Ventura County proposes big increases for oil and gas bonds

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Aera Energy, which operates on a historic oilfield north of Ventura, contributed more than $7 million to defeat rules requiring modern environmental review for decades-old permits. The Board of Supervisors approved the rules in 2020, but they were overturned by the voters in June.

Ventura County officials have proposed steep increases for oil and gas bonds, part of a suite of updated regulations headed to planning commissioners on Thursday.

The measures are expected to boost protection for taxpayers and the environment when something goes wrong or if companies fail to properly plug wells that are no longer productive. But the changes also could bring much higher costs for the oil and gas industry that has repeatedly opposed other efforts to tighten restrictions.

Since the early 1980s, the county required a $10,000 bond – a sort of security deposit for wells – from oil and gas companies regardless of the size of their oil fields or operations. That amount would leave the county government short-handed to plug the wells and restore the sites if operators deserted the facilities without doing the work. Taxpayers would likely foot the bill instead.

The state government also collects fees and bonds to protect against the potential liability, but the estimated costs of plugging wells greatly exceed available funds. A 2018 report by the California Council on Science and Technology found the state could have to pay $500 million over the available bond funds just to plug the 5,500 wells at the highest risk of being deserted by operators.

Former county Supervisor Steve Bennett, who called for new local bond requirements in November 2020, said the amount should be constantly adjusted for inflation and not frozen at the level set almost 40 years ago.

“You need the county and the state with appropriate safeguards to protect taxpayers,” Bennett, now a state assemblyman, told The Star.

Under existing requirements, county records show just over $1 million in bonds for the area’s roughly 3,500 active and idle wells. But state officials estimate an average of $143,300 would be needed to properly seal a well, according to county planners. That accounts for just part of the cost to restore a site.

All of these wells require remediation at the end of service for safety and to protect against contamination, said Judd Boomhower, an environmental economist at UC San Diego and lead author of the 2018 report.

“When you start digging in to just what it is going to cost to eventually take care of that problem, the numbers get big pretty quickly,” he said.

The Planning Commission will be asked to consider zoning amendments that would for most companies require bonds ranging from $100,000 to $500,000 for the above-ground costs; $36,000 per well for plugging work; and $15,000 per well for those idle for 15 years or more.

Those companies have 50 or fewer wells. But three oil and gas operators – Aera Energy, Carbon California and CalNRG – have 400 or more wells each and could have to post more than $15 million in bonds.

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Thousands of idle wells

Two trade groups – the Western States Petroleum Association and the California Independent Petroleum Association – see the proposals as over-regulation.

“Once again, Ventura County politicians want to restrict local oil and gas production through arbitrary ordinance revisions, ignoring over two dozen state and federal agencies that already regulate the industry,” said Ben Oakley, a manager for the Western States group.

Almost two years ago, the Board of Supervisors directed planners to return with a series of proposals. Supervisors called for increasing the $10,000 bond in place since 1983, boosting insurance and adding measures for permanently plugging and restoring wells idled for 15 or more years so taxpayers don’t bear the cost.

The changes, spearheaded by Bennett and Supervisor Linda Parks, also recommended that oil and gas permits last only 15 years rather than the county’s typical 20- to 30-year terms. Supervisors narrowly OK’d the direction in a 3-2 vote, the same margin that they approved a new county general plan and modern environmental review for decades-old oil and gas permits, both fiercely opposed by oil and gas companies

Voters blocked the rules for those aged permits after oil companies mounted an $8 million campaign to oppose them. That means the proposed 15-year term would not apply to those operations.

If approved, however, the new bond and insurance requirements would apply to all new and existing oil and gas operators.

Of the 2,267 idle wells in the county, 1,520 are classified as long-term idle wells. That means they have not produced oil or gas for eight years or more.

Three companies — Aera Energy, Carbon California and CalNRG — control around 73% of those long-term idle wells. If those wells don’t return to production, county planners say it could cost $128 million to the seal the wells based on state estimates.

