There Will Be Buildings: L.A. Developers Chase Decommissioned Oil Wells

Southern California’s commercial real estate industry doesn’t want to drink each other’s proverbial milkshakes — they want to build on top of them. Yet redeveloping land used for oil extraction is potentially lucrative and risky in similar measures.

Before the film industry was born, and before aerospace made landfall, L.A. was an oil town — and how. What geologists call the L.A. Basin contains 68 named oil fields, each with a cadre of wells that have been dug by the thousands since the underground seas of black gold were discovered in Southern California in the early 1890s. At its peak three decades later, the region produced roughly 25 percent of the global oil supply, and oil had surpassed agriculture as the Golden State’s largest industry. 

Oil is largely responsible for fueling L.A.’s infamous urban sprawl, too. Rather than naturally growing along transportation lines, housing developments bloomed in the wake of scattershot subterranean discoveries, with expansive neighborhoods built near or even adjacent to active wells. 

That sprawl forced L.A’s reliance on automobiles. In 1932, companies in the oil, auto and tire industries formed the National Highway Users Conference to encourage the development and use of highways instead of public transit. Thirty years later, the Pacific Electric Railway — once the largest electric rail system in the world — ended its final urban passenger line.

Today, Southern California is inextricably tied to and defined by that history despite being in a much different mindset regarding fossil fuels. Both the City of L.A. and L.A. County plan to reintroduce separate ordinances early next year to phase out oil drilling (both having repealed previously enacted phase-outs due to new laws passed by the state) and many of L.A. County’s roughly 20,000 active, idle and abandoned wells have already ceased operation. (“Abandoned” is a technical term in the energy trade, implying that an asset was permanently taken out of service. Each well can cost between $50,000 to $3 million to properly abandon, according to Joe Derhake, CEO of engineering and environmental consulting firm Partner Engineering and Science.

These days, there is more value not in what lies within the ground, but the dirt above it. 

Land available for development in L.A. County is hard to come by, especially in affluent or coastal areas, and it’s becoming more expensive all the time. Yet, via former oil well, refinery or other related brownfield sites, investors can hit two birds with one stone, finding both the scale they want and generally at more digestible prices. 

The trend is growing despite the increased risks, including the health and safety of potential occupants, environmental concerns, bureaucracy, and time and money. They’re risks that more and more investors and developers are willing to take, said Preston Brooks, a real estate attorney specializing in contaminated properties for real estate law firm Cox, Castle & Nicholson. 

“There’s no such thing as pristine land left in California that you would want to develop,” Brooks said. “They all come with different constraints of different types and different challenges. We like to say, ‘There’s some hair on this deal.’ Sometimes the hair is of a cleanup nature. There’s something that needs to be cleaned up before it can be properly reused. Sometimes it’s going to be these wells. But there’s such a strong appetite for acquiring properties that are otherwise good real estate.”

Careful, it’s slick

Oil extraction is an ever-present factor of life for millions of Angelenos, whether they know it or not. At the start of this decade, approximately one-third of all L.A. County residents lived less than a mile from an active drilling site, with some as close as 60 feet, according to a study by the University of Southern California. Oil wells across the region are disguised as construction zones, art pieces, towers and even, of all things, a synagogue.

Beverly Hills and the surrounding L.A. neighborhoods in particular are home to dozens of active wells hidden in plain sight. They are often housed in large, windowless, soundproof buildings amid the urban sprawl, such as the roughly 50 wells disguised as a construction site attached to the Beverly Center mall.

Another, more famous example was the sardonically named Tower of Hope, a 150-foot-tall disguised oil derrick next to Beverly Hills High School. The well was shut down in 2017 after decades of operation, following the bankruptcy of its parent company and numerous health complaints (including from paralegal and environmental activist Erin Brockovich).

Communities of color tend to have the closest exposure, too, with 44 percent of Black communities, 38 percent of Asian communities and 37 percent of Latino communities living near active wells, compared with 31 percent of white communities, per a UCLA study from 2018. Other studies show that people who live near active oil facilities are more likely to have higher rates of birth defects, asthma and cancer. 

It’s no surprise, then, that some communities jump at the chance to remake those properties when developers come knocking. Or even take matters into their own hands.

The Los Angeles Neighborhood Land Trust (LANLT) is a nonprofit aimed at providing parks and recreational spaces for communities of color across park-scarce L.A. It is also the owner and lead developer of the Jefferson Park Project, which aims to redevelop a roughly 2-acre site in South L.A. that contains 36 decommissioned wells. LANLT purchased the site from Sentinel Peak Resources in 2023 for about $10 million, and plans to build a park, a community center, and a yet-to-be-determined amount of affordable housing units, according to Executive Director Tori Kjer. 

