CPPIB warned it may face billions in clean-up costs for idle oil wells

Financial and environmental liabilities of inactive and unplugged oil wells in California may come back to haunt pension giant the Canada Pension Plan Investment Board, Net Zero Investor has been told.

Jasmine Vazin, senior representative at the US-based Sierra Club, said that CPPIB, commonly known as CPP Investments, may increasingly find its stake in Aera Energy a liability.

Aera Energy—which is 49% owned by the CPPIB—owns over 24% of California’s idle oil wells and “could be on the hook for $1.8 billion for costs of clean-up and remediation,” Vazin said.

California takes an increasingly aggressive approach to regulating and phasing out its oil and gas industry.

However, California’s decades of fossil fuel extraction have left the state with 41,568 inactive and unplugged oil wells that may risk communities with methane leaks and other carcinogenic toxins, Vazin said.

Moreover, she argued that just three companies own nearly 70% of those wells and have the financial means to expeditiously clean them up.

Though owned by ExxonMobil and Shell for a quarter century, the Canada Pension Plan Investment Board (CPPIB, or CPP Investments), purchased a 49% stake in Aera Energy in February 2023.

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Vazin’s organisation estimates that it will cost Aera $1.8 billion to plug all of its idle wells in California, as well as $4.7 billion to plug all of its unplugged wells.

“That means that if the California Legislature moves towards a policy more in line with oil producing states like West Virginia and Pennsylvania – where companies only have one year to keep their wells idle before paying to plug and abandon them – Canadian pensioners could be on the hook for a large share of the costs of cleaning up idle wells in Aera’s inventory,” Vazin said.

Vazin’s analysis is not an unlikely scenario. In recent months multiple local and local legislators have called for legislation similar to West Virginia and Pensylvania.

The Sierra Club puts a $10-billion price tag on plugging and remediating California’s inactive wells, including idle and orphan wells, a mere 6.8% of the 2022 profits of the three majors analysed.

It would cost $22.9 billion to plug and remediate all of the state’s unplugged wells, about 15% of the three companies’ 2022 profits.

Currently, companies can avoid remediation of their idle wells by paying nominal fees with no cleanup deadline or entering into a plan where only tiny percentages of wells are retired over prolonged timelines.

Finally, Vazin called the current situation “a major climate justice issue” because “dle wells are concentrated in districts heavily populated by communities of colour and with unemployment rates higher than the state average,” she concluded.

Response

When approached by Net Zero Investor, CPPIB declined to respond but a spokeswoman for Aera Energy told Net Zero Investor that "at Aera, we have always taken our responsibility to retire idle wells very seriously, and we have supported California’s efforts to ensure it has the resources needed to continue reducing the state’s idle well inventory."

She stressed that "we also support smart regulations to address safe remediation of idle wells in the state."

In addition, she said that "we have a dedicated team within Aera with years of experience that prioritizes work with public health, safety, and environment at the forefront of their decisions as they continue to keep us in compliance."

Since 2019, Aera has abandoned 5,334 wells, "while also adhering to the most rigorous testing standards in the country," the spokeswoman continued, adding that "in 2023, we are on track to abandon close to 950 wells."

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