The Impact of California’s Orphan Well Prevention Act on the transfer of oil well cleanup liabilities

California’s Assembly Bill No. AB 1167 (AB 1167) required full-cost financial assurance upon the transfer of low-producing oil wells. The result has been to curtail the transfer of low-producing wells that likely posed greater risk of operator defaults to the State of California. Comparing transfers prior to the bill and after its implementation reveal a stark contrast – from over 1,300 wells in the first half of 2023, to just six wells in 2024.  

The wells transferred prior to AB 1167 were low-producing and sat on a knife’s edge between being reworked or plugged. Around 60% of the wells transferred prior to AB 1167 coming into effect were either “idle” or “active” but not producing oil or gas. Additionally, the transferred wells were approximately 32% less productive than the transferor’s aggregate production. 

While AB 1167 has effectively stopped transfers that imposed greater risk on the state, it has not resulted in additional financial assurance for California’s low-producing wells, because overall bonding for low-producing wells retained by current operators is low.  

Having addressed the transfer problem, the State would be wise to consider measures increasing the financial assurance for low-producing wells held by current operators. This might include:  

• Requiring savings through sinking fund mechanisms. 
• Eliminating blanket bonding. 
• Using other liability mechanisms to ensure that there are responsible actors with the financial capacity to plug the wells.  

Doing this will help shield the risk that industry’s obligation to plug over 125,000 wells in California does not come at the taxpayer’s expense.