Key Takeaways
California continues to pile onerous legislation onto its oil and gas industry.
California Governor Gavin Newsom signed 3 bills designed to empower local communities to restrict wells, force companies to plug idle wells that could prove fruitful in the future, and penalize small oil producers in Inglewood Oil Field.
These actions come after other moves to phase out fracking and cease oil extraction by 2045.
California was once a powerhouse state for oil and gas production and is rich in resources. Still, it has slipped to 8th among U.S. states and now imports 75 percent of its oil from foreign countries, that do not adhere to high U.S. standards of safety and environmental performance.
These actions are expected to further reduce California’s standing as an energy producer and make it more dependent upon oil imports, which is one reason why Californians pay much more than people in other states for their energy.
On September 25, California Governor Gavin Newsom enacted three new laws that empower communities to limit oil drilling and facilitate the capping of abandoned wells. These laws grant local authorities the power to impose restrictions on oil and gas activities, mandate the closure of thousands of dormant wells within the next decade, and impose penalties on operators of low-output oil and gas wells in the Inglewood Oil Field. California’s campaign against oil reached a critical point in 2021 when Governor Newsom announced a goal to cease the approval of new fracking permits by the end of 2024, aiming for a complete halt to oil extraction in the state by 2045. Earlier this year, California also introduced Senate Bill 1137, which bars new oil wells from being established within 3,200 feet of schools, homes, daycare centers, parks, and businesses. The latest legislation is designed to further advance the state’s efforts against the oil industry and provide local governments with clearer authority to create their own oil-related regulations. This represents a significant shift for California, which has traditionally been rich in oil but has moved from supporting the industry to a more adversarial stance.
Although California ranks as the 8th largest oil producer, down from 7th place last year, stringent legislation and regulations surrounding oil drilling and refinery operations are driving oil companies to exit the state. Chevron, the second-largest oil company in the U.S., is planning to move its headquarters from California to Houston, Texas, citing increased regulations and state climate initiatives as the main factors. Chevron has been headquartered in California since 1879. According to CEO Mike Wirth, “we believe California has a number of policies that raise costs, that hurt consumers, that discourage investment and ultimately we think that’s not good for the economy in California and for consumers.” Over the past year, California enacted a law limiting “excess profits” from refiners and has filed lawsuits against major oil companies, including Chevron, accusing them of misleading the public about the climate risks associated with fossil fuels for decades. Additionally, while California imposes corporate income taxes, Texas does not.
The Three Bills
Assembly Bill 3233 authorizes local governments to limit or prohibit oil and gas operations within their jurisdiction, a power previously reserved for the state’s oil and gas supervisor. The law was required because a judge had ruled that a new LA city ordinance intended to phase out oil production could not be enforced since the state, not the city, had jurisdiction over such regulatory decisions. Another piece of legislation, AB 1866, requires oil operators to plug an estimated 40,000 idle oil wells throughout the state over the next decade — with priority given to wells within 3,200 feet of local communities. According to a press release from the office of Assemblymember Gregg Hart, the bill’s author, it would take around 75 to 100 years to plug the majority of California’s idle wells without changes to existing law.
Existing law requires operators to submit an Idle Well Management Plan and plug between 4 and 6 percent of their oldest idle oil wells per year. It also allows operators to have the option to pay $150 per well to avoid submitting a plan. According to the bill sponsor’s news release, the number of idle wells increased from 2018 to 2021 from 29,000 to 38,000 — which, if abandoned by oil operators, could cost upward of $10 billion for the state to plug and remediate. AB 1866 would require the state’s largest oil operators to plug 20 percent of their idle wells this year, and medium and small operators would have to plug 15 percent and 10 percent of their idle wells, respectively. The law will also eliminate the option for oil operators to pay an idle well fee of $150 per well, in some cases, to avoid plugging the wells.
According to Governor Newsom, about 5,000 wells throughout the state have been orphaned with no associated oil company to hold accountable for their plugging. As of last year, more than 2,000 orphaned oil wells have been documented in Los Angeles, Orange, San Bernardino and Riverside counties. California has put aside about $160 million to begin permanently plugging those 5,000 wells — about $60 million of which came from the federal government.
The third law, AB 2716, targets low-oil operations within the Inglewood Oil Field, which is located within the Baldwin Hills Conservancy. That bill will impose a $10,000 monthly penalty against oil companies responsible for those wells until they are permanently plugged. Funds recouped from those penalties, according to Newsom’s office, will pay for community projects, including parks. The Inglewood Oil Field is the largest urban oil field in California, as many people moved into the once-rural area to build homes since its beginning 100 years ago.
Oil Industry Reaction
According to the Western States Petroleum Association (WSPA), the oldest trade association representing the oil industry, “These new laws do nothing to produce more oil here at home and, in fact, cost jobs while forcing us to bring in more oil from overseas.” “Gov. Newsom must rethink his own proposal on refinery maintenance that threatens refinery workers and communities. More mandates won’t lower gas prices or help California families.”
California’s legislation and regulations have already compelled oil companies to import 75 percent of the state’s oil supply, as reported by the WSPA. This shift brings lower environmental standards, increased transportation costs, and higher greenhouse gas emissions. Transporting imported oil adds an extra $5 to $6 per barrel to prices. The trade association emphasizes that idle wells represent “valuable assets that can be brought back into production,” cautioning that their premature closure may increase the state’s dependency on foreign oil. Advanced technologies have successfully returned wells to production in states previously thought to have exhausted their oil and gas reserves, including North Dakota, Pennsylvania, and Texas. “Limiting our ability to produce oil locally means we would depend even more on imported oil,” WSPA said, “which could affect the reliability, sustainability and affordability of our energy supply.” The WSPA also argued that AB 3233 — which gives cities more local power to limit or ban oil production — could create a “fragmented system” and lead to significant legal issues and costs for cities.
Conclusion
California is continuing its war on the oil industry with three new pieces of legislation that give local governments the authority to restrict oil and gas operations, require companies to plug idle wells within the next 10 years, and penalize operators of low-producing oil and gas wells in the Inglewood Oil Field. This is on top of other legislation that set a target to phase out the approval of new oil fracking permits by the end of 2024 and end oil extraction in the state completely by 2045; prohibit new oil wells within 3,200 feet of schools, homes, daycares, parks, and businesses; put limits on “excess profit-making” from refiners; and sued major oil companies, alleging they deceived the public about the climate risks of fossil fuels. On top of that, California has virtually ceased issuing drilling permits to those in the state who want to invest there. These policies serve to increase oil imports into California, which already represent 75 percent of the state’s oil, and whose cost is higher for Californians than oil produced domestically. California’s policies serve to raise costs that hurt consumers and discourage investment, which is not good for its economy or its consumers.