“This project actually came to us from the community,” Kjer said. “There was just this coexistence of two land uses that don’t work well together. … What we’re building, and what is coming out of this project, is a community vision.”

LANLT’s community partner, Redeemer Community Partnership, is a member of Stand L.A., an environmental justice coalition aimed at ending urban oil drilling. Redeemer had been working to shut down the Jefferson site in particular because of its proximity to property lines. Once Redeemer was able to negotiate the shutdown of the site, LANLT stepped in to buy it. 

Other redevelopments are more controversial. In Huntington Beach, Shopoff Realty is re-envisioning a 29-acre former oil storage tank site, known as Magnolia Tank Farm, into about 200 single-family homes, a 50-unit affordable multifamily complex, a 215-room hotel and about 19,000 square feet of retail space. 

Shopoff had purchased the coastal property in 2016 — by which point most of the tank infrastructure had been demolished — and scored entitlements and approvals from the California Coastal Commission (CCC), and last summer from the Huntington Beach City Council. Yet some locals and environmental advocacy groups have repeatedly fought the project on a number of fronts, arguing that the property is flood-prone, sits atop a fault line, and is adjacent to a former Ascon superfund dumping site that ceased operation in the 1980s. 

An open letter to the CCC — sent in July 2024 from environmental groups the California Coastal Protection Network, the Surfrider Foundation, the Orange County Coastkeeper and the Sierra Club Angeles Chapter — urged denial of the Magnolia Tank Farm project, and called the Ascon site “un-remediated.” 

Stephen Logan, Shopoff’s senior vice president of real estate, is adamant that the Magnolia Tank Farm site is safe, and noted that it and the Ascon site were completely separate. Rehabilitation of the Ascon site, which had been delayed, is expected to finish in roughly 14 to 16 months, he said.

“We always stated in our community meetings, as well as to the [CCC], that we’re not going to feel comfortable putting residences in a place that we wouldn’t want to live, and that we didn’t feel was safe for residences,” Logan said. “So once we knew that we had control of any issues that were going to derive from the remediation [of Magnolia Tank Farms], we felt very comfortable that this is a place that will be free and clear of any issues. 

“We’re never going to make 100 percent of people happy all the time, but I think the residents have accepted for the most part what we’re going to do. It’s just communicating to them the timing of construction … and keeping them informed as we move through that process.”

Other projects are just overall more complicated in terms of size, scope and the regulatory hurdles they face. 

Energy giant Phillips 66 is in the process of closing its 440-acre refinery in L.A.’s Wilmington neighborhood, to make way for a mixed-use development that it announced last autumn. The proposed district just north of the Port of L.A., officially dubbed Five Points Union, calls for 270,000 square feet of retail space, 67,500 square feet of restaurant space, a 60,000-square-foot indoor sports facility, two outdoor soccer fields, green space and parking for nearly 2,500 vehicles. Plans also include eight vast industrial facilities totaling some 6.1 million square feet. 

Phillips 66 has engaged with Catellus Development and DECA Companies to helm the project, both of which have experience with similarly scaled adaptive reuse. Catellus in the early 2000s, for example, redeveloped a 200-acre Pacific Refinery Company site in the San Francisco Bay area into more than 900 homes. Yet, the Wilmington site, given its 100-plus year history and location near the coast, comes with its own set of unique challenges. 

First is the sheer cost and time required to remediate the site. The Houston-based energy firm told the Securities and Exchange Commission that it expects to spend $231 million on “asbestos abatement” and “decommissioning of assets,” before the project gets anywhere close to shovel-ready. Remediation of the site in general is expected to take “years,” the L.A. Regional Water Control Board said last year, due to “significant amounts of contamination” that exist on the property. 

Indeed, the water control board is just one authoritative body with at least some oversight of the property, alongside the state’s Department of Toxic Substances Control (DTSC), the California Energy Commission, the California Geologic Energy Management Division (CalGEM) and possibly the CCC, not to mention project entitlements and approvals from the City of L.A. 

