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Rising costs, state regulations for oil-well cleanups impede development in Signal Hill, other cities

February 15th, 2013 · No Comments · News

Sean Belk/ Signal Tribune<br><strong> An abandoned oil pump located on vacant land between Willow and Spring streets is an example of many properties that could become future development. However, a combination of rising costs, changes to state regulations and the loss of redevelopment to properly abandon oil wells continues to hinder development in the city.</strong>

Sean Belk/ Signal Tribune
An abandoned oil pump located on vacant land between Willow and Spring streets is an example of many properties that could become future development. However, a combination of rising costs, changes to state regulations and the loss of redevelopment to properly abandon oil wells continues to hinder development in the city.


Sean Belk
Staff Writer

For years, Signal Hill city officials have suggested that four city blocks of land along Spring Street between Atlantic and California avenues is prime real estate for a hotel or other commercial uses.
The acreage owned by the State after being transferred from the now defunct Signal Hill Redevelopment Agency (RDA), however, remains undeveloped.
Changes to state regulations and rising costs associated with cleaning up old, abandoned oil wells, a procedure known as oil-well re-abandonment, continues to be a major deterrent for economic growth in Signal Hill and other cities in the region, leaving the once revenue-producing properties to remain barren wastelands, according to city officials and oil-industry experts.
Vacant land between Willow and Spring streets, for instance, could have about 100 abandoned wells on it, which could cost millions of dollars just to clean up the property to comply with State regulations before any development breaks ground.
“It’s just not cost-effective for a company to come and build houses when it costs them half a million dollars to get the land legal to build over… so they just sit vacant,” said Mick Beyer, operations manager for Allenco Energy, Inc., referring to vacant property in Huntington Beach, which, like Signal Hill, has a long history of oil production.
Last year, the Signal Hill City Council approved a one-year extension of a moratorium that prohibits developers from building over abandoned oil wells, regardless of whether the wells are properly cleaned up or not. The moratorium, which expires in August, allows city staff to conduct a study on updating the City’s oil code due to the impacts of recent changes implemented by the State Division of Oil, Gas and Geothermal Resources (DOGGR), which is the lead agency that certifies oil well abandonment prior to the City issuing grading or building permits to ensure gases and toxins don’t continue to seep up from the ground.
In November 2010, the DOGGR terminated its methane-leak testing of wells and its development review, abruptly ending a 22-year-old program, which City staff has said creates “ambiguity” and “a major lack of guidance.” City officials said the State has taken a more hands-off approach to the abandonment procedure, leaving cities and developers to go through the process on their own and requiring that they hire third-party petroleum geologists.
What has made matters worse is the State’s decision to dissolve redevelopment, which, at least for Signal Hill, had been a major economic-development tool to acquire property and assist in oil well re-abandonment, soil remediation, installation and operation of vapor recovery systems, pipeline removal, demolition and clearing contaminated properties.

<strong>An abandoned oil pump located on vacant land between Spring and Willow streets off of California Avenue </strong>

An abandoned oil pump located on vacant land between Spring and Willow streets off of California Avenue


Replacing redevelopment
Since the early 1990s, the now dismantled Signal Hill Redevelopment Agency (RDA) has invested $15 million in cleaning up properties, making possible much of the commercial development that exists today, including the Signal Hill Auto Center, Town Center East, Home Depot and Costco. Redevelopment has enabled the City to acquire and clean up land that otherwise would have remained empty since much of the property is owned by various individual property owners who bought shares during the oil-speculating days of the 1920s and 1930s.
Now, a combination of rising costs, changes to state regulations and the loss of redevelopment have created a perfect storm that continues to be “a huge constraint” for new development in the city, said Scott Charney, Signal Hill’s director of community development.
“The bottom line is we have a large inventory of undeveloped property compared to the surrounding community of Long Beach, but there’s a reason for that,” Charney said. “There are a lot of concerns for development in the community. We’ve got earthquake faults. We’ve got active oil operations. We’ve got well-abandonment issues and soil-remediation issues… There are a whole host of things.”
According to Signal Hill City staff, an environmental consultant estimates that costs for oil-well re-abandonment on properties previously owned by the Signal Hill RDA could range from $784,000 to $3.5 million. In addition, city staff estimates that there are about 2,000 abandoned oil wells in Signal Hill, many of which could be turned into future development.
But, without the infusion of redevelopment funding, City officials are now forced to look for new, creative ways to replace redevelopment, such as cutting back costs for building or applying for federal or state grants, in hopes of enticing developers to build on land that otherwise would be too expensive to develop.

