California Must Improve Its Management of Idle Wells

Orphan and Idle Well Counts

Since the implementation of AB 2729 in 2018, the annual idle well reports show that the counts of idle wells have been increasing each year. The large increase from 2018 to 2019 is in part due to the redefining of idle wells, as outlined in AB 2729. [10] The figures below in Table 1 show that between 2018 and 2022, idle well counts have increased over 32%, and continued to increase. Long term idle well counts have also increased during this time frame. While plugging counts have been increasing each year, the annual reports show that there has not been enough wells plugged to decrease idle well counts. There are more wells transitioning from active to idle status than wells being plugged.

Table 1. Counts of idle, long term idle and idle to plugged well counts.

To complement the analysis of AB 2729, FracTracker also reviewed CallGEM’s documents to better predict the count of orphan or likely orphan wells in the state. CalGEM publishes a dataset of likely orphan wells titled Department of Conservation Likely Orphan and Deserted Well Inventory List (N=5,699), which is mapped below in Figure 1 below (dataset updated March 2023). [11] According to the CalGEM AllWells dataset, there are 101,332 unplugged wells currently operating in California, as of March 11, 2024. Screening the dataset for operators with unplugged wells who did not report production figures in 2022 results in a count of 3,352 likely orphaned wells owned by 1,009 operators. Screening this dataset against the Department of Conservation Likely Orphan and Deserted Well Inventory List identified an additional 338 likely orphan wells not listed in the CalGEM dataset. These wells are mapped alongside the Likely Orphan and Deserted Well Inventory List.

Figure 1. Map of Idle and Orphan Wells. The map shows the locations of idle and orphan wells, as identified by CalGEM. An additional subset of idle wells are identified as likely orphan by FracTracker Alliance, based on the portfolios of those operators.

Idle Well Management Shortcomings

The following figures were derived from the 2021 AB2729 Idle Wells Report. [12] Appendix-1 provides the annual inventory of idle wells and distinguishes which wells are considered long term idle wells.

Management Plans and Fees

The dataset in Appendix 1 identifies 1,200 unique operators who operated long term idle wells (LTIWs). The dataset in Appendix 5 identifies 51 unique operators that have idle well management plan (IWMP) agreements with CalGEM. Appendix A-9 of the report identifies LTIWs that have not paid their fees. These fees are as low as $150 per year. [13] The operators, along with their well counts, are presented below in Table 1, and the locations of their idle wells mapped above in Figure 1.

• As stated in the report, of the 1,195 operators with LTIW obligations, 51 filed IWMPS (4.3%), and 49 were in compliance with IWMPs (4.1%).
• A total of 1,149 operators failed to file IWMPs (96%), and 1,151 operators were without compliant IWMPs.
• A total of 1,037 (87%) operators did not have compliant IWMPs and did not pay their LTIW fees.
• Of the 17,888 LTIW’s, 2,642 (15%) were owned by operators who did not pay their fees. 

The table below shows that large counts of idle wells make up a large percentage of the unplugged wells in the portfolios of California’s oil majors, such as Aera, Chevron, and California Resources Production Corp (CRC). More than half of CRC’s unplugged wells are idle, and CRC has the highest percentage of LTIWs. While there are many small likely insolvent or already bankrupt operators, such as HVI Cat Canyon, with lots of retirement obligations on their books, the majority of California’s idle wells are currently managed by the larger operators. This provides an opportunity for California to assure these wells are plugged, by requiring operators to leverage their existing capital to plug and remediate their wells. As production continues to decline, this opportunity will not last.

Table 1. Idle well and Long Term Idle Well Counts by Operator. Operators are ranked by long term idle well (LTIW) counts. 

Well Plugging Timespans

FracTracker has calculated conservative figures for the amount of time necessary for California’s oil and gas operators to plug their portfolios of idle wells, if they were to follow the minimum plugging requirements outlined in AB 2729. [14] CalGEM’s AB 2729 2023 IWMP Inventory reports 34,011 total idle wells in California, with 15,922 (47%) identified as LTIW.

Under AB 2729, California requires operators with more than 1,250 idle wells to plug at least 6% of the LTIW wells each year. Operators with 251 to 1,250 idle wells are required to plug at least 5% of their LTIWs each year. Operators with 250 or fewer idle wells are required to plug at least 4% of their LTIWs each year.

