Existing law authorizes the Geologic Energy Management Division in the Department of Conservation to require an operator of an oil and gas well to provide, in addition to specified types of required indemnity bonds, an additional amount of security acceptable to the division based on the divisions evaluation of the risk that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources, as provided. Existing law requires the division to consider specified factors in evaluating the risks that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources. Existing law prohibits this additional security from exceeding the lesser of the divisions estimation of the reasonable costs of properly plugging and abandoning all of the operators wells and decommissioning any attendant production facilities, or $30,000,000. A person who violates or fails to comply with this provision, or any related law concerning oil and gas, is guilty of a crime.

This bill would instead prohibit this additional security from exceeding the lesser of the divisions estimation of the reasonable costs of properly plugging and abandoning all of the operators wells and decommissioning any attendant production facilities, or a maximum amount of additional security based on the total number of active and idle wells under the control of the operator pursuant to a specified schedule, as provided. The bill would prohibit the division from increasing the amount of additional security required of an operator that had an additional security agreement approved by the division as of January 1, 2027, until 5 3 years after the effective date of the agreement, as provided. The bill would explicitly extend these additional security requirements to a person who acquires the right to operate or control a well or production facility, as provided. The bill would establish that compliance with these additional security requirements by either the operator of record or the person who acquires the right to operate or control a well or production facility constitutes compliance for both parties, and would prohibit the division from requiring duplicative security, as provided.

Existing law authorizes the above-described additional amount of security to be an indemnity bond, specified forms of deposit, or any other means of equally effective financial assurance approved by the division, including a demonstration of self-insurance pursuant to a specified process.

This bill would, as a condition of obtaining division approval of self-insurance or a corporate guarantee, require an additional security agreement between the operator and the division that includes, among other things, an enforceable schedule for the plugging and abandonment of wells and decommissioning of production facilities consistent with an operators idle well management plan, as provided. The bill would also require the operator, as part of that additional security agreement, to immediately notify the division if the operator is unable to satisfy the financial criteria, and would make a failure to make this notification a violation subject to civil and criminal penalties, as provided. By expanding the scope of a crime, the bill would impose a state-mandated local program. The bill would also require the division to reevaluate whether self-insurance or a corporate guarantee continues to constitute an equally effective means of financial assurance at least once every 3 years, or upon a material change in the financial condition of the operator or guarantor entity, whichever occurs first. The bill would require an operator approved for self-insurance or a corporate guarantee who the supervisor subsequently determines to be out of compliance with an approved idle well management plan, or specified operators out of compliance with idle well fee requirements, to provide other financial assurance within 90 days of that determination, as provided.

Existing law also requires a person who acquires the right to operate a well or production facility to file with the State Oil and Gas Supervisor an individual indemnity bond or a blanket indemnity bond in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning the facility, and site restoration, as provided. Under existing law, an operator may, in lieu of this bonding requirement and with the written approval of the supervisor, provide the required security through an equally effective means of financial assurance, including specified types of deposits, an irrevocable letter of credit, or a fully funded trust fund, and excluding self-insurance or corporate guarantees, as provided.

This bill would repeal the exclusion of self-insurance or corporate guarantee, as described above. The bill would additionally authorize an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through specified means of financial assurance, including pursuant to the above-described process for obtaining division approval for self-insurance or a corporate guarantee applicable to existing operators, as provided.

This bill would exempt from the above-described requirement to file with the supervisor, upon acquiring the right to operate a well or production facility, an individual indemnity bond or a blanket indemnity bond sufficient to cover all costs of plugging and abandonment, decommissioning the facility, and site restoration, (1) an operator who operator, or a person who acquires the right to operate or control a well or production facility, who has complied with an idle well management plan or fee schedule, and specified reporting requirements, as provided, if the operator of record has provided obtained and maintained additional security approved by the division, as provided, and (2) a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility. facility for purposes of redevelopment, as defined, or to satisfy the above-described obligations of previous operators, as provided. The bill would explicitly state that a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility for the purposes of redevelopment or to satisfy the obligations of previous operators is subject to the state oil and gas laws as an operator, until a determination by the supervisor that the well has been properly plugged and abandoned or the production facilities have been decommissioned, or that additional work related to abandoning the well is not practical or would pose greater environmental or safety risk, as provided. Upon this determination by the supervisor, the bill would require the supervisor to release the bond, and would release the acquiring person from any further obligation or liability for the well or facility. The bill would require a person who, before an acquisition for the sole purpose of plugging and abandoning the well or decommissioning the production facility, was responsible as an owner or operator of the well or production facility and subject to orders related to remediation issued by the supervisor to remain responsible for the well or production facility and any unfunded costs associated with plugging and abandonment of the well or decommissioning of the facility, as provided. The bill would prohibit the use of a well or production facility acquired for the sole purpose of plugging and abandoning the well or decommissioning the production facility from being used for oil or gas production or injection. production, injection, gas storage, or any associated operation. By creating a new crime, the bill would impose a state-mandated local program.

This bill would require a person acquiring the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility, facility for the purpose of redevelopment, before completing the acquisition, to submit to the supervisor a declaration, under penalty of perjury, that the acquisition is for the sole purpose of plugging and abandoning the well or decommissioning the production facility, facility for the purpose of redevelopment, a description of the redevelopment plan, and a plugging and abandoning work plan, as provided. By expanding the scope of the crime of perjury, the bill would impose a state-mandated local program. The bill would require an acquiring person who submits the declaration to commence plugging and abandonment or decommissioning operations within 24 months of the date of acquisition, unless the supervisor determines that a longer period is warranted, as provided. and would authorize the supervisor to grant a 12-month extension, as provided. The bill would authorize require the supervisor to require an acquiring person who fails to commence operations within 24 months within this time period to file financial assurance, as provided. The bill would require a person acquiring the rights to a well or production facility pursuant to these provisions to provide annual updates on the plugging and abandonment work plan. If the supervisor determines that the acquiring person is not capable of plugging the wells within these timeframes, the bill would require the acquiring person to post specified financial assurance and would require the supervisor to notify the previous operator who is responsible for the plugging and abandonment. The bill would establish that no more than 100 wells or associated production facilities may be included, on an annual basis, in this alternative financial security program, as provided.

This bill would, on and after January 1, 2028, and quarterly thereafter, require the division to include, as part of its annual report to the Legislature related to well transfer activity and financial assurance, post on its internet website specified information related to well transfers, wells and production facilities acquired for the sole purpose of plugging and abandoning or decommissioning, and a description of wells located in or within one mile of a disadvantaged community. The bill would require the supervisor and Director of Conservation to annually attend specified legislative hearings to report on well transfer activity, implementation and status of financial assurance for indemnification, and the above-described provisions related to redevelopment of oil and gas wells, and would require the division, on or before January 1, 2032, to prepare and submit a related report to the relevant legislative policy and budget committees in both houses of the Legislature, as provided.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would make the operation of its provisions contingent upon the enactment of AB 2461 of the 202526 Regular Session.

Existing law authorizes the Geologic Energy Management Division in the Department of Conservation to require an operator of an oil and gas well to provide, in addition to specified types of required indemnity bonds, an additional amount of security acceptable to the division based on the divisions evaluation of the risk that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources, as provided. Existing law authorizes this additional amount of security to be an indemnity bond, specified forms of deposit, or any other means of equally effective financial assurance approved by the division, including a demonstration of self-insurance pursuant to a specified process. requires the division to consider specified factors in evaluating the risks that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources. Existing law prohibits this additional security from exceeding the lesser of the divisions estimation of the reasonable costs of properly plugging and abandoning all of the operators wells and decommissioning any attendant production facilities, or $30,000,000. A person who violates or fails to comply with this provision, or any related law concerning oil and gas, is guilty of a crime.

Existing law also requires a person who acquires the right to operate a well or production facility to file with the State Oil and Gas Supervisor an individual indemnity bond or a blanket indemnity bond in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning the facility, and site restoration, as provided. Under existing law, an operator may, in lieu of this bonding requirement and with the written approval of the supervisor, provide the required security through an equally effective means of financial assurance, including specified types of deposits, an irrevocable letter of credit, or a fully funded trust fund, and excluding self-insurance or corporate guarantees, as provided. A person who violates or fails to comply with this provision, or any related law concerning oil and gas, is guilty of a crime.

This bill would repeal the exclusion of self-insurance or corporate guarantee, as described above. The bill would additionally authorize an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through a specified means of financial assurance, including pursuant to the above-described process for obtaining division approval for self-insurance or a corporate guarantee applicable to existing operators, as provided.

This bill would exempt from the above-described requirement to file with the supervisor, upon acquiring the right to operate a well or production facility, an individual indemnity bond or a blanket indemnity bond sufficient to cover all costs of plugging and abandonment, decommissioning the facility, and site restoration, (1) operators an operator who have has provided additional security approved by the division, as provided, and (2) a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility. The bill would explicitly state that a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility is subject to the state oil and gas laws as an operator, until a determination by the supervisor that the well has been properly plugged and abandoned or the production facilities have been decommissioned, or that additional work related to abandoning the well is not practical or would pose greater environmental or safety risk, as provided. Upon this determination by the supervisor, the bill would require the supervisor to release the bond, and would release the acquiring person from any further obligation or liability for the well or facility. The bill would require a person who, before an acquisition for the sole purpose of plugging and abandoning the well or decommissioning the production facility, was responsible as an owner or operator of the well or production facility and subject to orders related to remediation issued by the supervisor to remain responsible for the well or production facility. facility and any unfunded costs associated with plugging and abandonment of the well or decommissioning of the facility, as provided. The bill would prohibit the use of a well or production facility acquired for the sole purpose of plugging and abandoning the well or decommissioning the production facility from being used for oil or gas production or injection. By creating a new crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the Geologic Energy Management Division in the Department of Conservation to require an operator of an oil and gas well to provide, in addition to specified types of required indemnity bonds, an additional amount of security acceptable to the division based on the divisions evaluation of the risk that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources, as provided. Existing law authorizes this additional amount of security to be an indemnity bond, specified forms of deposit, or any other means of equally effective financial assurance approved by the division, including a demonstration of self-insurance pursuant to a specified process.

