CIPA-Sponsored Bonding Fix Bill Introduced

On Friday, February 20, AB 2716 was introduced at CIPA’s request by Assembly Member Anamarie Avila Farias to fix Public Resources Code § 3205.8, the AB 1167-era “transfer bonding” section that has caused a market freeze and prevented sales of oil wells and facilities for over two years.

CIPA’s stated purpose for AB 2716 is to conform AB 1167’s transfer regime to California’s existing risk-based financial assurance framework created by AB 1057 (Limón, 2019), the statute that authorizes CalGEM to require additional security based on evaluated desertion/environmental risk, subject to statutory limits.

AB 1167 required transfer approval of wells producing less than 15 barrels a day and associated facilities only after CalGEM determines the full cost of plugging/abandonment, decommissioning, and site restoration is covered by a bond or cash upfront before the transaction closes as outlined in their AB 1167 Notice to Operators, an approach that has dried up all oil and gas transactions since the law went into effect in January 2024. It was this potential unintended consequence that prompted Governor Newsom in his signing message to warn that the inflexible provisions of AB 1167 could increase the risk of well abandonment and urged the Legislature to address those unintended consequences by aligning the provisions of AB 1167 with existing CalGEM authority under AB 1057.

In practical terms, AB 1167’s structure produced a total freeze of sales and transfers of wells below 15 bbls/day in 2024–2025, blocking recapitalization and preventing assets from moving to operators positioned to maintain production safely and execute planned decommissioning. Eighty percent of California’s well fall under the definition of “marginal well” under PRC § 3205.8. The only wells sold or acquired in 2024-25 were either producing more than 15 barrels a day, part of a wholesale purchase of an entire company with no change in operator, or strictly for the purpose of plugging and remediating as part of a surface development project. 

A competing measure, AB 2461 by Assembly Member Gregg Hart, also introduced last Friday, would amend two code sections: PRC § 3205.8 (transfer bonding) and PRC § 3202 (California’s broader bonding statute). It would extend the bonding requirements to stock purchases, such as CRC’s acquisitions of Aera and Berry Petroleum. Those transactions did not trigger 1167 compliance since they were purchases of entire companies and no operator transfer occurred. Hart’s AB 2461 would also apply the bonding requirements to all wells, not just marginal wells as the current code does.

AB 2461 is obviously a step in the wrong direction. Hart has already imposed major accelerated liabilities on the industry through his AB 1866 (2024), which increased idle well fees and strengthened idle well elimination requirements effective January 1, 2025, including significant changes to IWMP rules and minimum annual elimination percentages. This has resulted in a massive increase in annual plugging activity by industry, a development not envisioned when AB 1167 was passed.

From CIPA’s perspective, piling additional bonding burdens on top of AB 1866 risks upending operators’ ability to comply with the state’s Idle Well Management Program, because capital that would otherwise fund plugging and remediation is diverted into bonding and financial assurance structures that, in California’s regulatory climate, may be commercially unavailable or prohibitively expensive.

CIPA supports AB 2716 as the targeted repair bill Governor Newsom called for, intended to restore a functioning transfer market by aligning AB 1167’s transfer provisions with the risk-based AB 1057 framework while maintaining strong taxpayer protections.

CIPA is opposing AB 2461 but will work with the author as it did when Hart developed AB 1866. Hart originally proposed a mandatory 25% annual reduction in idle wells for all operators but eventually took CIPA amendments that limited that rate to 5% or 6% for CIPA members depending on number of idle wells.