The State of California has an substantial inventory of orphaned oil wells, and in some cases, these abandoned wells are causing obstacles for developers. The recent California Assembly bill 2729 is now imposing new requirements operators of these wells regarding the management and elimination of long-term idle wells. To find out more about this issue, we sat down with Steve Farkas, a principal in the energy, land Use and environmental law practice groups at Meyers Nave, to talk about the state's inventory of idle oil wells, how it is impacting developers and how the new assembly bill will have an impact.

GlobeSt.com: Set the stage for me a little bit here by telling me about the state's inventory of abandoned wells.

Steve Farkas: Oil production in California has been ongoing for over 100 years. In that time, hundreds of thousands of oil wells have been drilled by various types of well owners and/or operators, from individual homeowners to multinational corporations. Oil wells in California are classified into four categories; (1) An active well is currently producing product; (2) An idle well is currently not producing, but can theoretically restart production at any time; (3) An abandoned well is no longer in use and has undergone a procedure that plugs the well with cement, which is intended to serve as permanent closure of the well; and (4) An orphan well, whether idle or abandoned, is one for which there is no identified entity that has legal or financial responsibility for the status of the well.. Oil wells in California are regulated by the Division of Oil Gas and Geothermal Resources of the California Department of Conservation (DOGGR). According to DOGGR, there are records for about 250,000 wells in California, including 50,000 currently in production and 50,000 considered idle. In addition to regulatory oversight, DOGGR is responsible for the costs of properly abandoning orphan wells. Since 1977, DOGGR has plugged more than 1350 orphan wells at a cost of $27 million. Until recent legislative changes, discussed below, DOGGR was only authorized to spend $1 million a year on orphan well abandonments.

GlobeSt.com: Why are there so many of these wells in Los Angeles?

Farkas: During the early part of the 20th century, the Los Angeles Basin produced almost 25% of the world's oil. At that time, there were no regulatory requirements prescribing methods of abandonment, so well owners and operators abandoned oil wells any way they thought appropriate. Most wells were buried and had structures, such as commercial buildings, housing developments and schools built above them. Many structures in Los Angeles are located over wells that were abandoned many years ago, and most have not experienced incidents such as gas leaks. Recently DOGGR did spend $367,000 abandoning two orphaned wells, drilled as early as 1913, in the Granite Hill neighborhood of Echo Park when these abandoned wells began leaking methane. According to DOGGR, there are 5131 known oil and gas wells in the City of Los Angeles, 800 of which are active and 3149 are abandoned. Almost 900 of these wells are buried, the vast majority of which are classified as orphaned.

GlobeSt.com: How are regulations regarding the management of these wells changing?

Farkas: As noted, responsibility for the management of oil wells, whether active, idled, orphaned or abandoned, is the responsibility of the state Department of Conservation. Regulations addressing construction near known oil and gas wells is locally regulated with each City having its own requirements regarding matters such as setbacks, testing, and possible venting requirements. In Los Angeles, the LA Fire Code has extensive requirements for construction near known wells, and the zoning requirements of most Southern California jurisdictions address safety issues related to known oil wells before and during construction. With so many jurisdictions involved, requirements differ from city to city, but if an unknown orphan well or a leaking abandoned well is discovered, responsibility is vested in DOGGR. California recently passed AB 2729 which instructed DOGGR to better regulate long-term idle wells (wells that have sit idle for more than 8 years). Effective January 1, 2018, oil well operators must submit to DOGGR an Idle Well Management Plan (IWMP) or pay annual fees for each idle well. The yearly fee for an idled well can be as great as $1500 for each well if the well has been idle for 20 years or longer. The IWMP requires operators to eliminate a certain number of idle wells each year depending on the total number of idle wells under the operator's control. For example, operators with 1251 or more idle wells are required to eliminate 6% of the long-term idle wells each year. The new legislation also authorizes DOGGR to spend $3 million a year to be used to abandon orphan wells.

GlobeSt.com: What was the impetus for this change in regulation?

Farkas: The impetus for this change is to prevent long-term idle wells from becoming orphan wells that the state must both manage and pay to abandon. Operators often list wells as idled to avoid the expense of abandonment, and the longer a well remains idle the less likely it will be placed back into production. To avoid the situation where a long-term idle well becomes orphaned and a ward of the state, the new laws require current operators to address and eliminate a portion of its idled wells now and on an ongoing basis.

GlobeSt.com: How have these wells created challenges for developers?

Farkas: Many older abandoned wells in Los Angeles are located under existing structures. Information on the location of these known wells can be found on maps supplied by DOGGR. Developers that plan to construct on sites that contain known abandoned wells must decide whether to leave the well as is, or investigate the status and integrity of the method of abandonment in the course of construction. It is a time, cost and potential liability decision. Discovering a previously unknown well in the course of construction can cause a work stoppage while the status of the well is evaluated. Further delays can occur if additional work is required to safely secure or plug the orphan well, especially if the state has to abandon the well if no responsible party is located.

GlobeSt.com: What is your advice to developers dealing with an abandoned well on their property?

Farkas: First and foremost, developers must comply with local zoning code and fire code provisions that address construction near an existing well, including set back requirements and testing for methane and other gases to decide if some type of vapor barrier should be part of any development. Developers should be proactive in investigating any wells located on the property, even if the abandoned well is underground, plugged in some fashion and there are no recorded incidents with the well. This is especially true if housing, schools or similar structures are planned for the location. Many oil wells were abandoned almost 100 years ago using methods that were never subject to approval by an oversight entity. In fact, on the map of wells located in the City of Los Angeles, buried wells are noted with a “B” accompanied by the notation “Older Well, not abandoned to today's standards, location of well may be approximate.”

GlobeSt.com: Why has it been the state and local governments goal to reduce this stock of wells, and how are they achieving that goal?

Farkas: It is the goal of state and local governments to reduce the number of abandoned and idled wells and to better manage those that exist. The abandonment of a well can cost anywhere from $50,000 to $250,000 per well. The two wells recently abandoned in the Echo Park area of Los Angeles cost the state about $375,000. DOGGR has recently been given the authority to spend $3 million a year over the next few years to abandon orphaned idle wells, but such an amount is greatly insufficient to address all such wells in the state. The large inventory of orphaned wells is partly the result of weak or non-existent regulation of prior oil operators that were able to idle wells until the entity responsible for the well disappeared or went bankrupt, leaving the state with the abandonment responsibility. The state's current effort to address long-term idle wells with current operators is designed to force the abandonment of wells before these wells become the state's responsibility. Although the current legislative effort will mean fewer wells will be classified as idled , it does very little to address the back log of orphaned, idled and abandoned wells that still need the state's attention, especially in cities with dense populations such as Los Angeles.

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CA Has a Problem With Abandoned Wells

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