While approvals for new oil well drilling permits in California dwindled to 73 in 2024–from 2,664 in 2019 when Governor Newsom took office, 2024 ended with oil regulators dropping the ball on requiring adequate amounts of bonding to protect taxpayers from plugging and cleanup in a massive oil acquisition deal, Consumer Watchdog and FracTracker Alliance said today.
Instead, regulators halved the bonding requirement for the California Resources Corp. (CRC) acquisition of Aera Energy to $30 million for one "shared liability" bond instead of considering two bonds totaling a maximum $60 million, via a legal loophole, even though ProPublica reports Aera's well plugging costs start at $1.1 billion.
"We commend the Newsom Administration for dwindling permit approvals," said Consumer Advocate Liza Tucker. "But now that oil drilling is sunsetting, the state is exposing Californians to grave fiscal risk instead of making sure the money is there for oil companies to plug wells and clean up their messes. Exhibit A is the Administration's coddling of CRC and Aera Energy that now make up the biggest onshore oil producer in California. The Newsom Administration reduced the amount of their bonding of wells instead of increasing it."
"CRC has been a sponge for low producing oil and gas wells in California, and the company has already undergone Chapter 11 reorganization," said Kyle Ferrar, Western Program Director at FracTracker Alliance. "Our research shows that average daily per well production for CRC and Aera is unsustainably low, and it will be hard to generate profit from these wells to properly plug them, much less remediate the environmental contamination of Aera's oil fields. It's therefore incredibly vital that California obtains sufficient bonding for these companies."
Governor Newsom signed AB 1167 (Carrillo) into law in 2023, requiring oil and gas well operators to adequately bond wells and production facilities acquired from another company. This bonding with the California Geologic Energy Management Division (CalGEM) under the Department of Conservation (DOC) ensures the eventual plugging and reclamation costs are covered by the operator, not the public, and Newsom was widely praised by environmental advocates for its signing.
Last June, David Shabazian, the then director of the Department of Conservation, refused to honor the law. In a specious letter to the bill's author, Assembly Member Wendy Carrillo, Shabazian stated, "Based on the SEC filings and materials provided to the Department, it is evident that only ownership of Aera Energy LLC is being transferred, not any of Aera's assets."
Carrillo and nine other California lawmakers had written to CalGEM to argue that full bonding of the Aera purchase should be enforced. "The wording triggers the full-cost bonding requirement upon any type of transfer, with a broad array of examples listed ('by purchase, transfer, assignment, conveyance, exchange, or other disposition')," the lawmakers wrote. To date, no attorneys have sued to enforce the law.
Shabazian stepped down after Consumer Watchdog and FracTracker Alliance pointed out Shabazian's undermining of this law and his relationship with Jason Marshall, who spent 28 years at the DOC before going to work for CRC that benefited from Shabazian's questionable decisions on bonding in the CRC/Aera deal.
After the Aera acquisition, CRC now controls more than 38,000 wells—14,000 of them idle. These idle wells now make up about 40% of all idle wells in the state, the most held by any operator. Research shows that 65% of idle wells surveyed in California have measurable leaks of hydrocarbon gases like methane, a major driver of climate change. The effects of climate change have increased the frequency and severity of wildfires in California and around the world. Plugging all the wells would cost at least $4.5 billion, according to the Center for Biological Diversity, NRDC, the Central Environmental Justice Network, and ClientEarth USA. At the very least, CRC should have to maintain a bond of $2.4 billion just to cover Aera's idle and marginally producing wells.
Prior to being acquired, Aera had only $3 million worth of bonding, according to ProPublica. "Instead of following the law and requiring Aera Energy to put up $30 million in bonding for its wells, CalGEM eliminated Aera's $3 million bond," said Ferrar. "CalGEM documents show that now Aera's wells are now covered under the umbrella of CRC's liability sharing agreement with CRC's other subsidiaries, which certainly seems like a change in ownership of assets and asset management."
After acquiring Aera Energy, CRC now has just $30 million in bonding to cover 38,000 wells, ProPublica reported. Regulators assert the entities' assets remained separate, but a regulatory loophole allows the two entities to share liability. "On the one hand, oil regulators say these are two companies and not responsible for full bonding under new laws, on the other hand the companies reduced their bonding requirement by sharing liability as a single entity," said Tucker. "This isn't public protection, it's oil driller protection."
A 2019 law, AB 1057 (Limon), authorizes CalGEM to require operators to provide additional financial security covering reasonable costs of properly plugging and abandoning the operator's wells and decommissioning any infrastructure, but not to exceed $30 million. This can be in the form of a blanket bond for all wells owned.
But the law allows operators to enter a "liability sharing agreement" with other operators and be treated as a single operator, again with an upper limit of $30 million in bonding. "Theoretically, this means that all the members of a group, say in the California Independent Petroleum Association, could enter into such an agreement and only have to put up $30 million in bonding covering wells belonging to 500 crude oil and natural gas producers," said Tucker. "This is a ridiculous loophole that lawmakers must immediately close, in addition to removing the $30 million bonding cap."
CRC itself was spun off from Occidental Petroleum in 2014 to shed California liabilities, and is still headquartered in Los Angeles, where the most devastating wildfires in California history are actively occurring. "For an LA-based company, plugging idle wells to reduce the exacerbation of climate change should be a top priority, but CRC maintains one of the poorest well plugging track records of California's oil majors," said Ferrar. CRC plugged 10% of their idle well portfolio in 2023, Ferrar estimates, based on annual idle well reports to CalGEM as required by AB 2729. Instead of plugging more, CRC spent almost $2.2 million in campaign finance and lobbying in 2024, according to California state lobbying records.
"Other states have the courage that California doesn't," said Tucker. "While California didn't have the nerve to compel the adequate bonding of Aera's wells, Alaska didn't blink when it came to how they handled the sale of BP wells to another oil company," Tucker said.
After oil company bankruptcies hurt Alaska, the state toughened up bonding requirements in acquisition deals. For BP to close a $5.6 billion deal to transfer its oil business to Hilcorp, the Alaska Oil and Gas Conservation Commission that oversees oil and gas activities required BP to maintain $30 million in bonding for its 1,776 wells by 2022 and Hilcorp to put up the same amount for its 1,042 wells by the same deadline. The Department of Natural Resources that develops the state's natural resources enters into financial assurance agreements with companies in which rigorous reviews of financial strength are also conducted on the expected cost to retire all of the oil infrastructure on state lands.
Over the last two years, annual counts of California's new drilling permit approvals have fallen by thousands compared to Newsom's first four years in office. This is the result of exhausted reserves in most regions, and stricter California Energy Management Division (CalGEM) requirements for environmental impact reviews preventing projects without complete environmental impact assessments from moving forward. "The next chapter is all about avoiding a fiscal trainwreck," said Tucker.
CalGEM well permit numbers analyzed by FracTracker Alliance
In 2024, new drilling approvals came to 73, while rework permits came to 1,468. 33 of the permits were issued on federal land controlled by the Bureau of Land Management. CalGEM also signs off on these permits but did a bad job, using an outdated and inadequate BLM environmental review to do so, according to environmental lawyers. Additionally plugging permits decreased by 38% in the fourth quarter of 2024, a stark contrast to the fourth quarter of 2023. (See Figure 2.) Go to Newsomwellwatch.com, operated by Consumer Watchdog and FracTracker Alliance, for more information.