Existing law requires a person who acquires the right to operate a well or production facility to file with the State Oil and Gas Supervisor an individual indemnity bond or a blanket indemnity bond in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning the facility, and site restoration, as provided. Under existing law, an operator may, in lieu of this bonding requirement and with the written approval of the supervisor, provide the required security through an equally effective means of financial assurance, including specified types of deposits, an irrevocable letter of credit, or a fully funded trust fund, and excluding self-insurance or corporate guarantees, as provided. A person who violates or fails to comply with this provision, or any related law concerning oil and gas, is guilty of a crime.

This bill would repeal the exclusion of self-insurance or corporate guarantee, as described above. The bill would additionally authorize an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through a specified means of financial assurance, as provided.

This bill would exempt from the above-described requirement to file with the supervisor, upon acquiring the right to operate a well or production facility, an individual indemnity bond or a blanket indemnity bond sufficient to cover all costs of plugging and abandonment, decommissioning the facility, and site restoration, (1) operators who have provided additional security approved by the division, as provided, and (2) a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility from the above-described bonding and financial assurance requirements. facility. The bill would explicitly state that a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility is subject to the state oil and gas laws as an operator, until a determination by the supervisor that the well has been properly plugged and abandoned or the production facilities have been decommissioned, or that additional work related to abandoning the well is not practical or would pose greater environmental or safety risk, as provided. Upon this determination by the supervisor, the bill would require the supervisor to release the bond, and would release the acquiring person from any further obligation or liability for the well or facility. The bill would require a person who, before an acquisition for the sole purpose of plugging and abandoning the well or decommissioning the production facility, was responsible as an owner or operator of the well or production facility and subject to orders related to remediation issued by the supervisor to remain responsible for the well or production facility. The bill would prohibit the use of that a well or production facility acquired for the sole purpose of plugging and abandoning the well or decommissioning the production facility from being used for oil or gas production or injection. By creating a new crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the Geologic Energy Management Division in the Department of Conservation to require an operator of an oil and gas well to provide, in addition to specified types of required indemnity bonds, an additional amount of security acceptable to the division based on the divisions evaluation of the risk that the operator will desert its well or wells and the potential threats the operators well or wells pose to life, health, property, and natural resources, as provided. Existing law authorizes this additional amount of security to be an indemnity bond, specified forms of deposit, or any other means of equally effective financial assurance approved by the division, including a demonstration of self-insurance pursuant to a specified process.

Existing law requires a person who acquires the right to operate a well or production facility to file with the State Oil and Gas Supervisor an individual indemnity bond or a blanket indemnity bond in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning the facility, and site restoration, as provided. Under existing law, an operator may, in lieu of this bonding requirement and with the written approval of the supervisor, provide the required security through an equally effective means of financial assurance, including specified types of deposits, an irrevocable letter of credit, or a fully funded trust fund, and excluding self-insurance or corporate guarantees, as provided. A person who violates or fails to comply with this provision, or any related law concerning oil and gas, is guilty of a crime.

This bill would repeal the exclusion of self-insurance or corporate guarantee, as described above. The bill would additionally authorize an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through a specified means of financial assurance, as provided.

This bill would exempt a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility from the above-described bonding and financial assurance requirements. The bill would prohibit the use of that well or production facility for oil or gas production or injection. By creating a new crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

SENATE COMMITTEE ON

Senator Sabrina Cervantes, Chair

2025 - 2026 Regular Session

AB 2716 (Ávila Farías) - Oil and gas: bonding requirements

Bill Summary:

This bill would raise the existing maximum additional financial surety that certain risky oil and gas operators are required to provide to the Geologic Energy Management Division (CalGEM) to $80 million; codify requirements for self-insurance for low risk operators; remove the prohibition on self-insurance or a corporate guarantee for the full bond required upon the transfer, acquisition or other conveyance of a well or production facility; and exempt from the full bond requirement the transfer, acquisition or other conveyance of a well or facility purely for the purpose of plugging-and-abandonment or decommissioning as part of a redevelopment pilot program, among other provisions.

Fiscal Impact:

• The Department of Conservation (DOC), which houses CalGEM, estimates costs of $2.8 million in the first year and $2.6 million ongoing (Oil, Gas, and Geothermal Administrative Fund [OGGAF]) to compile documentation and evidence supporting total liability cost estimates; research and gather operator asset data and perform geologic and engineering work for reports, inspections, and cost estimates; prepare and update state cost estimates for well plugging and abandonment, decommissioning of attendant production facilities, and site remediation; coordinate field inspections on identified transfer wells and production facilities when required; maintain ongoing communications with operators to increase financial assurances; develop notices for additional bonding based on the state cost estimate; process transfers and bonds that meet legislative requirements; and provide broad legal support as maximum bonding limits increase, among other things. (See staff comments for costs related to the contingency on AB 2461.)

Background:

California's oil and gas wells carry an end-of-life liability — plugging and abandonment, decommissioning of attendant production facilities, and site restoration — that state law addresses through indemnity bonds and other financial assurance held by CalGEM. The bond amounts set in statute are generally far below the actual cost of that work, and the gap between the two is the state's potential exposure when an operator deserts its wells.

Plugging costs against bond amounts. Costs estimated under CalGEM's regulatory criteria for plugging and abandoning a well and remediating the site average $142,918 in the Northern District, $100,927 in the Central District, and $256,089 in the Southern District. The statutory individual indemnity bonds are $25,000 for a well less than 10,000 feet deep and $40,000 for a deeper well, and blanket bonds range from $200,000 for 20 to 50 wells to $3 million for more than 10,000 wells. It is implicit in the set bond amounts that sufficient oil and gas will be produced by the well to help pay for the eventual cost of the work. There are approximately 54,585 active and 30,258 idle oil and gas wells in the state, and by multiple estimates the orphan well problem the state faces is already on the order of billions of dollars.

Additional security for risky operators. AB 1057 (Limón, 2019) authorized CalGEM to assess up to an additional $30 million in financial surety based on its determination of the risk that an operator will desert its wells and the threats the wells pose to life, health, property, and natural resources. As of May 4, 2026, CalGEM had collected about $261.5 million from 16 operators representing 77 percent of the state's oil and gas wells, and efforts to implement AB 1057 for additional operators continue. Existing law authorizes an operator to provide the additional security through an indemnity bond, a deposit, or any other equally effective means of financial assurance CalGEM approves, including a letter of credit, a corporate guarantee, a trust fund, or a demonstration of self-insurance — the last only where the operator's detailed financial information demonstrates to CalGEM's satisfaction that its desertion risk is low.

Idle well management. An operator must either pay annual idle well fees for each idle well, on a schedule that rises with the length of idleness, or file an Idle Well Management Plan committing to plug and abandon a share of its idle wells each year; failure to do either is sufficient evidence for a well to be considered legally deserted. AB 1866 (Hart, 2024) accelerated the required plugging-and-abandonment rate in the plans and substantially increased the alternative fees. According to CalGEM's most recent idle well report, for 2023 — predating the AB 1866 reforms — 70 Idle Well Management Plans were approved and 59 operators were in compliance with them; nine operators voluntarily voided their plans that year and CalGEM cancelled the other two.

Full-cost bonding on transfers. AB 1167 (W. Carrillo, 2023) required a person who acquires the right to operate a well or production facility to file a bond sufficient to cover the full cost of plugging and abandonment, decommissioning, and site restoration, and prohibited self-insurance and corporate guarantees as the required surety. The prohibition responds to the risk that, if not closely monitored, an operator's bankruptcy could leave taxpayers liable for cleanup; in the last decade, numerous coal operators went bankrupt while self-insured, leaving mine cleanup costs to taxpayers. In the four years before AB 1167 took effect, CalGEM processed about 3,500 well transfers annually. Since then, fourteen transfers have been proposed, of which three to four were completed.

CalGEM's funding and well abatement sources. CalGEM's regulatory work is supported by OGGAF, and the state is fully reimbursed for program expenditures by annual assessments and fees on the regulated industries. The 2026-27 Budget Act provides $142 million from OGGAF for the division's state operations. Idle well fees are deposited into the Hazardous and Idle-Deserted Well Abatement Fund, continuously appropriated for plugging and abandonment and decommissioning at wells of fee-paying operators, with $1 million in annual expenditures, alongside $1 million from the Oil and Gas Environmental Remediation Account; the 2025-26 budget also recognized $52.8 million in federal Infrastructure Investment and Jobs Act funds for well plugging and abandonment.

Proposed Law:

This bill would:

