New Lawsuit Targets Fraudulent Transfer of Oil and Gas Wells to Evade Cleanup Obligations

A lawsuit filed on July 8 by a group of West Virginia landowners highlights major oil and gas drillers’ troubling practice of handing off their well cleanup liabilities to marginal companies who lack the resources to cap and clean up those wells. The lawsuit specifically targets the transfer of more than 700 wells by the EQT Corporation to Diversified Energy in July 2018 and May 2020, alleging that those transfers were fraudulent and improperly designed so that EQT would be able to  evade its cleanup obligations. But the issues raised in the lawsuit regarding methane emissions and property damage from abandoned wells implicate tens of thousands of wells across West Virginia and other oil- and gas-producing regions of the United States.

A recent report by the Ohio River Valley Institute found that Diversified—which has acquired low-producing wells at such a furious rate that it is now the country’s largest owner of oil and gas wells—lacks the funds to clean up all of its wells. According to the report, Diversified’s business model rests on its ability to push back the closure dates for its wells. According to the company’s own schedules, Diversified has pushed back the closure date for two-thirds of its wells until after 2056, and the company’s entire well inventory will not be retired until 2095. This accounting trick allows Diversified to mask the true scale of its liabilities. The lawsuit specifically alleges that “if Diversified had used industry norms to calculate its plugging and  decommissioning obligations then those liabilities would have jumped from its self-reported range of $525 million to a more realistic range of $2 billion to $3 billion, thereby rendering Diversified insolvent.” Meanwhile, many of those wells continue to leak the potent greenhouse gas methane, and to otherwise threaten nearby communities and the environment.

Across the country, similar patterns play out where deep-pocketed oil and gas drillers reap major profits from the first few years of well production, then offload the wells before capping and cleanup obligations kick in. By the time the wells cease producing, they are frequently held by under resourced companies teetering on the edge of bankruptcy. Rather than cleanup and cap the wells as the law requires, these companies frequently file for bankruptcy or otherwise claim that they lack the funds to meet their obligations. This practice has led to thousands of abandoned, uncapped wells across the country.

Many of these abandoned wells pose hazards to nearby communities and the planet by leaking high levels of methane and other toxic chemicals. Recently, the Sierra Club and its allies discovered several dozen wells near a dense subdivision in Bakersfield, California, leaking very high levels of methane. One well’s methane emissions exceeded the maximum detectable limit for an inspector’s monitoring device, at over 50,000 parts per million. Those wells are owned by Sunray Petroleum, which went through a bankruptcy liquidation in 2016.

Uncapped abandoned wells will continue to pose a threat to nearby families and to the global climate unless regulators impose more stringent requirements on well owners, including the deep-pocketed companies who profit from those wells’ initial production.

The landowners bringing today’s lawsuit against EQT and Diversified are represented by attorneys with Appalachian Mountain Advocates and Bailey & Glasser LLP.

Up Next

Próximo Artículo