When Long Beach’s more than 2,400 active and idle oil production and injection wells are tapped out, it will cost over a billion dollars to properly cap and abandon them. The state is required to pay the lion’s share, but its dedicated fund is currently capped at less than one-third of what the state will owe.
A bill proposed by state Assemblymember Patrick O’Donnell that would eliminate the fund’s cap, however, passed the state Senate on Tuesday and is on its way to Gov. Gavin Newsom’s desk for consideration.
“Our community and environment must be protected when it comes time to safely close down the Tideland oil wells,” O’Donnell said in a statement Wednesday. “Long Beach and its residents should not be left holding the bag to pay for the cleanup costs when that inevitable time comes.”
Within the next 10-15 years, the state will have to pay an estimated $967 million toward safely abandoning oil wells in Long Beach, according to Bob Dowell, the director of the Long Beach Energy Resources Department. The city, meanwhile, will pay $133.3 million and private owners will pay $116 million, Dowell said.
The total cost of abandonment is nearly $1.22 billion.
The state’s Oil Trust Fund, which was established in 2005 to address well abandonment in the Long Beach Tidelands, has been capped at $300 million since its inception. The fund has been stagnant for eight years, according to O’Donnell, while abandonment draws ever nearer.
Several attempts at setting aside additional funds have failed, O’Donnell said in an email to the Business Journal on Wednesday.
If signed by Newsom, Assembly Bill 353 would remove the fund cap.
“This is the furthest we’ve come,” he said. “This is a positive step especially given the 2021 Orange County oil spill that highlighted the importance of this issue.”
The bill was first proposed by O’Donnell on Jan. 10, and it passed the state Assembly two weeks later on Jan. 24.
Through the end of fiscal year 2021, the city had saved $59 million to put toward abandonment, according to an April presentation to the City Council. Dowell said that, because oil prices are higher than what staff had budgeted for, he expects to add an additional $10 million to the fund this fiscal year.
Dowell praised O’Donnell’s bill, saying that he could not understand why previous attempts had failed despite state officials’ knowledge of the impending expenses.
“[The bill] ensures funding while revenues are still being realized to cover their responsibility,” Dowell said. “It assures our partner in this, the state, is moving in the same direction we are.”
In addition to its portion of the abandonment funding, the city also will pay to mitigate subsidence, which is the gradual lowering of the earth’s surface due to oil or gas extraction. To counteract subsidence, water will be injected into the reservoir area for an additional 5-15 years after the wells are decommissioned, according to a staff report.
The city’s subsidence liability is about $180 million, which is already set aside, Dowell said.
The city is in the process of determining how best to phase out its oil production economically by 2035, which is when the city’s wells are expected to become unviable—meaning they cost more to operate than they generate—due to the depletion of the oil field.
The city has set the 2035 deadline to have its abandonment funds in order, but Dowell said he is not sure if the state has a similar goal in mind.
O’Donnell, for his part, is imploring Newsom to sign the bill to ensure Long Beach and its coast are protected.
“I encourage the governor to sign this bill,” O’Donnell said in a statement, “and continue protecting our environment around Long Beach and its Tidelands by ensuring enough money is set aside to safely close down the wells when oil operations end.”