1. Increase the amount of additional surety from certain operators from $30 million on the following schedule:
2. $45 million/$60 million/$80 million after January 1, 2028/January 1, 2030/January 1, 2032 for operators who have more than 10,000 wells.
3. $35 million/$40 million/$50 million after January 1, 2028/January 1, 2030/January 1, 2032 for operators who have between 4,000 – 10,000 wells.
4. Operators with fewer than 4,000 wells remain at $30 million.
5. Authorize any two or more operators to enter into a liability sharing agreement, under which participating operators are jointly and severally liable for all amounts owed under the oil and gas laws by all other participants, CalGEM treats the participants as a single operator when requiring additional security, and a withdrawing operator remains jointly and severally liable for five years after withdrawal.
6. Require CalGEM, when evaluating the risk that an operator will desert its wells, to additionally consider industrywide financial trends, including those affecting the solvency and creditworthiness of oil and gas operators in California.
7. Provide that any agreement reached for the additional financial surety prior to January 1, 2027 is good for three years and may be raised thereafter, subject to reevaluation for changed circumstances or new information, as provided.
8. Establish explicit requirements for self-insurance as an acceptable method to provide additional financial surety, including an enforceable schedule for plugging-and-abandoning wells and decommissioning production facilities consistent with the operator's Idle Well Management Plan.
9. Prohibit an operator who owns or operates 11 or more idle wells without an Idle Well Management Plan or out of compliance with its Idle Well Management Plan from using self-insurance. Require an operator subsequently determined by the supervisor to be out of compliance with its Idle Well Management Plan — or, for an operator with 10 or fewer idle wells, with either its plan or idle well fee requirements — to provide other financial assurance within 90 days.
10. Require an operator to provide the previous three years of certified reserve reports and financial statements including balance sheet and income statements, as provided.
11. Require the security agreement to include financial criteria the operator is required to satisfy for the duration of the agreement.
12. Require the operator to notify CalGEM if it fails to meet one of the criteria subject to certain penalties if it does not, as provided.
13. Authorize CalGEM to terminate the self-insurance agreement with 180 days notice. Require the operator to provide the financial surety by another method.
14. Authorize a parent company to provide a corporate guarantee. Require CalGEM to establish the criteria for a corporate guaranty agreement.
15. Require the self-insurance guarantee to remain in force until terminated or decommissioning is complete.
16. Require CalGEM to reevaluate the self-insurance or corporate guarantee at least once every three years or upon a material change, as provided.
17. Strike the prohibition on self-insurance and corporate guarantees as an equally effective means of financial assurance for well or production facility sales or transfers.
18. Exempt an operator that already has an additional financial surety from having to provide a full bond amount upon the transfer of a well, conditioned on the operator's consistent compliance with its Idle Well Management Plan — or, for an operator with 10 or fewer idle wells, with either its plan or idle well fee requirements — and with the supervisor's cost estimate reporting schedule, with financial assurance required within 90 days of a determination of noncompliance. Require an operator to update their additional financial surety to reflect the transferred well. Provide 36 months for the operator to fund any additional financial surety required.
19. Exempt a well or production facility acquired solely for plugging-and-abandoning the well or decommissioning the facility, as part of the redevelopment pilot program or in satisfaction of a prior operator's obligations, from the full bonding on transfer requirement. Require individual or blanket bond amounts specified in statute to be provided instead.
20. Prohibit the use of a well or production facility purchased for plugging-and-abandonment or decommissioning from being used for oil or gas production, injection, gas storage, or any associated operation.
21. Require the person acquiring the well or production facility to declare, subject to perjury, that the well or production facility is not going to be used for oil or gas production, and to describe the redevelopment plan, including the zoning status of the property. Require a work plan to be provided that provides for decommissioning to commence within 24 months of the date of acquisition, subject to a 12-month extension the supervisor may grant. Require the supervisor to require financial assurance if the acquiring person fails to commence operations within that period. Require the acquiring person to provide at least annual progress updates, and require the supervisor, upon determining the person is not capable of plugging the wells within the established timeframe, to notify the responsible prior operator and require bonds.
22. Establish a redevelopment pilot program, limited to 100 wells or associated production facilities added annually, and define redevelopment as redeveloping the property to a use unrelated to oil and gas development, production, waste disposal, or associated activity.
23. Require CalGEM, on and after January 1, 2028, to post quarterly on its internet website relevant information related to transfers, as specified; require the Department of Conservation director and the supervisor to report annually at a legislative hearing on well transfer activity, financial assurance implementation, and the redevelopment pilot program; and require a report to the Legislature on or before January 1, 2032, as specified.
24. Provide that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution.
25. Require that both this bill and AB 2461 (Hart) become law or neither does (contingent enactment).

Related Legislation:

AB 2461 (Hart, 2026) would expand the requirement for an operator upon a transfer or sale of an existing oil or gas well and production facility to provide an individual indemnity bond for the full cost of well plugging-and-abandonment, facility decommissioning and site restoration to include a change in control of the operator, as provided. This bill and AB 2461 are contingently enacted: either both become law or neither does.

AB 1866 (Hart, 2024) accelerated the plugging-and-abandonment rate required in Idle Well Management Plans and substantially increased the alternative idle well fees an operator may pay in lieu of a plan.

AB 1167 (W. Carrillo, 2023) required a person who acquires the right to operate a well or production facility to file with the supervisor a bond in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning of the facility, and site restoration, and prohibited the use of self-insurance or a corporate guarantee to provide the required financial surety.

AB 1057 (Limón, 2019) authorized CalGEM to require an operator to provide additional financial security based on CalGEM's evaluation of the risk that the operator will desert its wells and the potential threats the wells pose to life, health, property, and natural resources, up to the lesser of CalGEM's estimate of the reasonable costs to the state of plugging and abandoning all the operator's wells and decommissioning attendant facilities, or $30 million.

SB 551 (Jackson, 2019) authorized CalGEM to develop criteria for operators to use in estimating costs to plug and abandon wells and decommission attendant production facilities, including site remediation, and required each operator to report its total plugging, abandonment, and decommissioning liability to the supervisor on a schedule the supervisor determines.

SB 724 (Lara, 2017) authorized the supervisor, where an operator eliminated more long-term idle wells than its plan required in the prior two years, to deduct the excess from the plan's new requirement; provided that moneys in the Hazardous and Idle-Deserted Well Abatement Fund are continuously appropriated for well plugging and abandonment and the decommissioning of production facilities at wells of fee-paying operators; and expanded existing programs to include the identification, decommissioning, plugging, and abandonment of hazardous and idle-deserted wells and associated facilities.

AB 2729 (Williams, 2016) established a comprehensive framework for the management and remediation of idle wells, including the annual idle well fee schedule and the Idle Well Management Plan alternative.

Staff Comments:

Contingent enactment and combined costs. This bill and AB 2461 (Hart) would be contingently enacted: either both would become law or neither would. DOC notes that because this bill is tied to AB 2461, any costs incurred by that bill would be additive to the costs of this bill. For AB 2461, DOC estimates costs of at least $4 million in the first year and $3.8 million ongoing (OGGAF). Together, DOC estimates the two bills would cost at least $6.8 million in the first year and $6.4 million ongoing, all from OGGAF.

State mandate. Under existing law, a person who violates, fails, neglects, or refuses to comply with requirements of the oil and gas laws, including the bonding requirements, is guilty of a misdemeanor. Because this bill would revise the financial assurance requirements subject to that provision, thereby expanding the scope of a crime, this bill would impose a state-mandated local program. No reimbursement would be required because the only costs a local agency or school district would incur would result from this bill expanding the scope of an existing crime, within the meaning of Section 17556 of the Government Code.

Redevelopment pilot program and potential cost pressures. Wells and production facilities transferred under the redevelopment pilot program would post only the standard statutory bond amounts — $25,000 or $40,000 per well individually, or blanket amounts up to $3 million — rather than financial assurance covering the full costs of plugging and abandonment, decommissioning, and site restoration. Costs estimated under CalGEM's regulatory criteria for plugging and abandoning a well and remediating the site average $100,927 to $256,089 across CalGEM's districts. Should an acquiring person fail to complete the required work, the person responsible as an owner or operator before the acquisition would remain responsible for the well or facility and any unfunded costs. To the extent that both the acquiring person fails to complete the work and the responsible prior operator is unable to fund it, CalGEM could face unknown costs, potentially in the millions of dollars, to plug and abandon those wells and decommission those facilities (OGGAF). The pilot program is limited to 100 wells or associated production facilities annually; should the program be expanded, this cost pressure would be amplified commensurately.

Budget context. The 2026-27 Budget Act includes a $7.5 million one-time reduction pursuant to Public Resources Code Section 3258, which authorized DOC to expend an additional one-time $7.5 million from OGGAF in 2026-27 for plugging and abandoning wells, decommissioning facilities, and site remediation only if there was a dedicated appropriation from a fund other than OGGAF for the same purposes. In the absence of the matching non-OGGAF monies, DOC's additional expenditure authority was removed.

-- END --

SENATE COMMITTEE ON NATURAL RESOURCES AND WATER

Senator Josh Becker, Chair

2025 - 2026 Regular

Bill No: AB Hearing Date: July 1, 2026

Subject: Oil and gas: bonding requirements

SUMMARY

This bill would raise the existing maximum additional financial surety that certain risky oil and gas operators are required to provide to the Geologic Energy Management Division to $80 million; codify requirements for self-insurance for low risk operators; remove the prohibition on self-insurance or a corporate guarantee for the full bond required upon the transfer, acquisition or other conveyance of a well or production facility; and exempt from the full bond requirement the transfer, acquisition or other conveyance of a well or facility purely for the purpose of plugging-and-abandonment or decommissioning, among other provisions.

BACKGROUND AND EXISTING LAW

Oil production in California

California is a major oil and gas producing state. According to the U.S. Energy Information Administration, the state was 8^th and 15^th for oil and marketed natural gas production, respectively, among the 50 states.^[1] Oil exploration and production in California started in the 19^th century. Production of oil was about 105 million barrels in 2025,^[2] and continues to decline from the 1985 peak. Many of the state’s oil and gas fields have been in operation for decades, if not longer, and require costly enhanced oil recovery methods, such as steam injection, to continue to produce oil.

The Geologic Energy Management Division in the Department of Conservation (CalGEM) is the state’s oil and gas production regulator. The State Oil and Gas Supervisor (supervisor) leads CalGEM.

There are currently approximately 54,585 active and 30,258 idle oil and gas wells in the state.^[3] Idle wells do not generate oil production revenue for the operator, and are more likely to become orphan wells. Orphan wells are deserted wells that the state has to address because no responsible operator has been found to do so. Orphan wells are likely to not be maintained consistently, and emissions from wells that fail or are failing may be hazardous to the surrounding environment, and public health and safety.

By multiple estimates, the orphan well problem the state faces is already on the order of billions of dollars. Recent reforms at CalGEM have resulted in operators plugging and abandoning more wells and long-term idle wells, but concerns remain about the potential liability to the state’s taxpayers.

In order to help address this problem, an indemnity bond or a similar financial surety is now required to be provided by the operator to CalGEM prior to drilling a well, and then is held by CalGEM until the well is plugged-and-abandoned.^[4] Operators who engage in the drilling, redrilling, deepening, or in any operation permanently altering the casing of a well are required to file an individual indemnity bond for each well drilled, redrilled, deepened, or permanently altered, or acquired at $25,000 for each well that is less than 10,000 feet deep, and $40,000 for each well that is 10,000 or more feet deep. Operators are also allowed to file a blanket indemnity bond to cover all the operations in any of their wells in the state in lieu of an individual indemnity bond for each well. These bond amounts are $200,000 for 20 - 50 wells, $400,000 for 51 – 500 wells, $2,000,000 for 501 – 10,000 wells, and $3,000,000 for more than 10,000 wells.

According to CalGEM’s regulations, the estimated cost of plugging-and-abandoning a well and site remediation in its Northern, Central, and Southern Districts are $142,918, $100,927, and $256,089, respectively, on average. The required indemnity bond amounts are generally significantly less than the cost to decommission and remediate the site. It is implicit in the bond amounts set that sufficient oil and gas will be produced to help pay for the eventual cost of plugging-and-abandoning the well, decommissioning facilities, and site remediation.

