Bill to Require Bond for Plugging and Abandoning Wells Signed into Law

Governor Gavin Newsom signed into law AB 1167, which requires individuals or companies to take greater upfront financial responsibility for plugging and abandoning wells. Under the law, the full cost of plugging and abandoning wells must be financially assured before the California Geologic Energy Management Division (CalGEM) can approve the transfer of a well.

The law requires individuals or companies who acquire the right to operate a well or production facility to file an individual indemnity bond for the well or production facility or a blanket indemnity bond for multiple wells with CalGEM. The acquisition can be through purchase, transfer, assignment, conveyance, exchange, or other disposition.

The amount of the bond must cover the full cost of plugging and abandonment, decommissioning of the facility, and site restoration. The law requires the person to first submit a request to the supervisor for a determination of the amount of the bond required before completing the acquisition.

The law prohibits the completion of the acquisition until the determination is received and the bond has been filed with the supervisor. It also authorizes the supervisor to approve other means of financial assurance in lieu of the individual indemnity bond or the blanket indemnity bond.

The law requires CalGEM to maintain records of all transfers recognized as complete, including all materials required to be provided by the new operator, and to make those records available on its internet website.

Natural gas storage wells and oil and gas wells that produced at least 15 barrels of oil or 60,000 cubic feet of natural gas daily on average, as specified, are exempt from the bonding requirement.

Newsom noted in a signing statement that the law helps to “minimize the risk that the state will be liable for costs of plugging and abandonment of orphaned and abandoned oil and gas wells where operators failed to provide sufficient financial assurances.”

He cautioned, however, that “increasing the financial assurances required for oil and gas well transfers also potentially creates risk of current oil and gas well operators deserting these hazardous wells.” He noted the need to revise the legislation to address this risk.

CalGEM reports that there are more than 38,000 known idle wells in California. An idle well is a well that has not been used for two years or more and has not yet been properly plugged and abandoned. There are also more than 5,300 orphan wells with no responsible solvent operator to remediate the well and the associated production facilities. Wells are costly to plug, and abandoned wells that are not properly closed may leak methane or other contaminants.