Idle wells can rust or crack if improperly maintained, potentially leaking methane, a potent greenhouse gas, and other contaminants into the environment. Records show 1,275 wells have been left idle for 15 years or more and hundreds already have been classified as deserted.

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County proposes multiple bonds

The responsibility to clean up the long-term idle wells should fall squarely into the hands of the oil industry, said Jeff Kuyper, executive director of conservation group Los Padres ForestWatch.

Kuyper called the proposed changes a good step in the right direction, saying the existing bond requirements amount to “little more than pocket change” and leave a huge potential liability for the county and taxpayers.

“The environment shouldn’t pay for oil wells that are left behind,” he said. “Our communities and taxpayers shouldn’t have to foot the bill either.”

The county’s proposal includes three bonds — one for above-ground restoration, one for supplementing state bonds to properly plug wells, and a third for wells left idle 15 or more years. Here are some of the highlights:

The surface restoration bond would range from $100,000 to $500,000 for operators with 50 or fewer wells, based on an estimate of $186,500 to restore a typical oil and gas site with 10 wells and other related facilities. The three largest companies would need to post $10 million bonds.
A $36,000 bond per well would cover part of the costs to properly seal wells. That’s about 25% of the estimated cost of the work and is intended to supplement state funds. For the largest companies, the amount would be capped at $5 million.
A long-term idle well abandonment surety would require a $15,000 bond per well idle for 15 years or longer. The amount also would be capped at $5 million for any single operator.
Planners are recommending broader and steeper minimum insurance for oil and gas operators. New requirements include general liability coverage of $2 million for each incident, a pollution liability policy of $10 million, another $10 million in coverage to cover the cost of fixing wells and $25 million in umbrella coverage for additional expenses. The coverages must be in place until drilling sites are fully restored.

Oil and gas operators likely would pay 2 to 4% of the bond amount, according to a county staff report. That would mean a $10 million bond may cost $200,000 to $400,000 annually.

The estimated annual revenue for the county’s three largest oil and gas companies ranges from $34 million to $211 million, the county reported.

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Proposals ‘absolutely excessive’

Three companies facing multimillion-dollar bond increases balked at the proposals.

Aera Energy, which is jointly owned by Shell and ExxonMobil and has nearly 2,700 long-term idle wells statewide, said it was already complying with a state plan to properly abandon such wells. Oil and natural gas producers are required by law to reduce their inventory of idle wells, spokeswoman Cindy Pollard said in an email.

The company declined to say exactly what its position is on the proposals headed to the commission Thursday.

CalNRG said the proposed bonding and insurance requirements would lead the company to take funds otherwise allocated for well elimination and instead have those funds sit idle as collateral as part of the new bond requirements.

“The company has eliminated more wells on its holdings than previous operators and will continue doing so in the years ahead,” spokesman Chris Collier said in an email.

Carbon California Vice President Jane Farkas said the deposits the company would owe under the proposal top $15 million, and she doubted the company could obtain the much cheaper bonds.

“It is absolutely excessive because we can’t get bonds, and coming up with $15 million to stick into an account isn’t feasible for a company our size,” she said.

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Hundreds of bankruptcies

In the past seven years, more than 260 oil and gas operators have filed for bankruptcy, according to an industry report cited by county planners.

The list of bankruptcies include California Resources Corp., which was considered one of the state’s major oil and gas producers, and operators of Rincon Island off Ventura County and the nearby Platform Holly. The state recovered just $32 million in bonds to plug and properly abandon the offshore wells on Rincon Island and Holly. But that was just a fraction of the estimated price tag of more than $100 million.

CRC sold its Ventura County oil and gas operations to CalNRG in late 2021.

The county’s proposed bonds could fill a gap left by state regulators, said Haley Ehlers, associate executive director of Climate First: Replacing Oil & Gas, a local conservation group.

“The county should be doing all that they can to protect not only themselves financially and the taxpayers here, but also our environment,” she said.

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