AB 1057 (Limón, Chapter 771, Statutes of 2019)

In order to help address the significant gap between the liability for decommissioning costs and the nominal indemnity bond amounts provided to CalGEM, AB 1057 provides CalGEM the authority to assess up to an additional $30 million in financial surety based upon CalGEM’s determination of the risk that the operator will desert its well or wells and the potential threats the operator’s well or wells pose to life, health, property, and natural resources.

As of May 4, 2026, CalGEM had collected about $261.5 million from 16 operators representing 77% of the state’s oil or gas wells. Efforts to implement AB 1057 for additional operators continue.

AB 1167 (W. Carillo, Chapter 359, Statutes of 2023)

In another effort to address the issue of insufficient bonding, the Legislature passed and the Governor signed AB 1167 into law. This bill required that upon the transfer, acquisition, or other conveyance of an existing well or facility to a new operator that an individual bond for the full cost of plugging-and-abandonment, the decommissioning of the facility and site restoration be provided to CalGEM. This effort was in part to combat the general industry practice of transferring wells, rather than plugging-and-abandoning them as costs associated with the transfer – particularly for those operators with blanket bonds – were far less. Another key feature of AB 1167 was to prohibit the use of self-insurance or a corporate guarantee to provide the required financial surety. If not closely monitored by CalGEM, the risk of self-insurance is that bankruptcy could result in the state’s taxpayers becoming liable for the clean-up. In the last decade, for example, numerous coal operators have gone bankrupt and were self-insured, leaving the cost for mine clean-up to taxpayers.

In the four years prior to AB 1167 going into effect, CalGEM processed about 3,500 well transfers annually, according to the Assembly Natural Resources Committee. Since then, fourteen transfers have been proposed of which only 3 – 4 were completed.

AB 1866 (Hart, Chapter 548, Statutes of 2024)

AB 1866 is the most recent of multiple bills in the last several years that require an operator to either pay certain idle well fees annually for any wells idle during the year or to develop and implement an Idle Well Management Plan with a schedule for the plugging-and-abandonment of their idle wells (Public Resources Code (PRC) §3206). AB 1866 accelerated the plugging-and-abandonment rate in the Idle Well Management Plans and increased substantially the alternative idle well fees.

According to the most recent Idle Well report for 2023 available from CalGEM^[5] (which predated the AB 1866 reforms), 70 Idle Well Management Plans were approved and 59 operators were in compliance with them. Nine operators voluntarily voided their Idle Well Management Plans that year and CalGEM cancelled the other two.

Existing law:

1. Establishes the Geologic Energy Management Division (CalGEM) in the Department of Conservation under the direction of the supervisor. (PRC §§3000 et seq.)
2. States the intent of the Legislature that, to minimize the risk that the state will be liable for costs of plugging and abandonment, no well be transferred to another owner until and unless a bond has been filed that would cover the full cost of plugging and abandonment and site restoration. (PRC §3017)
3. Provides that the acquisition of a well or production facility shall not be recognized as complete by the supervisor or the district deputy until the new operator provides an indemnity bond for each well as applicable. (PRC §3202)
4. Requires an operator who engages in the drilling, redrilling, deepening, or in any operation permanently altering the casing, of a well, to file with the supervisor an individual indemnity bond for each well so drilled, redrilled, deepened, or permanently altered in the following amount:
   1. $25,000 for each well that is less than 10,000 feet deep; or,
   2. $40,000 for each well that is 10,000 or more feet deep. (PRC §3204 (a))
5. Authorizes an operator who engages in the drilling, redrilling, deepening, or in any operation permanently altering the casing, of 20 or more wells at any time, to file with the supervisor one blanket indemnity bond to cover all the operations in any of its wells in the state in lieu of an individual indemnity bond for each operation. Establishes the bond amounts to be provided based on the quantity of wells covered by the bond. (PRC §3205)
6. Authorizes CalGEM to require an operator filing an individual indemnity bond or a blanket indemnity bond to provide an additional amount of security acceptable to CalGEM based on CalGEM’s evaluation of the risk that the operator will desert its well or wells and the potential threats the operator’s well or wells pose to life, health, property, and natural resources. The additional security required by CalGEM shall not exceed the lesser of CalGEM’s estimation of the reasonable costs of properly plugging and abandoning all of the operator’s wells and decommissioning any attendant production facilities in accordance with Section §3208 or $30 million. (PRC §3205.3(a))
7. Requires an operator to provide additional security required in the form of an indemnity bond, a form of deposit, or any other equally effective means of financial assurance approved by CalGEM. Examples of equally effective means of financial assurance that CalGEM may consider for approval include a letter of credit, a corporate guarantee, a trust fund, or a demonstration of self-insurance. Authorizes CalGEM to only approve self-insurance as an equally effective means of financial assurance if the operator provides detailed financial information demonstrating to CalGEM’s satisfaction that the risks associated with the operator’s potential for desertion of its well or wells are low. (PRC §3205.3(f))
8. Requires that all operators of oil and gas wells submit cost estimates to CalGEM for the total cost of plugging and abandonment for each of their wells and the decommissioning of all production attendant facilities. (PRC §3205.7)
9. Requires a person who acquires the right to operate a well or production facility, by purchase, transfer, assignment, conveyance, exchange, or other disposition, except a well that has an average daily production level that exceeds 15 barrels of oil or 60,000 cubic feet of natural gas during the 12 months preceding the date of acquisition or a natural gas storage well, to, as soon as possible, but not later than the date when the acquisition of the well or production facility becomes final, file with the supervisor an individual indemnity bond for the well or production facility, or a blanket indemnity bond for multiple wells or production facilities, in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning of the facility, and site restoration and relevant regulations. (PRC §3205.8)
10. Requires an operator to either file with the supervisor certain annual idle well fees per well that increase the longer the well has been idle, or file an Idle Well Management Plan with the supervisor that eliminates between 5 – 15% of the idle wells each year (for 2025 – 2027). Failure to pay idle well fees or file a plan is sufficient evidence for the well to be considered legally deserted. (PRC §3206)
11. Requires the current operator, as determined by the records of the supervisor, of a deserted well that produced oil, gas, or other hydrocarbons or was used for injection is responsible for the proper plugging and abandonment of the well or the decommissioning of deserted production facilities. (PRC §3237)

PROPOSED LAW

This bill would:

1. Revise the intent of the Legislature that, to minimize the risk that the state will be liable for costs of plugging and abandonment, no well be transferred to another owner until and unless adequate financial assurance to cover the full cost of plugging and abandonment and site restoration has been provided, except when the well is being transferred for the sole purpose of plugging and abandoning the well or decommissioning the attendant production facility.
2. Increase the amount of additional surety from certain operators from $30 million on the following schedule:
   1. $45 million/$65 million/$80 million after January 1, 2028/January 1, 2030/January 1, 2032 for operators who have more than 10,000 wells.
   2. $35 million/$40 million/$60 million after January 1, 2028/January 1, 2030/January 1, 2032 for operators who have between 4,000 – 10,000 wells.
   3. Operators with fewer than 4,000 wells remain at $30 million.
3. Provide that any agreement reached for the additional financial surety prior to January 1, 2027 is good for five years and may be raised thereafter, as provided.
4. Establish explicit requirements for self-insurance as an acceptable method to provide additional financial surety, including an enforceable schedule for plugging-and-abandoning wells and decommissioning production facilities consistent with the operator’s Idle Well Management Plan.
   1. Prohibit an operator without an Idle Well Management Plan or out of compliance with its Idle Well Management Plan from using self-insurance.
   2. Require an operator to provide the previous year’s certified reserve reports and financial statements including balance sheet and income statements, as provided.
   3. Require the security agreement to include financial criteria the operator is required to satisfy for the duration of the agreement.
   4. Require the operator to notify CalGEM if it fails to meet one of the criteria subject to certain penalties if it does not, as provided.
   5. Authorize CalGEM to terminate the self-insurance agreement with 180 days notice. Require the operator to provide the financial surety by another method.
   6. Authorize a parent company to provide a corporate guarantee.
   7. Require the self-insurance guarantee to remain in force until terminated or decommissioning is complete.
   8. Require CalGEM to reevalute the self-insurance or corporate guarantee at least once every three years or upon a material change, as provided.
5. Strike the prohibition on self-insurance and corporate guarantees as an equally effective means of financial assurance for well or production facility sales or transfers.
6. Exempt an operator that already has an additional financial surety from having to provide a full bond amount upon the transfer of a well. Require an operator to update their additional financial surety to reflect the transferred well. Provide 36 months for the operator to fund any additional financial surety required.
7. Exempt a well or production facility acquired solely for plugging-and-abandoning the well or decommissioning the facility from the full bonding on transfer requirement. Require individual or blanket bond amounts specified in statute to be provided instead.
   1. Prohibit the use of a well or production facility purchased for plugging-and-abandonment or decommissioning from being used to produce oil or for injection.
   2. Require the person acquiring the well or production facility to declare, subject to perjury, that the well or production facility is not going to be used for oil or gas production. Require a work plan to be provided that provides for decommissioning to commence within 24 months of the date of acquisition, subject to extension.
8. Require a legislative report starting January 1, 2028 to contain relevant information related to transfers, as specified.
9. Provide that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution.
10. Require that both this bill and AB 2461 (Hart) become law or neither does (contingent enactment).

ARGUMENTS IN SUPPORT

According to the author, “To protect the state against the risk of an orphaned well after a transfer from one owner to another, AB 1167 (Chapter 359, Statutes of 2023) adjusted the required indemnity bond amount to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration. Since the law was changed, nearly all well transfers have stopped.”

“If transfer approvals continue to stagnate, current well operators may abandon hazardous wells, leading to greater financial and environmental burdens for the state.”

“AB 2716 delivers the legislative revisions that Governor Newsom called for when he signed AB 1167 by giving oil and gas well operators greater financial flexibility to cover the cost of plugging idle wells after a transfer of ownership, reducing the occurrence of orphaned wells and protecting California’s environment and public health.”

ARGUMENTS IN OPPOSITION

In a joint sign-on letter in opposition, the Natural Resources Defense Council (NRDC) writes that this “bill that would unnecessarily increase the risk that astronomical oil and gas well cleanup costs fall on taxpayers rather than the industry responsible for those wells. Three years ago, AB 1167 (Carrillo) took a groundbreaking step forward to address that problem by prohibiting well transfers - a major financial risk factor - without sufficient financial assurance for cleanup costs. AB 2716 would severely weaken that protection, at exactly the time when we need to be working to strengthen it.”

