Assessment of Oil and Gas Well Ownership Transfers in California

As a threshold matter, to assess the frequency of this type of divestiture, California Department of Geological Energy Management’s (CalGEMs) well production and injection annual summary reports were screened for changes in ownership of individual oil and gas wells. Results show that of the nearly (N=238,151) unique oil and gas well IDs listed in the production and injection reports, a total of at least 121,726 (51.1%) wells have changed ownership between 1977 and 2022. A significant proportion (at least 13%) of these wells have changed ownership more than one time – since 1977 there have been a total of at least 137,063 transfers of ownership for wells, as reported by CalGEM. The vast majority of these transfers have occurred since 2010 (99.7%). The plot in Figure 2 below shows the cumulative count of wells that have changed ownership between 1977 and 2020. The map in Figure 1 (above) shows the locations of the wells that have changed ownership.

Figure 2. Cumulative Count of Unique Wells Transferred by Year, 1978-2022. The plot shows the counts of wells that changed ownership each year, according to CalGEM data. There were an additional 15,983 wells that changed ownership during this time frame, but the specific year ownership was transferred was not able to be determined. Major transfer events viewable in the plot include divestments by Berry Petroleum Co in 2010, the transfer of wells from Occidental to California Resources Corporation in 2014/2015, the bankruptcy of Venoco Inc. and Linn Energy LLC in 2016/2017, major divestments by Chevron in 2018, and the divestment of Aera Energy LLC from California in 2021.

The results of the divestment and acquisition categorization are split into two components due to the high counts of plugged wells that were transferred between operators. Data for operational wells, with statuses of active or idle at the time of transfer, is presented separately from counts of plugged well transfers. The proportions of transferred well statuses is shown below in the pie chart in Figure 3. Nearly half of all the wells transferred between operators were plugged wells, while just over 35% of the well transfers were for active wells.

Figure 3. Pie chart of well statuses. Well statuses were identified for the year of ownership transfers, based on CalGEM annual production and injection reports. Nearly half of well transfers were for plugged wells, while active wells only accounted for about 36%.

Over a third of the well transfers were for active wells. The category “active” refers to wells that consistently produce monthly volumes of oil or gas, or inject fluids underground. However, it is important to note that the majority of active wells produce stripper or marginal volumes in California (for definitions of stripper or marginal volumes see the glossary). CalGEM production data shows that the majority of transferred active wells were stripper wells that produced less than 15 bbls/day of oil or less than 90 MCF/day of gas (97.8%), and over 91% of wells transferred produced less than 5 bbls/day. Of the total population of wells transferred since 1977, only 2.2% produced more than 15 bbls/day, meaning that just 2.2% of wells transferred produced above the stripper well threshold. In Figure 4 below, the data is limited to ‘active’ wells, to show the counts of actively producing wells that produced volumes of oil above stripper volumes and within additional production brackets.

Figure 4. Pie chart of production status of active wells. Annual production volume totals were quantified for active wells the same year as the reported operator transfers. About 2% of active well transfers were for non-stripper wells (wells producing more than 15 bbls/day). Over 91% of active well transfers were for wells producing less than 5 bbls/day.

Divestments

Each data point (well transfer) was summarized in two ways in order to fully understand the flow of assets and liabilities from operator to operator. First the nature of the divestment was analyzed based on the economic status of the divesting operator. The pie chart in Figure 5 shows the results of this categorization. The majority of well transfers were the result of California exit divestment (operators completely divesting from California exploration and production), while about 16% of transfers were between two active operators. Nearly 6% of well transfers were from operators that declared Chapter 7 bankruptcy. Many of those wells are now the responsibility of the state lands commission to plug and remediate. A small percentage of the well transfers (0.14%) were from operators with idle well liabilities without active wells to fund remediation efforts. This included operators such as Union Oil Co. of California, Arthur McAdams, Amrich Energy, and Solimar Energy, among others.

Figure 5. Pie chart of well divestments. Well divestments were categorized by the economic status of the divesting operator. Nearly 80% of divestments were from companies that shut down their operations in California. An additional 0.14% shut down production but still own idle wells in California that require plugging and site remediation.

Acquisitions

The acquisition of wells was also categorized, but by the economic status of the receiving operator. The pie chart below in Figure 6 shows the breakdown of acquisitions by categorized transfers. The majority, about 58%, of transfers were from larger operators to smaller operators, and are labeled as ‘investment liabilities’. They are liabilities because while wells may still be producing, they are typically near the end of their production decline curve; otherwise they would not have been divested. As such these wells may not produce enough oil or gas to cover their own plugging and remediation costs. An additional 18% of transfers were to a ‘marginal operator’ – that is, oil and gas companies that are created to absorb retirement obligations, such as the spin-off of California Resources Corporation and its subsidiaries that funded the expansion of Occidental Petroleum into new oil and gas basins in Texas, Colorado, and internationally. Only about 24% of the well transfers were acquisitions by larger or similarly sized operators.

Figure 6. Pie chart of well acquisitions. Well acquisitions were categorized by the economic status of the acquiring operator.

While ‘investment asset’ (IA) acquisitions constitute nearly a quarter of well transfers, the majority of wells acquired by larger companies were ‘idle’ or ‘plugged’ (about 60%). Figure 7 below shows the breakdown of the ‘investment asset’ category by well status at the time of ownership transfer. About 40% of the IA acquisitions by larger companies were active wells, but similar to the full population sample, the vast majority of the active wells were stripper wells (98.4%), and only 6.6% of the active IA wells produced more than 5 bbls/day.

Figure 7. Well statuses of ‘Investment Asset’ (IA) transfers. The dataset of transfers was limited to just the subset of transfers that went from a smaller operator to a larger or similar sized operator.