To most accurately calculate the time required to plug the backstock of idle wells in California based on the AB 2729 LTIW plugging requirements would require knowledge of the future flux of well statuses, from active to idle and from idle to long term idle. Therefore this analysis calculates the minimum time frame that would be required to plug just the existing portfolio of idle wells.This conservative approach overestimates the count of wells that operators are required to plug, and can therefore be considered a minimum estimate of the time required, if all operators followed the minimum plugging requirements in AB 2729. 

This approach is based on the assumption that all idle wells are LTIWs, a valid assumption considering all currently idle wells will be LTIWs within a maximum eight-year timespan. Based on the current plugging and abandonment rates, it is safe to assume that the vast majority of currently idle wells will have transitioned into LTIWs by the time operators get around to plugging them. 

• For the operators with more than 1,250 idle wells, Aera Energy LLC has the highest count of idle wells with 6,712. Therefore if all operators plug their idle wells at the minimum required rate, it will take Aera the longest. With 6,712 wells it will take at least 106 years for the total idle well count to get below a count of 10, if 6% are plugged annually.
• For the operators with 251 to 1,250 idle wells, CalNRG Operating, LLC has the highest count of idle wells with 1,070. It will take at least 92 years for their idle well count to get below a count of 10 if 5% are plugged annually.
• For the operators with 250 or fewer idle wells, Signal Hill Petroleum, Inc. has the highest count of idle wells with 248. It will take at least 79 years for their idle well count to get below a count of 10 if 4% are plugged annually. 

If the LTIW plugging rates outlined in the proposed AB 1866 were to become law, the required well plugging percentages would increase to 10%, 15%, and 20%. Therefore the maximum time frame necessary for operators to plug their current portfolios of idle wells would be decreased by 68%.

Time frames under the proposed AB 1866 rules:

• Aera Energy, LLC would be required to plug their existing portfolio of 6,712 idle wells in about 34 years.
• CalNRG Operating, LLC would be required to plug their existing portfolio of 1,070 idle wells in about 30 years.
• Signal Hill Petroleum, Inc. would be required to plug their existing portfolio of 248 idle wells in about 32 years.

Considerations of Alternatives for Idle Wells

As new technologies emerge, it may be necessary to allow oil and gas operators to prioritize keeping certain idle wells unplugged. As written, AB 1866 instructs operators to prioritize well plugging based on several considerations, including threats to health due to leaks, and age of the well. This is a technologically valid approach, as older wells are the least useful for retrofitting, due to poor construction standards.  

Other supposed opportunities for the re-use of exhausted oil and gas fields include carbon capture and storage, and hydrogen storage. While these options have been lauded by the industry as reasons to maintain large stocks of idle wells, the exact opposite is the truth. The development of reservoirs for CCS, hydrogen storage, and methane storage will require nearly every single existing idle well to be plugged to prevent leaks from the underground storage formation to the surface. All unplugged wells in addition to older plugged wells pose a serious risk for leaks of injected gasses such as carbon dioxide, hydrogen, or natural gas. 

The vast majority of existing oil and gas wells will not qualify to be transitioned into injection wells, as the construction requirements for Class II and Class VI wells are drastically more stringent than the standards when the majority of California’s wells were drilled. Prior to 1980 wells were not drilled to the standards necessary to handle the higher pressures, as outlined in Michanowicz et al. (2017). [15] In fact, the existing applications by California Resources Production Corporation LLC for their proposed Terravault facility only retain a total of just three Class II wells modified for Class VI use, and just 16 existing oil and gas wells converted to monitoring wells. [16] CalGEM records show that there are over 1,200 unplugged wells currently located in the area of the proposed site plan. An estimated 98% of wells in this area of the Elk Hills field will need to be plugged. 

Conclusions

The influence of the California oil and gas industry has limited the ability of the state to properly regulate the decline of the oil and gas extraction and hold the industry accountable to their well plugging obligations. [17] The state’s industry favorable self-regulatory environment has created the current circumstance of possible statewide insolvency. Decades of record profits have been extracted from the state without consideration of decommissioning costs, leading to some of the most economically disastrous operator bankruptcies in the world such as Venoco and Rincon Island Partnerships along with the rest of the Greka group subsidiaries. [18]

The regulatory data clearly shows that the biggest risk driver that would allow orphan well counts to grow in California is continued growth of idle well portfolios resulting from slow rates of plugging. The currently proposed bill AB 1866 (Hart) curtails this risk. California is not the first state to address this issue, as numerous other states such as West Virginia and North Dakota require operators to plug their idle wells while they still have available cash flow from the remaining active wells in their portfolios.