In addition, they note that corporate guarantees may ultimately be worthless, and raise concerns that allowing wells to be purchased for the sole purpose of plugging-and-abandonment “would create a giant loophole […] Absent definitions and guardrails, there is simply no way for regulators to know, or assure, that the ‘sole’ purpose (whatever that may mean) of the transfer is to close the well; or that this purported purpose is carried out in a timely way.”

COMMENTS

Partially undoes AB 1167 reforms. Two of the key reforms governing the transfer of wells under AB 1167 are the prohibition on self-insurance and the requirement that the required bond be paid in full upon transfer. This bill would authorize the use of self-insurance for low risk operators and allow 36 months for the full bond to be paid.

Reducing financial risks to the state’s taxpayers. The ultimate goal of many of the numerous reforms of the state’s oil and gas conservation laws over the last dozen years is to help ensure that the industry pays to clean up after itself. With the goal of reducing financial risks to the state’s taxpayers, there are multiple aspects of the bill that might be improved upon without hindering good faith operators. These include, among others:

• Self-insurance – One year of financial records is insufficient to understand the health of the operator. Failing to abide by the terms of the self-insurance agreement does not necessarily result in having to use a different method of financial assurance. Additionally, according to the data available, a significant fraction of the industry already complies with Idle Well Management Plans. It does not seem unreasonable to condition self-insurance on compliance with this requirement.
• Transfer solely for plugging-and-abandonment and decommissioning – Committee staff understand that there are at least two instances where a public agency or nonprofit was hindered in redeveloping a parcel due to the presence of one or more oil or gas wells on the property and the requirement to provide full bonding for those wells. However, as written, an unlimited number of wells could be transferred, redevelopment of the property to another purpose is not required, the timelines for plugging-and-abandonment and decommissioning are vague, and there is no provision for the oil industry to pay to clean-up if the operator who commits to plugging-and-abandoning the wells and decommissioning the facilities fails to do so.
• Additional financial surety – The bill language is ambiguous as written that a significant change in circumstances would trigger a reevaluation of the amount required, and five years is a long time to prevent CalGEM from seeking additional resources, if warranted.
• Providing for legislative oversight – Given the complexity and interaction of the provisions related to the indemnity bonding/other financial surety and the other potentially far-reaching changes, providing an additional opportunity for legislative oversight – such as that provided by a 5 year sunset – is warranted. Additionally, requiring CalGEM to make additional information available to the legislature and public will aid in that effort.

The Committee may wish to address these issues and others by amending the bill, and further assuring an opportunity for legislative oversight of these potentially far-reaching changes in the future. Additionally, the author has requested amendments that are essentially the first step of potential chaptering out amendments with AB 2461. The Committee may wish to amend the bill to reflect the author’s proposal. [see Amendment #1]

Additional maximum surety amounts. Only two operators operate or control more than 10,000 wells and four additional operators operate or control more than 4,000 and fewer than 10,000 wells. The new maximum amounts for additional financial surety provided in this bill would currently apply to six operators total. The rest would remain at a maximum of $30 million.

Impact on local taxes. The method used to assess the value of assets due to the requirement for immediate full bonding upon transfer has, according to the author, substantially reduced operators’ asset values. The State Board of Equalization advised county assessors last year that “the bonding mandate must be built into income-approach valuations,” although it is unknown to what extent it has been. It is possible that the bonding mandate could significantly impact asset valuation, particularly for small operators. Reduced asset valuation could then result lower property tax revenue to the County.

Contingent enactment. In the Assembly, this bill and AB 2461 (Hart) became linked through contingent enactment language. Both bills seek to reform AB 1167, but in different ways. Due to the contingent enactment language both bills must pass for either to become law.

Recent related legislation

AB 2461 (Hart, 2026) would expand the requirement for an operator upon a transfer or sale of an existing oil or gas well and production facility to provide an individual indemnity bond for the full cost of well plugging-and-abandonment, facility decommissioning and site restoration to include a change in control of the operator, as provided. (This bill is pending before this Committee.)

SUGGESTED AMENDMENTS

AMENDMENT #1

• Add author amendments to add language to address changes in control consistent with AB 2461
• Sunset PRC §3017 in 5 years and revert to existing language
• In PRC §3205.3(a)(2)(D) change to 5 years to 3 years and clarify ambiguity related to whether changed circumstances could trigger a re-evaluation of the additional surety provided (up or down) pursuant to existing subdivision (e).
• In PRC §3205.3(f)(3)(A) require compliance with an Idle Well Management Plan to be eligible for self-insurance.
• In PRC §3205.3(f)(3)(B) – require 3 years of financial records to be provided while assessing eligibility for self-insurance.
• In PRC §3205.3(f)(3)(E) – authorize CalGEM to establish the criteria for any corporate guaranty.
• In PRC §3205.8(e)(1) – add explicit reference to the section authorizing standard indemnification bonding for wells or facilities obtained for the sole purpose of plugging-and-abandonment or decommissioning.
• In PRC §3205.8(e)(3) (and elsewhere) – replace the reference to “oil or gas production or injection” with “oil or gas production, injection, gas storage, or any associated operation” to more fully encompass current CalGEM-regulated wells and facilities.
• In PRC §3205.8(f)(1) – require compliance with an Idle Well Management Plan to be eligible. Require compliance with PRC 3205.7 reporting.
• Sunset PRC §3205.8 in 5 years and revert to existing language. Any agreement entered into under the sunsetting language will remain in force.
• In PRC §3205.9 – establish a redevelopment pilot program. authorize 100 wells annually to be added to the pilot program, require a redevelopment plan to be provided. Establish timelines for wells and facilities to be plugged-and-abandoned and decommissioned for redevelopment purposes. Require CalGEM to complete plugging-and-abandonment, decommissioning, and site restoration if necessary. No additional wells can be added to the pilot program after 5 years and sunset in 10 years.
• In PRC §3205.10 – modify required online reporting of implementation by CalGEM. Require the DoC director and the supervisor to report to the Legislative policy committees annually on implementation. Sunset in 5 years.
• Additional largely technical and clarifying changes.

SUPPORT

California Independent Petroleum Association (sponsor)

California Assessors’ Association

California Chamber of Commerce

County of Kern (if amended)

E & B Natural Resources

Signal Hill Petroleum

Tri-County Chamber Alliance

Western States Petroleum Association

OPPOSITION

350 Bay Area Action

350 Humboldt

350 Santa Barbara

350 South Bay Los Angeles

350 Southland Legislative Alliance

Bay Area-System Change not Climate Change

California Coastal Protection Network

California Environmental Justice Alliance

Center for Biological Diversity

Center on Race, Poverty and the Environment

CERBAT

Clean and Healthy California

Clean Water Action

CleanEarth4Kids.org

Climate Action California

Climate First: Replacing Oil & Gas (CFROG)

Climate Health Now Action Fund

Communities for a Better Environment

Earthjustice

Environment California

Environmental Defense Center

Environmental Protection Information Center (EPIC)

Food & Water Watch

FracTracker Alliance

Friends Committee on Legislation of California

Greenpeace USA

Indivisible Alta-Pasadena

Long Beach Alliance for Clean Energy

NRDC

Oil and Gas Action Network

Physicians for Social Responsibility - Los Angeles

Redeemer Community Partnership

Resource Renewal Institute

San Francisco Bay Physicians for Social Responsibility

San Francisco Baykeeper

SanDiego350

Sierra Club California

SoCal 350 Climate Action

STAND-LA Coalition

Sunflower Alliance

The Climate Center

West Berkeley Alliance for Clean Air and Safe Jobs

Wholly H₂O

One individual

-- END --

1. Ranking based upon 2024 data. ↑

2. According to the WellSTAR data dashboard (accessed May 31, 2026). ↑

3. According to the Well STAR data dashboard (accessed June 28, 2026). ↑

4. Prior to January 1, 2018, the indemnity bond was only required until the well was successfully drilled and then was returned to the operator. CalGEM is authorized to require an indemnity bond be provided for certain facilities as well. ↑

5. Dated December 2025 ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 2716

Author:(Ávila Farías)

As Amended Ver:April 27, 2026

Majority vote

SUMMARY

Amends the bonding requirements for a person who acquires the right to operate a well or production facility by repealing the exclusion of self-insurance or corporate guarantee, and authorizing an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through a specified means of financial assurance, as provided.

Major Provisions

1. Prohibits the additional security required of an oil and gas well operator by the California Geologic Energy Management Division (CalGEM) from exceeding the lesser of CalGEM’s estimation of the reasonable costs of properly plugging and abandoning all the operator’s wells and decommissioning any attendant production facilities (consistent with current law) or the maximum amount of additional security established by this bill, based on the total number of active and idle wells under the control of the operator pursuant to a specified schedule – instead of $30 million, as provided under current law.
2. Prohibits CalGEM from increasing the amount of additional security required of an operator that had an additional security agreement approved by CalGEM as of January 1, 2027, until five years after the effective date of the agreement, as specified.
3. Requires CalGEM, when making an estimation of the reasonable costs of properly plugging and abandoning an operator’s well or wells and decommissioning any attendant production facilities, to additionally consider industrywide financial trends, including those trends affecting the solvency and creditworthiness of oil and gas operators in California.
4. Provides that CalGEM may only approve self-insurance or a corporate guarantee as an equally effective means of financial assurance if, in addition to existing requirements, the approval is conditioned upon six additional requirements specified in the bill, including an enforceable schedule for the plugging and abandonment of wells and decommissioning of production facilities consistent with an operator’s idle well management plan, as provided; requires that CalGEM’s approval be set forth in an additional security agreement between the operator and CalGEM; and requires CalGEM to reevaluate whether self-insurance or a corporate guarantee approved by CalGEM continues to constitute an equally effective means of financial assurance at least once every three years, or upon a material change in the financial condition of the operator or guarantor entity, whichever occurs first.
5. Repeals the exclusion of self-insurance or corporate guarantee as an acceptable form of financial assurance that a person who acquires the right to operate a well may provide in lieu of an existing bonding requirement and additionally authorizes an operator to, in lieu of the bonding requirement and with the written approval of CalGEM, provide the required security through a specified means of financial assurance, including pursuant to the above-referenced process for obtaining division approval for self-insurance or a corporate guarantee applicable to existing operators, as provided.
6. Exempts from specified bonding and financial assurance requirements (a) a person who acquires the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning that production facility, as specified, or (b) an operator with additional security approved by CalGEM, as specified.
7. Specifies numerous conditions and requirements related to a person acquiring the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning that production facility, including, among other things, that the well or production facility not be used for oil or gas production or injection, that CalGEM has the authority to require an acquiring person who fails to commence operations within a specified timeframe to require the person to file financial assurance, and that a person who was responsible as an owner or operator of the well or production facility before an acquisition remain responsible for the well or facility and any unfunded costs associated with plugging and abandonment of the well or facility.
8. Requires CalGEM, on and after January 1, 2028, to include in its annual report to the Legislature, as part of its existing reporting on well transfer activity and financial assurance, specified information, including, among other things, the number and location of wells and production facilities acquired for the sole purpose of plugging and abandoning that well or decommissioning the production facility, the status of plugging and abandonment or decommissioning operations for those wells and facilities, and a description of any wells or production facilities located in, or within one mile of, a disadvantaged community. Specifies that the information reported be based on data available to CalGEM and not require the division to conduct new studies or analysis beyond those already required under existing law.
9. Becomes operative only if AB 2461 (Hart) of the current legislative session is enacted and becomes effective on or before January 1, 2027. AB 2461 expands bonding requirements for a person that acquires the right to control a well or production facility.

