California Regulators Decline to Enforce New Orphan Well Law in Major Oil Merger

Imagine selling a house with a cracked foundation and telling the buyer, and the city inspector, that nothing about the property has actually changed hands. That's roughly the legal argument California regulators accepted when California Resources Corporation (CRC) completed its acquisition of Aera Energy on July 1, creating the state's largest onshore oil producer. The problem is that the "house" in this case is thousands of aging oil wells, many of them idle, sitting atop communities in Kern County and beyond, with cleanup costs the industry increasingly can't afford.

At stake is a law called AB 1167, signed by Governor Gavin Newsom in October 2023 after a hard-fought legislative battle. The statute was designed to close a well-known loophole in the oil industry's playbook: selling off unprofitable wells to companies that quietly go bankrupt, leaving the public to pay for plugging and cleanup. Under AB 1167, any company transferring idle or low-producing wells must first post a bond large enough to cover the full cost of safely shutting them down. It sounds like basic consumer protection. Buy a car with a known defect, and someone has to set aside the money to fix it before the keys change hands.

But when CRC announced its plan to acquire Aera in February, the merger became the law's first real test, and critics say state regulators failed it. Aera is California's second-largest holder of idle wells, trailing only Chevron, with more than 9,200 wells classified as idle according to DeSmog's review of public CalGEM data. Fully bonding those wells would cost at least $800 million, based on the state's average plugging cost of $87,000 per site in the central region where most of Aera's wells sit. Add in Aera's thousands of low-producing wells, those pumping below the state's 15-barrel daily threshold, and the bonding requirement climbs past $1 billion. For comparison, CRC valued all of Aera at just $2.1 billion in the deal.

State Assemblymember Wendy Carrillo, who authored AB 1167, says the law's intent couldn't be plainer. "Any oil company that drills in California must also be responsible for cleaning and capping that oil well once it no longer produces, and in the event wells are sold, the new operator must provide the financial assurance via a bond to ensure the wells are not left abandoned," she wrote in emailed comments. For Carrillo and a coalition of environmental advocates who pushed the bill through over fierce industry opposition, the CRC-Aera merger is exactly the scenario the law was written to catch.

A Legal Loophole Hiding in Plain Sight

Documents obtained by the Natural Resources Defense Council through a public records request, and shared with DeSmog, show CRC worked behind the scenes well before the deal closed to argue that AB 1167 simply didn't apply. In a February 15 email to California's Department of Conservation, CRC's assistant general counsel described the merger in terms that mattered enormously under the statute, claiming there would be "no change in the organizational structure of Aera Energy LLC or its operating subsidiaries as a result of this transaction." In plain terms, the argument was that because Aera's corporate shell stayed intact, the wells technically weren't changing hands, even though a different company now controlled them entirely.

Meanwhile, Aera spent more than $67,000 lobbying in the first quarter of 2024 alone, including on topics tied explicitly to "1167 implementation," according to public filings.

As the merger neared completion, lawmakers tried to head off the outcome they feared. On June 11, Carrillo and nine other legislators wrote to CalGEM supervisor Doug Ito, urging him to enforce the bonding requirement. "This merger is precisely the sort of transaction that AB 1167 was designed to address," they wrote, noting the law's language "triggers the full-cost bonding requirement upon any type of transfer." Ten days later, with no response, six environmental groups sent a follow-up letter copying Gov. Newsom's senior climate advisor, warning that "the oil industry is attempting to evade the critical protections in AB 1167."

CalDOC director David Shabazian finally responded on June 27, and it was not the answer advocates wanted. The agency concluded that AB 1167 simply didn't apply, reasoning that "only ownership of Aera LLC is being transferred, not any of Aera's assets." He also noted the law doesn't specifically mention stock transfers, despite its broad language covering transfers "by any other disposition."

Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity, called the decision "a terrible dereliction of duty" and dismissed the stock-transfer rationale as "a nonsensical statement." Her read is straightforward: "It just couldn't be any more clear that CRC does, in fact, control Aera's wells. Therefore, the state has to require full bonding."

The stakes go beyond legal interpretation. Combined, CRC now controls roughly 16,000 idle wells, about 40 percent of all idle wells statewide, a concentration of risk that advocates call "staggering" given how fast California's oil production is shrinking. A 2023 Carbon Tracker report found the state's remaining oil reserves would generate $6.3 billion in future revenue, while the cost of safely plugging all unplugged wells runs at least $13 billion. That $7 billion gap won't close itself, and public funds only cover about two percent of total plugging costs nationally, according to ProPublica's analysis.

Adding to the unease, CRC itself filed for bankruptcy in 2020, wiping out $5 billion in debt inherited from its former parent company, Occidental Petroleum. In a July 8 letter signed by 77 environmental and public health groups, advocates pointed to that history directly: "CRC has already filed for bankruptcy once... CalGEM should not allow such a financially precarious company to control 40 percent of the wells in the state."

Why It Matters

Unplugged wells aren't just an accounting problem. CalGEM's own 2023 legislative report warned that improperly abandoned wells "can contaminate waterways and soil, serve as a source of climate and air pollutants, and can present physical hazards to people and wildlife." Methane leaks and benzene exposure are among the top health concerns for nearby communities, many of them in Kern County, where Aera's wells are concentrated. When regulators decline to enforce bonding requirements, the risk doesn't disappear. It simply shifts from the company's balance sheet to the public's air, water, and tax dollars, exactly the outcome AB 1167 was written to prevent.