Deadlines Loom as Oil Producers Tackle Inactive Wells | New

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The new slogan used by oil tanker Maricopa Chris Hall speaks of the direction small independent producers like him may be heading with recent political currents. If this sounds fatalistic, it is also conscientious.

“I’m in the business,” he said, “of going bankrupt.”

Hall means it is working to shut down operations, plugging its oil wells as quickly as it can afford and removing pipelines and associated facilities so as not to leave a risk to the environment. , health and safety.

Hall, 71, says every penny goes towards cleaning up the oilfields. But he fears time is running out as the state government accelerates its phase-out of oil and gas production in the state.

Among the deadlines that keep him awake at night is the January 1, 2027 ban on diesel engines that his reconditioning equipment runs on.

“I just hope the state gets it right,” he said.

His challenge illustrates a delicate balance for the California campaign to address the threat of orphan wells while regulating the suppression of the state’s oil industry.

The current production finances the well abandonment works of the oil companies. Likewise, Sacramento’s efforts to prevent unused wells from becoming so-called orphan wells rely to a large extent on the financial health of oil producers.

Some in the industry warn that cutting oil too soon could have unintended consequences.

“To ensure that this (good plugging and remediation work) by operators continues in the future, we need to ensure that we have viable operators who continue to meet their obligations,” said Group CEO Rock Zierman. California Independent Petroleum Association commercial by e-mail.

WORK FORWARD

The state legislature, recognizing that previous rules allowed orphaned wells to become unfunded liabilities, has passed laws in recent years to address this. Its solutions range from increasing the surety obligations of oil producers to new royalties on the activity of the industry.

An immediate goal is to assess how much individual producers would have to pay to completely shut down and rehabilitate the sites where they operate.

“The risk assessment process has started in earnest,” Oil and Gas Supervisor Uduak-Joe Ntuk said in an emailed statement.

Meeting upcoming regulatory deadlines is not as much of a concern for large producers who say they are scrupulously respecting government schedules. But small independents may have a harder time cleaning up in time to meet government deadlines.

Hall said abandonment costs producers between $ 25,000 and $ 250,000 per well, depending on the location, depth and condition of the well. It contracts most of the work, but some of it is done by its eight employees who operate 65 wells that now produce about 100 barrels per day.

With prices high lately, he reckons it will take him five to ten years to fulfill his obligations and return his leases to landlords in case they want to use the land for something else.

PRESSURE DEADLINE

Oil producers he speaks with are worried about California’s proposed Jan. 1, 2024 date to end the well-completion technique known as hydraulic fracturing, he said. declared, not to mention a 2035 date to require all new vehicles sold in the state to be emissions. free and the 2045 deadline ending oil and gas production.

“As an industry,” he said, “we are actively talking about these dates.”

Especially for small independent producers, he added, “you really have to focus on what you are doing for abandonment and cleaning up.”

CIPA’s Zierman noted that Assembly Bill 2729 of 2016 requires oilfield operators to plug and repair at least 4-6% of their inactive wells each year, with larger companies having to abandon proportionally more than well.

In practice, this means that the most frequent permit issued this year by CalGEM, the California division of geological energy management, has been well abandonment: around 1,300, or nearly two-thirds of permits issued by the agency until June 30.

INDUSTRY VIEW

Bakersfield-based oil producer Aera Energy LLC has said by email that it is meeting state requirements to reduce its inventory of inactive wells each year to ensure they are managed safely and do not become a risk to public health, safety and the environment.

The company said recent announcements by Gov. Gavin Newsom regarding accelerating the phase-out of oil production in the state had not altered its plans to deal with inactive wells and that it would have fulfilled its obligations by March 31, 2025. By that date, it declared all of its inactive wells as of April 1, 2019 will have been properly abandoned.

San Ramon-based oil major Chevron Corp. said by email that it operates in a socially and environmentally responsible manner throughout the lifespan of its assets. She is committed to removing her unused assets in accordance with applicable laws and to saying that her top priority is the protection of people and the environment in the communities where she works.

“We plan to stay on track with our planned abandonment activities regardless of the regulatory environment,” he said, adding that historically he has abandoned more wells than required by regulations. of State.

CalGEM’s Ntuk noted that oilfield operators must file compensation obligations when drilling, redesigning or acquiring a well. The bond money is intended to cover the cost of plugging wells that may later be deserted.

NEW AUTHORITIES

But because these bond amounts are generally insufficient, CalGEM has been working to put in place new authorities under various state laws in recent years to expand California’s bonding program. The guiding principle is to ensure that enough bond money is available to cover the costs of plugging and dismantling oil facilities.

Ntuk noted that the agency’s power to assess the risks associated with orphan wells and future orphan wells stems from Assembly Bill 1057 of 2019, which authorized CalGEM to require individual operators to provide funds. additional, if necessary, to cover their orphan well obligations.

Additionally, Senate Bill 551 of 2019 authorized CalGEM to require operators to file reports indicating their full liability for costs associated with site plugging, abandonment and decommissioning. These reports, the first of which are expected in 2022 and 2024, will inform subsequent state measures forcing operators to set aside more money to cover these expenses.

As it stands, Ntuk said, the industry is paying all the plugging and abandonment costs. If an oil producer is financially solvent and manages their wells responsibly, the work is done as needed. But it is when no responsible party can be found, and the wells are found inactive and deserted, that the state intervenes with the money brought in by other oil companies.

The money for this work will come from two funds. One brings together operator valuations capped at $ 3 million per year until fiscal year 2022-2023. After this time, the cap per company drops to $ 1 million per year.

The other fund comes from royalties from operators with inactive wells. Either can be devoted to plugging and abandonment work that the state deems necessary.

“CalGEM can use these funds to plug and abandon wells to alleviate an unsafe or potentially unsafe condition,” Ntuk wrote.


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