COMMENTS

In California, bonds are required to be posted, based on specified statutory amounts, when a drilling permit is issued to cover plugging and abandonment costs. AB 1167 (Carillo), Chapter 359, Statutes of 2023, further requires a person who acquires the right to operate a well or production facility to file with the supervisor a bond for the well or production facility in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration.

The purpose of AB 1167 was to protect the state – and taxpayers – from financial liability for plugging and abandoning orphaned wells. According to the Department of Finance, bonding companies are becoming hesitant to approve indemnity bonds due to California's current regulatory environment and future outlook for oil and gas operations, and the Department expressed concerns that AB 1167 could also increase that problem.

Providing sufficient financial assurances is critical to ensuring the polluter pays, so to speak, because CalGEM does not have the cash on hand to cover all the uninsured costs to plug and remediate abandoned wells and production facilities. Flexibility may need to be provided under current law so that financial mechanisms that are accessible – and financially appropriate – are secured and approved ahead of any transfer, sale, or acquisition.

According to the Author

To protect the state against the risk of an orphaned well after a transfer from one owner to another, AB 1167 adjusted the required indemnity bond amount to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration. Since the law was changed, nearly all well transfers have stopped. If transfer approvals continue to stagnate, current well operators may abandon hazardous wells, leading to greater financial and environmental burdens for the state. AB 2716 delivers the legislative revisions that Governor Newsom called for when he signed AB 1167 by giving oil and gas well operators greater financial flexibility to cover the cost of plugging idle wells after a transfer of ownership, reducing the occurrence of orphaned wells and protecting California’s environment and public health.

Arguments in Support

According to the California Intendent Petroleum Association, AB 2716 is a necessary and carefully tailored bill to correct serious problems created by AB 1167 (2023). As you know, AB 1167 imposed an inflexible transfer-bonding structure that has effectively frozen the lawful sale and transfer of California oil and gas assets. In practice, the law has blocked recapitalization, stranded assets, and prevented wells and facilities from moving into the hands of operators with the financial capacity and regulatory commitment to maintain, manage, and retire them most effectively. This is precisely the kind of unintended consequence Governor Newsom warned about in his signing message when he noted that the statute could increase the risk of well desertion and would require legislative revision.

Arguments in Opposition

A coalition of environmental organizations writes that the financial risk to the state associated with oil well cleanup is obvious and daunting. The total cost to clean up California’s wells and production facilities has been estimated at $21.5 billion - a bill that will come due in the foreseeable future as California's forty-year long decline in oil production inevitably continues. Although oil and gas operators are legally obligated to pay that cost, that is not what is happening. Hundreds of millions of dollars in public funds have already been dedicated to clean up wells deserted by operators who have failed to honor their obligations. AB 1167 took a step to reverse course on this dangerous situation by ensuring that, at the very least, no operator can transfer a well without financial assurance in place sufficient to cover the full cost of plugging and abandonment. AB 2716 would punch holes in that safety net, harming every taxpayer in the state to benefit only oil companies.

FISCAL COMMENTS

According to the Assembly Appropriations Committee, CalGEM estimates ongoing annual costs of about $1.4 million (Oil, Gas and Geothermal Administrative Fund) for one attorney, four associate oil and gas engineers, and one analyst for additional operator communication, meetings, document review and preparation, and financial reviews and analysis. The Appropriations Committee notes CalGEM may incur additional costs to determine whether purchasers qualify for the "sole purpose" exemption and to comply with the bill's reporting requirements.

VOTES

ASM NATURAL RESOURCES: 8-1-5

YES: Bryan, Ellis, Alanis, Haney, Hoover, Macedo, Muratsuchi, Wicks

NO: Connolly

ABS, ABST OR NV: Garcia, Kalra, Pellerin, Schultz, Zbur

ASM APPROPRIATIONS: 13-0-2

YES: Wicks, Hoover, Aguiar-Curry, Calderon, Dixon, Fong, Mark González, Krell, Pacheco, Sharp-Collins, Solache, Ta, Tangipa

ABS, ABST OR NV: Caloza, Pellerin

UPDATED

VERSION: April 27, 2026

CONSULTANT: Paige Brokaw / NAT. RES. / (916) 319-2092 FN: 0002596

Date of Hearing: May 13, 2026

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2716

Author:(Ávila Farías) – As Amended Ver:April 27, 2026

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill amends the bonding requirements for a person who acquires the right to operate a well or production facility by repealing the exclusion of self-insurance or corporate guarantee, and by authorizing an operator to, in lieu of the bonding requirement and with the written approval of the State Oil and Gas Supervisor (who oversees the California Geologic Energy Management Division (CalGEM)), provide the required security through a specified means of financial assurance.

Specifically, this bill, among other things:

1) Prohibits the additional security required of an oil and gas well operator by CalGEM from exceeding the lesser of (a) CalGEM’s estimation of the reasonable costs of properly plugging and abandoning all the operator’s wells and decommissioning any attendant production facilities (consistent with current law) or (b) the maximum amount of additional security established by this bill, based on the total number of active and idle wells under the control of the operator pursuant to a specified schedule – instead of $30 million, as provided under current law.

2) Prohibits CalGEM from increasing the amount of additional security required of an operator that had an additional security agreement approved by CalGEM as of January 1, 2027, until five years after the effective date of the agreement, as specified.

3) Requires CalGEM, when making an estimation of the reasonable costs of properly plugging and abandoning an operator’s well or wells and decommissioning any attendant production facilities, to additionally consider industrywide financial trends, including those trends affecting the solvency and creditworthiness of oil and gas operators in California.

4) Provides that CalGEM may only approve self-insurance or a corporate guarantee as an equally effective means of financial assurance if, in addition to existing requirements, the approval is conditioned upon six additional requirements specified in the bill, including an enforceable schedule for the plugging and abandonment of wells and decommissioning of production facilities consistent with an operator’s idle well management plan, as provided; requires that CalGEM’s approval be set forth in an additional security agreement between the operator and CalGEM; and requires CalGEM to reevaluate whether self-insurance or a corporate guarantee approved by CalGEM continues to constitute an equally effective means of financial assurance at least once every three years, or upon a material change in the financial condition of the operator or guarantor entity, whichever occurs first.

5) Repeals the exclusion of self-insurance or corporate guarantee as an acceptable form of financial assurance that a person who acquires the right to operate a well may provide in lieu of an existing bonding requirement and additionally authorizes an operator to, in lieu of the bonding requirement and with the written approval of CalGEM, provide the required security through a specified means of financial assurance, including pursuant to the above-referenced process for obtaining division approval for self-insurance or a corporate guarantee applicable to existing operators, as provided.

6) Exempts from specified bonding and financial assurance requirements (a) a person who acquires the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning that production facility, as specified, or (b) an operator with additional security approved by CalGEM, as specified.

7) Specifies numerous conditions and requirements related to a person acquiring the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning that production facility, including, among other things, that the well or production facility not be used for oil or gas production or injection, that CalGEM has the authority to require an acquiring person who fails to commence operations within a specified timeframe to require the person to file financial assurance, and that a person who was responsible as an owner or operator of the well or production facility before an acquisition remain responsible for the well or facility and any unfunded costs associated with plugging and abandonment of the well or facility.

8) Requires CalGEM, on and after January 1, 2028, to include in its annual report to the Legislature, as part of its existing reporting on well transfer activity and financial assurance, specified information, including, among other things, the number and location of wells and production facilities acquired for the sole purpose of plugging and abandoning that well or decommissioning the production facility, the status of plugging and abandonment or decommissioning operations for those wells and facilities, and a description of any wells or production facilities located in, or within one mile of, a disadvantaged community. Specifies that the information reported be based on data available to CalGEM and not require the division to conduct new studies or analysis beyond those already required under existing law.

9) Becomes operative only if AB 2461 (Hart) of the current legislative session is enacted and becomes effective on or before January 1, 2027. AB 2461 expands bonding requirements for a person that acquires the right to control a well or production facility.

FISCAL EFFECT:

CalGEM estimates ongoing annual costs of about $1.4 million (Oil, Gas and Geothermal Administrative Fund) for one attorney, four associate oil and gas engineers, and one analyst for additional operator communication, meetings, document review and preparation, and financial reviews and analysis. Specific tasks include, among other things, compiling documentation and evidence supporting total liability cost estimates; researching and gathering operator asset data and performing geologic and engineering work for reports, inspections, and cost estimates; updating previously completed cost estimates to reflect current costs, assets, and site conditions; coordinating field inspections on identified transfer wells and production facilities, as needed; maintaining ongoing communication with operators to increase financial assurances; developing notices for additional bonding; and processing transfers and bonds. The committee notes CalGEM may incur additional costs to determine whether purchasers qualify for the "sole purpose" exemption and to comply with the bill’s reporting requirements.

COMMENTS:

1) Purpose. According to the author:

AB 2716 delivers the legislative revisions that Governor Newsom called for when he signed [AB 1167 (Carillo), Chapter 359, Statutes of 2023] by giving oil and gas well operators greater financial flexibility to cover the cost of plugging idle wells after a transfer of ownership, reducing the occurrence of orphaned wells and protecting California’s environment and public health.

