Statewide financial assurance covers less than 1% of upstream decommissioning costs

New York, May 18 – California’s oil sector sits on at least $13.2 billion in onshore decommissioning costs, while researchers find California oil companies’ projected profits will total $6.3 billion. Based on this analysis, if all future profits from onshore operations were redirected to decommissioning, the remaining clean-up costs of at least $6.9 billion would fall by default to the taxpayers of the state of California

This is a key finding in the report There Will Be Blood: Decommissioning California’s Oil Fields issued by the Carbon Tracker Initiative today.

Several sources of funds for decommissioning do exist, but the total falls far short of the money required. Oil and gas companies have provided $106 million in financial assurance for onshore wells, less than one percent of their overall closure and clean-up costs.  An estimated $265 million in state and federal taxpayer money has been allocated to pay for costs inherited from defunct oil companies.  Taxpayers are on the hook for much more than industry has set aside, and the remaining unfunded liability is dozens of times larger than these existing funds.

“The oil industry may have decades left to produce in parts of California, but thin margins in late life generate lower and more fragile profits,” said Dwayne Purvis, the report’ author and Founder and Principal Advisor of Purvis Energy Advisors. “Even before recent political opposition to the industry, drilling and active well counts were declining.  The industry and the public it serves have a problem they cannot drill their way out of.”

California’s oil production has been falling since the mid 1980s, but decline has accelerated in recent years, with production rates dropping 42% since 2014. Statewide 39% of unplugged wells stand idle, and the remaining producers are systematically close to the economic limit of their production. Nearly half of the idle wells have stood inactive for at least 15 years. Statewide, only two land drilling rigs are active and only one of those was drilling for oil.

The report highlights how companies could have set funds aside to cover these costs and idled wells could have been closed. However, regulations in California provided insufficient financial assurance and allowed idle wells to sit unplugged.

“We were surprised by the results,” said Rob Schuwerk, Executive Director of Carbon Tracker. “This is a wake up call for Californians; it shows that if you committed every penny of future profits from California’s upstream oil and gas production to plugging and reclamation, the state will likely be billions short.  But today, none of that money is earmarked for decommissioning.  The report also shows that delay is not the state’s friend—every year this is not addressed there will be a smaller pool of future cash flows available to fund decommissioning.”

To find out the level of decommissioning liabilities researchers used public data including cost models developed by CalGEMs.  Using prior published estimates and consistent with actual costs found in the public record they quantified downhole plugging costs of at least $7.5 billion.  For the first time in the public record, researchers quantified the costs of $5.7 billion to decommission upstream surface sites and facilities. The analysis also adjusts historic costs for recent cost inflation.

In the base analysis, a large portion of infrastructure lacking cost data was excluded.  To account for excluded costs, they compared figures to public estimates and extrapolated to a total of over $21 billion for all decommissioning costs.

Researchers estimated future proceeds using cash flow analysis, the same method used to value assets within the oil industry.  They performed the calculations using high-level summaries and generalized inputs and relied on historical records of actual production, public markets for future commodity prices, and well-constrained figures for many other inputs.  As with decommissioning costs, researchers compared cash flow projections over decades of future production against public figures to test their validity.

The report continues Carbon Tracker’s work examining the cost of closing and cleaning up oil infrastructure in the US.  Once the embargo lifts the report can be downloaded here:


About Carbon Tracker

The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research to date on the carbon bubble, unburnable carbon, and stranded assets has begun a new debate on how to align the financial system with the energy transition to a low carbon future.