A higher level of community input is another factor facing refinery conversions. Catellus and Deca said they’ve already had hundreds of meetings with locals before their plans were filed, per the L.A. Times, with more undoubtedly on the horizon. Community residents have for years complained of foul odors, noise, soot and gas flares, along with potential fire risk (Phillips’ refinery in Carson, roughly five miles north of the Wilmington facility and which is also being eyed for redevelopment, caught fire in early 2020 due to a light hydrocarbon leak). The Wilmington site in particular may have contributed to 87 percent of the estimated excess cancer risk in the area, according to a 2021 ProPublica review of Environmental Protection Agency model data. 

Phillips 66, for its part, said last month that the Wilmington site had received its final shipment of crude, and that it would fully process that crude by mid-October. Representatives for Catellus and Deca did not respond to requests for interviews and it was not immediately clear if the crude had indeed been processed as of Nov. 11.

Abandonment issues

In March 1985, a Ross Dress for Less in L.A.’s Fairfax district exploded after a high-pressure buildup of methane gas was ignited by a spark, allegedly by the store’s punch clock. Twenty-three people were injured, and the building was left a ruined husk. 

No known oil well was resting beneath the property. The massive Salt Lake Oil Field was, however — in some parts as deep as 3,300 feet below the surface. Trapped by the largely impermeable concrete membrane of the city above, the gas slowly seeped into the Ross location, ultimately morphing it into a loaded gun with a hair trigger. 

While oil-related incidents in Southern California — such as the October explosion and fire at Chevron’s refinery in El Segundo, in which four workers were seriously injured — are few and far between, they influence how elected officials view the efficacy of redeveloping well sites. 

Once a site’s wells are sealed, developers will receive a letter from CalGEM, as standard practice for every potential oil well redevelopment project, recommending that they do not build on top of the plugged wells — regardless of the site’s conditions, Derhake, the engineer, said. The guidance is not a requirement, but local authorities don’t always realize it’s only a recommendation, Brooks, the attorney, added. 

Miscommunications occur because local jurisdictions rarely have oil well remediation experts on staff, Brooks said, leading to cyclical deferment to other agencies, or additional procedural delays on top of Southern California’s already cumbersome approvals process.

“When you do need to build, it’s just not a helpful recommendation to say, ‘Don’t ever build on [any of these sites],’” Brooks said. “I don’t think that there’s much real data around the number of times that construction occurred on top of or in close proximity to a well, where it resulted in a health and safety issue. That’s part of the problem.

“It should be a science-driven understanding, like in other areas of environmental law, where we do health-risk assessments all the time: What is the risk on the ground, posed by a particular set of circumstances? And you evaluate that using appropriate criteria, and [the local authority] says, ‘Yeah, we think you’ve evaluated the risks and weighed them correctly.’ There’s not really an opportunity for that in the oil well abandonment business. It’s just, ‘Our way or the highway.’”

Building on top of oil wells can also come with nasty surprises. The large amount of wells in the region over the past 130 years means records can be spotty, even regarding information on where they’re located. It’s not unheard of for a developer to believe that a well is on one side of a property only to find it in the way of a building’s foundation once shovels hit the dirt. 

In late 2018, Aragon Properties was in the midst of redeveloping a site of long-abandoned wells in L.A.’s Echo Park into a multifamily complex. Aragon had taken responsibility for the wells as part of its redevelopment agreement with the city. Yet it misjudged the location of one — a problem Aragon rectified only after the well had seeped some 10 barrels worth of crude into nearby storm drains and stained parked cars.

And, just because a properly located well was abandoned, that doesn’t mean it was abandoned well. 

In early 2019, less than a month after the Echo Park incident, an affiliate of Hardage Hospitality was resealing a well on a redevelopment site in Marina Del Rey. The well had already been twice abandoned in the 1950s, but was being thrice abandoned to meet modern safety standards. A worker was pulling tubing up the well when it unexpectedly broke open, spewing oil, water and mud for roughly 10 minutes — a geyser fully caught on video. 

The worker managed to escape uninjured, yet the blowout triggered an investigation and new remediation efforts before Hardage could proceed. The dual-branded hotel was ultimately completed in 2021. 

In anywhere other than Southern California, such hazards could ultimately prove too much for a would-be developer. Is the reward really worth years of potential added delays, bureaucratic headaches, litigation or unexpected environmental threats — each potentially cutting millions of dollars from the bottom line? The answer for real estate folks in the (Black) Golden State is yes, Brooks said. 

“I think it’s probably wishful thinking, because we need this land,” Brooks said of passing on a project due to the risk. “There’s too much land that has oil wells dotting all over it. And it’s otherwise valuable and productive land where there’s a demand for development.”

Nick Trombola can be reached at ntrombola@commercialobserver.com.