2) Background. An operator who engages in the drilling, redrilling, deepening, or in any operation permanently altering the casing of a well must file with the State Oil and Gas Supervisor an individual indemnity bond for each well in the following amounts: $25,000 for each well that is less than 10,000 feet deep and $40,000 for each well that is 10,000 or more feet deep. Operators are allowed to file a blanket indemnity bond in lieu of an individual indemnity bond for each operation, and the conditions and amounts for blanket bonds are specified in statute.

To ensure the sufficiency of these indemnity bonds, the Legislature gave CalGEM authority in SB 551 (Jackson), Chapter 774, Statutes of 2019, to develop criteria to be used by operators for estimating costs to plug and abandon wells and decommission attendant production facilities, including site remediation. SB 551 also requires each operator of an oil or gas well to submit a report to the supervisor that demonstrates the operator’s total liability to plug and abandon all wells and to decommission all attendant production facilities, including site remediation, on a schedule determined by the supervisor.

Further, AB 1057 (Limón), Chapter 771, Statutes of 2019, authorized CalGEM to require an operator to provide additional financial security based on CalGEM’s evaluation of the risk that the operator will desert its well or wells and the potential threats the operator’s well or wells pose to life, health, property, and natural resources. The required amount of additional security is based on CalGEM’s estimation of the reasonable costs to the state for properly plugging and abandoning all the operator’s wells and decommissioning any attendant production facilities, or $30 million, whichever is less.

AB 1167 requires a person who acquires the right to operate a well or production facility to file with the supervisor a bond for the well or production facility in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration.

Among others in support, the California Independent Petroleum Association (CIPA) argues this bill “directly addresses the serious fiscal impacts created by AB 1167.” CIPA notes that the Department of Finance opposed AB 1167 and warned the bill could harm the state financially, and that Governor Newsom, in signing AB 1167, further acknowledged the Legislature may need to revisit the law if it produced unintended consequences.

Signal Hill Petroleum Inc. (SHP), writing in support, notes that since AB 1167 took effect, no active wells subject to the law have been transferred for continued operation. SHP writes, “The requirement that an acquiring operator post a full upfront indemnity bond covering 100% of estimated plugging costs before any transfer can close has proven unworkable,” and that AB 1167 has not protected taxpayers from cleanup liability; instead, “it has frozen the market for oil and gas assets entirely, trapping wells with their current operators regardless of whether those operators have the financial capacity to maintain them, comply with regulatory requirements, or eventually plug them.”

SHP argues this bill addresses the above-described problem in three ways. First, it expands the menu of financial assurance instruments an acquiring operator may use to satisfy the transfer bonding requirement. Second, the bill creates a streamlined pathway for parties acquiring wells solely to plug, abandon, and restore well sites. Third, the bill recognizes compliance with CalGEM’s existing risk-based additional security framework under AB 1057. Finally, SHP cites examples under the state’s existing regulatory framework of significant protections against orphan well liabilities, arguing this bill “builds on this progress by restoring responsible operators’ ability to acquire, maintain, and retire wells under enforceable plans.”

Writing in opposition, a coalition of environmental and environmental justice organizations argues this bill, by requiring “additional cumbersome” financial analyses, “significantly increases the administrative and fiscal burden on [CalGEM], far beyond its current capacity and expertise.” The coalition notes the bill requires CalGEM to consider, on a case-by-case basis, whether oil and gas operators may use corporate guarantees or self-insurance “to substitute for third party guaranteed financial assurance requirements that would otherwise apply to oil and gas activities and transactions.” Among other things, the coalition argues this bill creates a “sweeping loophole in full financial assurance requirements for companies that claim the “sole purpose” of well acquisition to plug and abandon” and that the bill “exposes the state and the public to significant additional fiscal costs in the near and long term, increasing the risk billions in private industry cleanup costs fall on the state.”

Analysis Prepared by: Nikita Koraddi / APPR. / (916) 319-2081

Date of Hearing: April 20, 2026

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Isaac G. Bryan, Chair

ABPCA Bill Id:AB 2716 (

Author:Ávila Farías) – As Amended Ver:March 25, 2026

SUBJECT: Oil and gas: bonding requirements

SUMMARY: Amends the bonding requirements for a person who acquires the right to operate a well or production facility by repealing the exclusion of self-insurance or corporate guarantee, and authorizing an operator to, in lieu of the bonding requirement and with the written approval of the supervisor, provide the required security through a specified means of financial assurance, as provided.

EXISTING LAW:

1. Establishes the Geologic Energy Management Division (CalGEM) in the Department of Conservation under the direction of the supervisor, who is required to supervise the drilling, operation, maintenance, and abandonment of oil and gas wells. (Public Resources Code (Public Resources Code (PRC) 3000 et seq.)
2. States the intent of the Legislature that, to minimize the risk that the state will be liable for costs of plugging and abandonment, no well be transferred to another owner until and unless a bond has been filed that would cover the full cost of plugging and abandonment and site restoration. (PRC 3017)
3. Provides that the acquisition of a well or production facility shall not be recognized as complete by the supervisor or the district deputy until the new operator provides an indemnity bond for each well as applicable. (PRC 3202)
4. Requires an operator who engages in the drilling, redrilling, deepening, or in any operation permanently altering the casing, of a well, to file with the supervisor an individual indemnity bond for each well so drilled, redrilled, deepened, or permanently altered in the following amount:
   1. $25,000 for each well that is less than 10,000 feet deep; or,
   2. $40,000 for each well that is 10,000 or more feet deep. (PRC 3204 (a))
5. Authorizes an operator who engages in the drilling, redrilling, deepening, or in any operation permanently altering the casing, of 20 or more wells at any time, to file with the supervisor one blanket indemnity bond to cover all the operations in any of its wells in the state in lieu of an individual indemnity bond for each operation. Establishes the bond amounts to be provided based on the quantity of wells covered by the bond. (PRC 3205)
6. Authorizes CalGEM to require an operator filing an individual indemnity bond or a blanket indemnity bond to provide an additional amount of security acceptable to CalGEM based on CalGEM’s evaluation of the risk that the operator will desert its well or wells and the potential threats the operator’s well or wells pose to life, health, property, and natural resources. The additional security required by CalGEM shall not exceed the lesser of CalGEM’s estimation of the reasonable costs of properly plugging and abandoning all of the operator’s wells and decommissioning any attendant production facilities in accordance with Section 3208 or $30 million. (PRC 3205.3(a))
7. Requires an operator to provide additional security required in the form of an indemnity bond, a form of deposit, or any other equally effective means of financial assurance approved by CalGEM. Examples of equally effective means of financial assurance that CalGEM may consider for approval include a letter of credit, a corporate guarantee, a trust fund, or a demonstration of self-insurance. Authorizes CalGEM to only approve self-insurance as an equally effective means of financial assurance if the operator provides detailed financial information demonstrating to CalGEM’s satisfaction that the risks associated with the operator’s potential for desertion of its well or wells are low. (PRC 3205.3(f))
8. Requires that all operators of oil and gas wells submit cost estimates to CalGEM for the total cost of plugging and abandonment for each of their wells and the decommissioning of all production attendant facilities. (PRC 3205.7)
9. Requires a person who acquires the right to operate a well or production facility, by purchase, transfer, assignment, conveyance, exchange, or other disposition, except a well that has an average daily production level that exceeds 15 barrels of oil or 60,000 cubic feet of natural gas during the 12 months preceding the date of acquisition or a natural gas storage well, to, as soon as possible, but not later than the date when the acquisition of the well or production facility becomes final, file with the supervisor an individual indemnity bond for the well or production facility, or a blanket indemnity bond for multiple wells or production facilities, in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment, decommissioning of the facility, and site restoration and relevant regulations. (PRC 3205.8)
10. Requires the current operator, as determined by the records of the supervisor, of a deserted well that produced oil, gas, or other hydrocarbons or was used for injection is responsible for the proper plugging and abandonment of the well or the decommissioning of deserted production facilities. (PRC 3237)

THIS BILL:

1. Revises the intent of the Legislature that, to minimize the risk that the state will be liable for costs of plugging and abandonment, no well be transferred to another owner until and unless  adequate financial assurance to  cover the full cost of plugging and abandonment and site restoration has been provided, except when the well is being transferred for the sole purpose of plugging and abandoning the well or decommissioning the attendant production facility. 
2. Strikes the prohibition on self-insurance and corporate guarantees as an equally effective means of financial assurance for well or production facility sales or transfers.
3. Provides that an equally effective means of financial assurance includes a means of financial assurance, as provided, or any other equally effective means of financial assurance that has been approved by CalGEM.
4. Provides that the specified bonding and financial assurance requirements do not apply to a person who acquires the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning that production facility.
5. Prohibits a person using a well or production facility acquired for the sole purpose of plugging and abandoning that well or decommissioning that production facility for oil or gas production or injection.
6. Provides that this does not apply to operators with additional security approved by CalGEM pursuant to PRC 3205.3.
7. Provides that a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning that well or decommissioning the production facility is not subject to any of the requirements of PRC 3205.8, and requires that person to file a bond as required pursuant to PRC 3204, 3205, 3205.1, or 3205.2, as applicable.
8. Requires a person to be subject to the specified requirements as an operator of the well or production facility, until either of the following occur:
   1. The supervisor determines that the well has been properly plugged and abandoned and the production facilities have been decommissioned; or,
   2. As applied to work conducted in accordance with the approvals given by the supervisor, the supervisor subsequently determines that additional work is not practical or would pose greater environmental or safety risk.
9. Requires, upon a determination by the supervisor, the supervisor to release the bond, and the acquiring person shall have no further obligation or liability for the well or facility.
10. Requires a person who was responsible, under current law, as an owner or operator of the well or production facility before an acquisition to be responsible for the well or production facility.
11. Prohibits the use of a well or production facility acquired under this section for purposes of oil or gas production or injection.
12. Provides that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution.

FISCAL EFFECT: Unknown

COMMENTS:

1. Financial assurances. In every state, operators have to provide some form of financial assurance for a well at the time that it is drilled. This assurance is intended to cover or mitigate the eventual costs of plugging the well and/or environmental impacts caused by the well, in the event the operator at the time the well is terminated is unable or unwilling to do so.

