California’s multibillion-dollar problem: More than 7,600 wells on pause
CRC has since faced harsh market forces. Oil production at the wells now owned by the company is down more than 70% since the 1980s. Gas is down more than 50%. CRC’s shares had lost more than four-fifths of their value as of mid-January. The company’s cash generated after expenses — a key financial measure known as net free cash flow — is several hundred million dollars in the red since splitting from Occidental, according to an analysis of U.S. Securities and Exchange Commission filings compiled by the energy analyst Williams-Derry, who has tracked CRC.
And CRC has nearly $5 billion worth of debt that’s maturing by the end of 2022. Its credit rating is CCC+, which Standard & Poor’s describes as “currently vulnerable” and just steps above default.
“The significant risk of this company is avoiding bankruptcy,” said Paul Sankey, an oil and gas analyst and managing director with financial firm Mizuho.
On top of all this, CRC will eventually need to address its environmental liabilities. The company’s most recent SEC filing lists $511 million in future cleanup costs called “asset retirement obligations.”
After examining the state’s historical costs, the Times and Public Integrity found it could cost more than $1 billion to plug all the wells CRC operates.
CRC across all its subsidiaries has more than $80 million in cleanup bonds outstanding with various agencies, satisfying its obligations, Thompson said.
Under California law, operators can either pay fees or agree to plug long-idled wells. Of the 10 operators with the most long-idled wells in the state, the only ones that opted for fees instead of cleanup were two CRC subsidiaries, according to data obtained via public records requests.
Holding off on decommissioning minimizes short-term costs, but it comes with uncertain consequences for California if CRC gets into deeper financial difficulties.
“A single bankruptcy among one of these large companies could potentially create a large number of orphan wells,” the recent California Council on Science and Technology report said, specifically mentioning CRC.
By Mark Olalde, The Center for Public Integrity