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Orphan Wells in California: an Initial Assessment of the State’S Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells

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Orphan Wells in California: an Initial Assessment of the State’S Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells Orphan Wells in California: An Initial Assessment of the State’s Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells An Emerging Topic Report prepared by the California Council on Science and Technology A nonpartisan, nonprofit organization established via the California State Legislature — making California’s policies stronger with science since 1988. Orphan Wells in California: An Initial Assessment of the State’s Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells An Independent Review of Scientific & Technical Information Judson Boomhower, PhD University of California, San Diego Lead Author Mikel Shybut, PhD California Council on Science and Technology Author and Project Manager M. Daniel DeCillis, PhD California Council on Science and Technology Author Terence Thorn JKM Consulting Steering Committee Chair Sarah E. Brady, PhD California Council on Science and Technology Project Director Amber J. Mace, PhD California Council on Science and Technology Interim Executive Director November 2018 Acknowledgments This report has been prepared by the California Council on Science and Technology (CCST) with funding from the California Department of Conservation, Division of Oil, Gas, and Geothermal Resources. Copyright Copyright 2018 by the California Council on Science and Technology ISBN Number: 1-930117-92-2 Orphan Wells in California: An Initial Assessment of the State’s Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells About CCST The California Council on Science and Technology is a nonpartisan, nonprofit organization established via the California State Legislature in 1988. CCST responds to the Governor, the Legislature, and other State entities who request independent assessment of public policy issues affecting the State of California relating to science and technology. CCST engages leading experts in science and technology to advise state policymakers — ensuring that California policy is strengthened and informed by scientific knowledge, research, and innovation. Note The California Council on Science and Technology (CCST) has made every reasonable effort to assure the accuracy of the information in this publication. However, the contents of this publication are subject to changes, omissions, and errors, and CCST does not accept responsibility for any inaccuracies that may occur. For questions or comments on this publication contact: California Council on Science and Technology 1130 K Street, Suite 280 Sacramento, CA 95814 916-492-0996 [email protected] www.ccst.us Layout by A Graphic Advantage! 3901 Carter Street #2, Riverside, CA 92501 www.agraphicadvantage.com Table of Contents Table of Contents Summary ....................................................................................................................................... ix Findings, Conclusions, and Recommendations ................................................................... xi CCST Introduction .................................................................................................................... xvii Chapter 1: Background ............................................................................................................... 1 From idle to orphan .................................................................................................. 3 Recent offshore cases in California: Rincon Island and Platform Holly ....................... 4 The decommissioning of onshore wells ..................................................................... 5 Chapter 2: Relevant Laws and Regulations Governing Oil and Gas Wells in California .............................................................................................................................. 7 The operation of oil and gas wells ............................................................................. 7 Bonding requirements .............................................................................................. 7 Offshore wells ........................................................................................................... 9 Idle well fees and management ................................................................................. 9 Idle well testing and management requirements ..................................................... 11 District discretionary authority ............................................................................... 11 Chapter 3: Quantifying Potential Oil and Gas Well Liabilities in California ................ 13 Data and descriptive statistics ................................................................................. 13 Results .................................................................................................................... 15 Identifying potential orphan wells .....................................................................15 Potential costs faced by the state ........................................................................20 Per-well plugging costs ......................................................................................21 i Table of Contents Available bond funds to offset these costs ............................................................24 Idle well fees and idle well management plans ....................................................26 Do plugging and abandonment requirements reduce option value from potential future production? .............................................................................27 Overall summary of potential orphan well costs .................................................27 Chapter 4: The Policies and Practices of Plugging and Decommissioning in Other States and Regions .............................................................................................. 31 Regulation overview: California in comparison with other states and regions .......... 31 Financial assurance ..........................................................................................32 Idle well management and regulation ................................................................35 Plugging and restoration regulations and procedures .........................................36 Notification, approval, and inspection requirements ..........................................36 Conclusion ................................................................................................................................... 39 References ................................................................................................................................... 43 Glossary ........................................................................................................................................ 45 Appendix A: Additional Background ..................................................................................... 47 A1. Select history of bonding requirements in California ......................................... 47 Appendix B: Additional Results ............................................................................................. 48 B1. Alternative rules for identifying orphan wells .................................................... 48 B2. Probability of restarting production .................................................................. 50 B3. Relationship between plugging costs and imputed well depth ........................... 52 Appendix C: Construction of the Dataset ............................................................................ 53 Appendix D: CCST Study Team ................................................................................................ 55 Appendix E: Expert Oversight and Review .......................................................................... 61 Appendix F: CCST Study Process ............................................................................................ 62 Appendix G: Acknowledgements ........................................................................................... 67 ii List of Figures List of Figures Figure 1. Typical well life cycle in California compared with the orphan well cycle ............ 2 Figure 2. Average production by age of well and decade drilled. ...................................... 15 Figure 3. Statewide map of potential orphan and other wells .......................................... 19 Figure 4. Detailed map of Southern California ................................................................ 20 Figure 5. Well-level plugging costs by district .................................................................. 22 Figure 6. Variation in plugging and abandonment costs .................................................. 23 Figure 7. Available bond funds per well, by size of operator. ............................................ 25 Figure 8. Alternative assumptions for orphan well risk assessment .................................. 49 Figure 9. Historical probability of restarting production after a given idle interval .......... 51 Figure 10. Relationship between plugging costs and imputed well depth......................... 52 iii List of Tables List of Tables Table 1. Individual bonds .................................................................................................. 8 Table 2. Blanket bonds ...................................................................................................... 9 Table 3. Idle well fees ...................................................................................................... 10 Table 4. Idle Well Management
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