In California, bonds are required to be posted when a drilling permit is issued to cover plugging and abandonment costs. Operators are required to file an individual indemnity bond for each well drilled, redrilled, deepened, or permanently altered, or acquired at $25,000 for each well that is less than 10,000 feet deep, and $40,000 for each well that is 10,000 or more feet deep. Operators are also allowed to file a blanket indemnity bond to cover all the operations in any of its 20+ wells in the state in lieu of an individual indemnity bond for each operation. The amount for the blanket bonds is also specified in statute.

To ensure the sufficiency of these indemnity bonds, the Legislature gave CalGEM authority, per SB 551 (Jackson), Chapter 774, Statutes of 2019, to develop criteria to be used by operators for estimating costs to plug and abandon wells and decommission attendant production facilities, including site remediation. SB 551 also requires each operator of an oil or gas well to submit a report to the supervisor that demonstrates the operator’s total liability to plug and abandon all wells and to decommission all attendant production facilities, including site remediation, on a schedule determined by the supervisor.

Further, AB 1057 (Limón), Chapter 771, Statutes of 2019, authorizes CalGEM to require an operator to provide an amount of security acceptable to CalGEM based on CalGEM’s evaluation of the risk that the operator will desert its well or wells and the potential threats the operator’s well or wells pose to life, health, property, and natural resources. That law sets a floor on the amount of the reasonable costs to plug and abandon operator’s wells at $30 million.

Lastly, under current law (PRC 3237), if CalGEM determines the current operator does not have the financial resources to fully cover the cost to plug the well, previous operators that made a valid transfer after January 1, 1996, may be held responsible for the cost to plug the well.

1. Sales and transfers. In the fall of 2022, supermajors Shell and ExxonMobil agreed to sell more than 23,000 wells in California, which they owned through a joint venture called Aera Energy, to German asset management group IKAV for an estimated $4 billion. Aera accounts for about a quarter of California’s oil and gas production, largely from pumping in Kern and Ventura counties. The Los Angeles Times reported at the time that IKAV stood to inherit a portfolio littered with wells past their prime. Nearly 9,000 Aera wells were idle as of early October 2022, meaning about 38% of the company’s unplugged inventory wasn’t producing oil or gas, according to state data.

In response, AB 1167 (Carillo), Chapter 359, Statutes of 2023, requires a person who acquires the right to operate a well or production facility to file with the supervisor a bond for the well or production facility in an amount determined by the supervisor to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration. AB 1167 prohibits companies from using their existing indemnity bonds and requires new, individual bonds for any well that is purchased or transferred. The author’s intent with AB 1167 was not to shutter the oil industry; it was to ensure the financial responsibility of clean up and remediation falls with the oil well operators and not California tax payers in the event the well is “orphaned.”^[1] 

When Governor Newsom signed AB 1167, he included a signing message that stated, “increasing the financial assurances required for oil and gas well transfers also potentially creates risk of current oil and gas well operators deserting these hazardous wells. I look forward to working with the Legislature to enact legislation to make any necessary revisions to address this risk and otherwise align this law with programs that [CalGEM] is already developing to address orphaned and abandoned wells.”

1. Frozen bond market? According to CalGEM, from January 1, 2019, when AB 1057 went into effect through 2023, CalGEM processed an average of 3,500 well transfers per year.  From January 1, 2024, when AB 1167 went into effect through today, 501 well transfers have occurred. Of those, 62 transfers of wells have taken place under PRC 3205.8. The first transfer was for one well, and the second was a transfer of 61 marginal wells for the purposes of a housing development. In other words, a single project accounts for 61 of those 62 wells. 

The California Independent Petroleum Association (CIPA) states that bonds are unavailable for owners or operators to sell, transfer, or acquire new wells because AB 1167 essentially “froze and devalued oil and gas operators’ assets, increasing the likelihood of financial insolvency and well desertion.” Since AB 1167 took effect, no active wells subject to the law have been transferred for continued operation. When responsible, well-capitalized operators cannot purchase wells from struggling operators, those assets are stranded with companies that may lack the resources to maintain them or properly shut them down. The author notes that the inability to transfer wells has also reduced operators’ asset values, reduced local tax revenue, limited operators’ access to capital, and made it harder for them to fund maintenance, regulatory compliance, and decommissioning.”

1. Learning from the past. The specific exclusion of self-certification and “equally effective” means was purposeful when crafting AB 1167. 

The federal Surface Mining Control and Reclamation Act of 1977 required coal companies to restore the land after mining, post financial assurance before mining, and ensure funds would be available if the company failed. The law allowed several forms of bonding, including surety bonds, collateral bonds, and self-bonding (corporate guarantee based on financial strength). Self-bonding was intended only for financially strong companies that met specific criteria. Beginning around 2012–2015, the coal industry started to crash due to competition from natural gas and renewables, falling coal prices, and other factors. Major producers filed bankruptcy. At the time of bankruptcy, companies held billions in self-bonded reclamation obligations. For instance, Peabody held roughly $1.4 billion in self-bonded reclamation liabilities, and Arch Coal and Alpha also carried hundreds of millions to over a billion in self-bonds.

Self-bonding failed because when companies entered bankruptcy, reclamation liabilities were treated as unsecured claims or renegotiated. By the time coal prices collapsed, companies technically no longer qualified for self-bonding — but regulators had not forced earlier replacement with secured bonds. States were left holding the bag with liability for reclamation due to large unsecured reclamation risks. The Abandoned Mine Land (AML) Program was funded by fees on coal production, and the funds were designed for pre-1977 “orphaned” mines, not modern bankruptcies. As insolvencies increased, the risk increased that AML or taxpayer funds would indirectly support cleanup. Total U.S. coal self-bonding exceeded $3–4 billion. By the early 2020s, most large coal companies had replaced or eliminated self-bonds. Coal industry self-bonding is now a cautionary tale about allowing industry self-certification of cleanup obligations.

1. Providing flexibility without undermining appropriate protections. The purpose of AB 1167 was to protect the state – and taxpayers – from financial liability for plugging and abandoning orphaned wells. According to the Department of Finance, bonding companies are becoming hesitant to approve indemnity bonds due to California's current regulatory environment and future outlook for oil and gas operations, and the Department expressed concerns that AB 1167 could also increase that problem.

Providing sufficient financial assurances is critical to ensuring the polluter pays, so to speak, because CalGEM does not have the cash on hand to cover all the uninsured costs to plug and remediate abandoned wells and production facilities. Flexibility may need to be provided under current law so that financial mechanisms that are accessible – and financially appropriate – are secured and approved ahead of any transfer, sale, or acquisition.

1. Separate rules for developers. Developers are increasingly purchasing former oil and gas well sites for redevelopment, driven by urban infill demand, the need for affordable housing, and high land value in areas such as Southern California. These redevelopment projects often involved converting dormant or orphan oil fields into residential, commercial, or recreational spaces. Developers inherit significant responsibility for plugging, abandoning, and remediating wells to current safety standards.

In 2023, the L.A. Neighborhood Land Trust purchased for $10 million a 2-acre site with 36 decommissioned wells for conversion into a park and affordable housing, known as the Jefferson Park Project. The land trust did not obtain bonds for the acquisition; instead, legacy regulatory bonding requirements tied to the former oil operator and a general expectation that remediation costs would be handled through acquisition terms, grants, and environmental cleanup processes.

This bill provides that a person who has acquired the rights to a well or production facility for the sole purpose of plugging and abandoning is subject to the state oil and gas laws as an operator, until a determination by the supervisor that the well has been properly plugged and abandoned or the production facilities have been decommissioned. Upon this determination by the supervisor, the bill requires the supervisor to release the bond, and would release the acquiring person from any further obligation or liability for the well or facility. The person who, before the acquisition, was responsible as an owner or operator, remains responsible for the well or production facility.

1. Author’s statement:

To protect the state against the risk of an orphaned well after a transfer from one owner to another, AB 1167 adjusted the required indemnity bond amount to be sufficient to cover, in full, all costs of plugging and abandonment and site restoration. Since the law was changed, nearly all well transfers have stopped.

If transfer approvals continue to stagnate, current well operators may abandon hazardous wells, leading to greater financial and environmental burdens for the state.

AB 2716 delivers the legislative revisions that Governor Newsom called for when he signed AB 1167 by giving oil and gas well operators greater financial flexibility to cover the cost of plugging idle wells after a transfer of ownership, reducing the occurrence of orphaned wells and protecting California’s environment and public health.

1. Committee amendments. The committee may wish to consider amending the bill as follows:
   1. Increase the bonding cap in PRC 3205.3 and tier the bonding amounts by well ownership.
   2. Qualify the use of self-insurance and corporate guarantees to provide that only operators with idle well management plans and solid finances are eligible to purchase/acquire wells.
   3. Provide asset retirement obligations to be qualified as an equally effective means of financial assurance.
   4. Require additional information to be provided to CalGEM for a person acquiring a well solely for the purpose of plugging and abandoning the well.
   5. Require CalGEM to report the Legislature.
   6. Make this contingent upon the enactment of AB 2461 (Hart).
2. Related legislation. AB 2461 (Hart) Extends the bonding requirements under AB 1167 to a person who acquires, or intends to acquire, as applicable, the right to control a well or production facility. Provides that, for purposes of filing an indemnity bond, a person who “acquires a right to operate or control a well or production facility” includes, but is not limited to, the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the operator of more than 50% of the voting stock of the operator and a liquidation or dissolution of the operator, among other transactions. This bill is referred to the Assembly Natural Resources Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Chamber of Commerce
California Independent Petroleum Association
Western States Petroleum Association

Opposition

350 Bay Area Action
Center for Biological Diversity
Center on Race, Poverty & the Environment
Cerbat
Clean & Healthy California
Cleanearth4kids.org
Climate First: Replacing Oil & Gas
Courage California
Environment California
Environmental Defense Center
Epic - Environmental Protection Information Center
Food & Water Watch
Fossil Free California
Fractracker Alliance
Greenpeace USA
Long Beach Alliance for Clean Energy
Natural Resources Defense Council
Physicians for Social Responsibility - Los Angeles
Redeemer Community Partnership
San Diego 350
San Francisco Bay Physicians for Social Responsibility
San Francisco Baykeeper
Sierra Club California
Sunflower Alliance
The Climate Center
Wholly H2o

Analysis Prepared by: Paige Brokaw / NAT. RES. /

1. See author’s statement for AB 1167 (Carillo) in Assembly Natural Resources Committee analysis, March 27, 2023 ↑