CRC Play To Buy Aera Is Way To Avoid Plugging Idle Wells, Extending Life Of Depleted Oil Fields Via Unproven Technology, Say Consumer Watchdog and FrackTracker Alliance

LOS ANGELES, Feb. 7, 2024 /PRNewswire/ -- Oil giant California Resources Corp's purchase of Aera Energy for just half the price it fetched two years ago is a ploy for Aera to avoid plugging very low producing wells, and for California Resources to take advantage of the state's reliance on unproven carbon capture technology to extend the lives of oil producers, Consumer Watchdog and FracTracker Alliance said today. 

The purchase of Aera brings CRC's count of idle wells producing no oil from about 6,700 up to nearly 16,000 wells. The two companies avoid the costs of plugging them because the state charges very little in fines. On average, these producers are pulling about 3 barrels of oil per day per well from unplugged wells as they scrape the bottom of the barrel of available oil.

An oil well can be financially self-sustaining by producing 2 barrels per day. The real play appears to be that CRC wants Aera's oil fields as a potential site to store carbon from unproven carbon capture programs. 

"CRC has been a sponge for oil companies divesting low producing oil and gas wells in California and as a result the company has already undergone chapter 11 reorganization," said Kyle Ferrar, Western Program Coordinator for FracTracker Alliance. "FracTracker research shows that average daily per well production for Aera is very low and it will be difficult for CRC to generate profit off of these wells to properly plug them, much less remediate the environmental contamination of Aera's oil fields." 

"CRC and Aera are rearranging the deck chairs on the Titanic," Consumer Advocate Liza Tucker said. " Unfortunately, carbon capture and storage is a false solution to transitioning off of oil and gas. Compressed carbon injected into depleted wells and stored in underground reservoirs risks leaks into air and groundwater, and potentially catastrophic effects as well. The technology is of limited value because of its high costs, energy intensiveness and technical challenges."

In addition, under AB 1167 (Carrillo), a recently passed law, oil companies buying wells must post bonding up front to pay for the costs of plugging wells at the end of their lives. 

"The state of California must immediately jump in before allowing this transaction to be final and require California Resources to put up the hundreds of millions of dollars in bonding needed to acquire Aera's wells so that consumers are not left holding the bag on their eventual plugging," said Tucker. "The fact that Aera just sold for less than half its previous sale price shows the company's well plugging and remediation debts are likely much higher than previously considered." 

Ferrar added: "It is vital that CalGEM requires proper bonding amounts to adequately cover all plugging and remediation costs associated with not just plugging each well, but also decommissioning of all oil field pipelines, storage tanks, and other infrastructure. The state of California also needs to avoid extending the lifespan of the toxic oil fields that California Resources plans to use for carbon storage."

According to the Department of Conservation and its California Geologic Energy Management Division, the cost to plug wells in various regions of the state vary from as low as $87,000 per onshore well to as much as $923,000 per well in Southern California due to its highly urban environment and associated costs for operation. This does not include environmental remediation.

CRC launched its TerraVault in 2021, a service that offers the capture, transport, and storage of carbon dioxide for industrial customers to inject into depleted undergound oil reservoirs. 

Aera Energy was a joint venture between Exxon and Shell before the two majors offloaded the bad assets to IKAV, an international asset management group based in Europe and Canada Pension Plan Investment Board that purchased Aera for about double its current sale price. At the time, the acquirers escaped having to put up the bonding to acquire the wells. The state never required the two oil giants to put up the money to cover full plugging and remediation of Aera's wells.

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SOURCE Consumer Watchdog