potential financial catastrophe,” she said. 

Big Oil’s Escape Route?

Critics argue that the ruling sets a dangerous precedent and basically creates a loophole for big oil companies. Without the proper financial guarantees, taxpayers could be left holding the bag for billions in cleanup costs.

CRC’s Defense

Richard Venn, a CRC spokesperson, defended the merger. He claims the company has already plugged over 5,000 wells and is committed to handling its obligations. He insists the merger has strengthened their ability to manage their wells. But there’s skepticism. 

A Troubled Past

CRC has already been through Chapter 11 bankruptcy and now owes over $1 billion in cleanup costs following the merger. And some of their most fruitful wells are nearing the end of their economic lives.

A Tangled Web of Ownership

The situation is further complicated by Aera’s ownership. 

International Players Enter the Scene

Sold by Shell and ExxonMobil in 2022, Aera is now controlled by a mix of international investors, including a German asset management group, Oaktree Capital Management, and the Canada Pension Plan Investment Board. This tangled web of ownership is only adding to the worries about who will ultimately be responsible for the cleanup.

Follow the Money

What’s more, Aera spent about $250,000 lobbying in California in just the first quarter of the year, with a huge focus on efforts related to establishing AB 1167. Neither Aera nor state regulators have provided clear answers about the company’s lobbying activities. 

CalGEM’s Changing Stance

Meanwhile, in December, CalGEM had informed oil companies to submit paperwork before any acquisitions to determine necessary bonding levels. But the state later decided that the CRC and Aera merger didn’t trigger these requirements due to the way it was structured. 

Experts Sound the Alarm

The fallout from this decision has led to public outcry. Experts warn that the state’s failure to enforce its own laws could lead to financial and environmental disaster, and many people are calling for California to tighten its oversight and ensure that the companies responsible for drilling also foot the bill for cleanup.

Leading the Nation or Falling Behind?

The state aimed to lead the nation with this ambitious law, but the first big test is showing some significant cracks in the system. 

Fixing the Cracks in the System

Unless changes are made, California might find itself with more abandoned wells and a hefty bill that falls on the shoulders of its residents.

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