Stay informed with free updates
Simply sign up to the Oil & Gas industry myFT Digest — delivered directly to your inbox.
Land owners are suing a Denver-based oil and gas company, alleging it systematically avoided cleaning up old operations, in a case that spotlights the prospect of US taxpayers shouldering billions of dollars of costs to remediate pollution from wells previously owned by energy majors.
The lawsuit addresses the problem of abandoned wells, which can leak toxic chemicals into the air, contaminate groundwater and emit methane gas unless they are plugged with cement. Less than half of the nation’s estimated 3.7mn abandoned wells have been plugged, according to US government estimates.
The Colorado-based property owners allege that HRM Resources, a company backed by private equity group Kayne Anderson, bought uneconomic wells from Chevron and other producers and used a corporate restructuring and bankruptcy scheme to dodge its liability to properly close them down. ClientEarth, the non-profit legal group that filed the suit on Wednesday, said it was aimed at industry practices broadly.
“This case aims to ensure that oil and gas companies finally make these wells safe, and shut down a system that harms property owners, worsens the climate crisis and sticks taxpayers with a giant clean-up bill,” said Camille Sippel, an attorney for ClientEarth.
The lawsuit comes as new taxpayer money becomes available for clean-ups. Congress has allocated $4.7bn to decommission “orphan wells”, where no owner can be found or will assume responsibility for clean-up. States such as Colorado can apply for funds from this federal programme to help cover the cost of plugging these wells.
The plaintiffs claim that Chevron and several other oil companies transferred hundreds of low-yielding wells to HRM, which kept the profits of operating these assets and then conspired to avoid millions of dollars in well-decommissioning obligations.
They allege that HRM, its chief executive Roger Hutson and two other individuals are linked to the “fraudulent transfer” of almost 200 wells to a designed-for-bankruptcy entity called Painted Pegasus Petroleum. Plaintiffs accuse HRM of knowing when it transferred the assets that the company would go bankrupt and foist the clean-up costs on either private landowners or the government.
“HRM made this transfer with the actual intent to hinder, delay, or defraud its creditors, including plaintiffs,” the suit alleges.
In November 2021 Painted Pegasus filed for bankruptcy in Texas and did not notify landowners that the wells on their land were being abandoned, according to court documents.
“The defendants kept the profits obtained from operating the oil and gas wells while jettisoning the liabilities, leaving Colorado plaintiffs with unplugged, dangerous wells and simultaneously saddling taxpayers . . . with cleaning up the mess,” the plaintiffs allege.
HRM did not immediately respond to a request for comment.
Chevron said it follows state regulations when transferring operatorship of wells and operates a “very active” plug, remove and reclaim programme in the Colorado Denver-Julesburg Basin.
HRM says on its website that the company “leads the oil and gas industry in our commitment to protecting the air, water and land that surrounds our operations” and consistently exceeds regulatory requirements”.
The case, which is filed in Adams County district court in Colorado, highlights questions over who bears responsibility for old oil and gas wells after they reach the end of their productive lives. It follows another case in which a group of land owners in West Virginia alleged natural gas producer EQT had fraudulently transferred 700 ageing wells to Diversified Energy to avoid clean-up responsibilities. EQT denies these allegations and is fighting the case in a federal court.
Many US states and federal authorities require oil and gas companies to post bonds to cover the cost of well reclamation and plugging costs. But the amount is not always sufficient. The Adams County government found in September 2022 that the Painted Pegasus transfer was “the largest single-operator well orphaning in state history”. The county government was only able to secure $305,000 from Painted Pegasus in bonding from the company for remediation of its sites while the likely cost would be $17mn or more, it said in a report.
A 2019 report about oil and gas wells on federal land by the US Government Accountability Office found that 84 per cent of bonds issued by the Bureau of Land Management were not enough to cover clean-up costs.
“There have been many instances of companies selling marginal, non profitable wells with a high liability, to companies that don’t have the deep pockets to clean them up,” said Mary Kang, a professor at McGill University who has researched unplugged wells.
Randall Trupp, a wheat farmer in Adams County who is one of the plaintiffs in the HRM case, told the Financial Times one of the underground pipes linked to an unplugged well on his property exploded in 2021.
“It blew a hole in the ground four feet deep,” said Trupp, adding that he did not realise at the time that the company that owned the well on his property had declared bankruptcy.
Read the full article here