Rising costs
Beyer said oil-well re-abandonment, considered the most common and most expensive part of developing on oil-rich property, starts at a cost of about $120,000 per well. “Anybody who tells you they’re cheaper than that, then they really don’t know all the information,” he said. Beyer confirmed that the procedure could even cost as much as $800,000 per well, depending on the condition of the well.
Re-abandonment of a well often involves clearing out debris from old wells, cleaning-up contaminated soils around the wells, breaking out concrete plugs and installing plugs to prevent methane gas and fluids from leaking.
Beyer said abandoning an active well is less complicated and can run about $60,000 to $80,000 per well.
Developers also often come across “junk” in well casings, including cabling, broken pipes, wood, rocks and concrete plugs that can prevent full abandonment and complicating factors for idle and previously abandoned wells. Seismic or geological forces also can crush casings, according to city staff.
Beyer said, unlike some areas that have shallow wells, Signal Hill mostly has deep wells that stretch 3,500 feet to 5,500 feet below the surface, which can be costly to plug up, he said.
According Kevin Laney, vice president of rig operations for Signal Hill Petroleum, which owns the most property in Signal Hill, well-re-abandonment costs are higher than they were 15 to 20 years ago, when the price tag was anywhere from $30,000 to $40,000. Those days are “long since gone,” he said.
“There’s no doubt that costs of abandonment have gone up,” Laney said. “Everything from the cost of rig time, the cement, the mud and the labor– all the costs have gone up over the years. It’s just more expensive.”
He added that costs for oil-well re-abandonment vary significantly and have been made even more complex due to state regulations.
“You have to go back into a well that was previously abandoned before some of the modern-day regulations were passed,” Laney said. “You have to drill plugs out that [were] put in it back in the day, and that gets expensive and time consuming… Sometimes you might have to drill out two or three plugs to get down to an area that DOGGR is requiring you to place a plug over now.”

Strict State regulations
Charney said a major problem for large developments, however, is the fact that DOGGR has become stricter in their approval of oil-well re-abandonment and has stopped issuing authorization letters for wells that meet standards “equivalent” to full certification
“Historically, developers got those equivalent letters, which is what happens when DOGGR says they’ve done the work, but didn’t achieve abandonment…. they’re no longer doing that, which means most wells, regardless of how much you spend, are going to be classified as not to current standard,” he said.
Beyer said, however, in some cases re-abandoning a well up to the State’s current code, which requires that developers plug up new “zones” that go beyond previous depths, can be almost “impossible,” which he said is why some cities, such as Los Angeles and Huntington Beach, are providing developers with allowances to build over wells without full State certification. In some cases, a regular homeowner looking to add on to property that has previously abandoned wells on it may cost hundreds of thousands of dollars or even millions to bring wells up to State code, he said.
“The State’s requirements are a little extreme,” Beyer said. “Sometimes you can’t get these wells up to DOGGR’s code, and, if you don’t, they won’t give you a final letter… Certain cities are doing an allowance for that, letting you get a building permit even though [a developer] didn’t get to that final depth that DOGGR wanted to get to… It’s still a safe well.”
Still, not receiving a certification letter from the State can have consequences, he said. In some cases, the State may withhold $15,000 to $20,000 in bonds for every well that isn’t brought up to code, Beyer said. In addition, banks may also withhold loan funding for major construction companies until a final letter is issued from the State. He added that the State also requires that any abandoned wells around new injections also must be brought up to code, which can deter further drilling.
In the City of Huntington Beach, however, Bill Reardon, fire marshal for the Huntington Beach Fire Department, which oversees well abandonment in Huntington Beach, said he feels confident about the safety of the City’s process of issuing building permits for development on oil wells, even though DOGGR is no longer taking as an active role in the process.
“With Huntington Beach’s long oil-production history dating back to as early as the ‘20s and ‘30s, there’s considerable amount of development in the community that has oil wells that are producing or are currently abandoned,” he said. “I do feel confident on the local level that our residents are safe and it’s a safe process and don’t really have any concerns about what’s occurring at the local level… We already had a system in place internally when there was somewhat of a change, so it didn’t really cause a significant concern on our part.”

Signal Hill oil-code study
The City of Signal Hill, however, decided in 2011 to stop issuing building permits for developments with “footprints” over abandoned oil wells and is only processing plans that avoid building over wells, which has created “strange” configurations for some residential and commercial developments, Charney said.
He said the moratorium was implemented “out of an abundance of caution” while the City studies the changes implemented by DOGGR. Until then, he said, there aren’t expected to be any large developments moving forward. “There’s still a large inventory of undeveloped parcels waiting to be developed, but if we don’t have some sort of strategy on how to build over oil wells… it’s unlikely you will see the types of developments like Costco, Home Depot and the Gateway Center, because it’s much harder to position big buildings on a site,” he said. Charney said the City’s policy might change down the road, based on mitigation standards the City has incorporated in existing contemporary development in the city, adding that there are properties that have building footprints over abandoned wells with “no known health or safety issues.” But, until the results of the study are released, he said the City’s current policy remains.
“The goals of the study are to determine if we can go back and have a standard to have a development safely over re-abandoned wells,” Charney said. “I would suspect we would be able to be in a position where we could do that, but I don’t have the studies to say that’s where we’re at.”

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