Shell & ExxonMobil Selling 23K Wells In California - Dodging Potential Cleanup Costs
Ed. - And they'll be sure to tell us all about it, and how it's part of their plans for "sustainability".
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Supermajors Shell and ExxonMobil recently 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. Shell and ExxonMobil say the deal will strengthen their businesses.
But Greg Rogers, an attorney and accountant who researches the oil and gas industry, said the deal allows the sellers to shed decommissioning costs. “You got bad assets with big liabilities, and you can get rid of both at the same time. That’s a win for Exxon and Shell,” he said. IKAV will inherit a portfolio littered with wells past their prime. Nearly 9,000 Aera wells were idle as of early October, meaning about 38% of the company’s unplugged inventory isn’t producing oil or gas, according to state data. “With oil being over $100 a barrel, any well that would’ve come back has likely come back,” (Ed. - Ceres Senior Director Andrew) Logan said, adding that long-idled wells are simply “orphan wells in waiting.”
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If it’s not profitable to return wells to production, they need to be plugged. But if a company doesn’t plug its wells before walking away, wells are orphaned and the cleanup costs ultimately fall to taxpayers and current operators through fees. This has happened with thousands of wells in California and hundreds of thousands, or more, across the country. For example, the Greka group of companies left more than 750 wells for California to plug when its wealthy owner began pushing his businesses into bankruptcy in 2016 and retired to his Santa Maria winery. And a subsidiary of one of the country’s largest mining companies, Freeport-McMoRan, left dozens of likely orphaned wells, state records show, even though the company brought in nearly $23 billion in revenue last year. Greka’s CEO didn’t respond to a request for comment, and a Freeport spokesperson said the company is working with the state to verify details about its orphaned wells.
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Shell acknowledged its California wells were overvalued, suggesting the wells are even nearer to the end of their economic life than previously predicted. The company is wiping as much as $400 million off its books through the sale via an impairment charge. Shell has been shedding assets in part to hand off associated greenhouse gas emissions. A 2021 Dutch court ruling ordered it to significantly reduce emissions, although the company has appealed the ruling. Zoe Yujnovich, the company’s upstream director, said in a news release about the sale of Aera that Shell will instead be “focusing on positions with high growth potential.” For its part, ExxonMobil plans to focus on oil and natural gas that costs less to extract, Liam Mallon, president of ExxonMobil Upstream Co., said in a news release announcing the sale to IKAV.
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https://www.propublica.org/article/california-oil-wells-shell-exxonmobil