The Fossil Fuel Industry Can’t Avoid Liability for Discarded Oil and Gas Wells

Investors were madly in love with Rusty Hutson of Diversified Energy—until Congress launched an investigation into how he’s making millions off 60,000 decaying oil and gas wells littered across Appalachia.

As Democratic leaders wrote in their letter to Mr. Hutson: “[d]eferring and underestimating environmental liabilities would provide Diversified Energy the appearance of profitability on paper, which would allow your company to payout hundreds of millions of dollars to creditors and shareholders over the next decade without ensuring adequate funds to cover those liabilities.”

At the time, Diversified’s stock values plummeted. Now, congressional Democrats are digging into the maneuvers corporations like Diversified rely on to make millions while unplugged wells poison communities with dangerous levels of methane gas. This moment may signal the long beginning of the end for Diversified’s problematic business practices. And it’s a crucial step in ultimately holding the fossil fuel industry accountable for cleaning up discarded oil and gas wells.

In the end, it may take a combination of state and federal regulators and elected leaders, working in partnership with everyday citizens, to stop Diversified and similar companies and disrupt this devastating fossil fuel playbook.

Credit the mammoth lobbying power of the oil and gas industry and their bottomless political contributions for making it technically legal for the industry to wipe its hands of 3.5 million orphaned and abandoned wells. And the tally of abandoned wells grows higher every day. Here’s how it works: Companies like Diversified acquire old wells that are no longer producing high levels of oil or gas. They push back the deadlines on cleaning up and capping those wells and their accountants “discount” those reduced costs and count the difference as income. In order to keep the shell game going and keep investors happy, Diversified buys more and more wells, and then wildly delays those cleanup dates too to cover up their liabilities. How far out? Try 2095. Industry experts say Diversified will have run out of cash long before then.

Ending this shell game would have far reaching impacts. Major fossil fuel corporations, including ExxonMobil and Chevron, benefit from having willing buyers for their low-producing, high-liability wells: it’s an essential chapter in their playbook to remove liability and evade billions in clean up costs for decades. And Diversified is not alone in enabling original well drillers to evade costly clean-up liabilities and prolong the time that wells sit uncapped. Companies like California Resources Corporation and K.P. Kauffman engage in this shell game, too.

Meanwhile, people across the Appalachian region are living near Diversified’s uncapped wells as they spew greenhouse gasses and other harmful chemicals. Over the next 20 years, forgotten wells in this part of the country, many of which are owned by Diversified, will emit nearly 100 million tons of greenhouse gasses—more than 21 million gasoline engine cars.

What makes these sites doubly dangerous is they also leak “volatile organic compounds” including benzene. Benzene is a proven carcinogen that dramatically increases the risk of cancer. It also can generate ground-level ozone, which causes severe asthma, heart, and respiratory diseases, all of which can lead to more early, preventable deaths of the families who live nearby.

State leaders are starting to take action to curb these practices. In California, Governor Gavin Newsom recently signed legislation that will increase oversight of well transfers. In Pennsylvania, Governor Josh Shapiro is demanding oil and gas companies clean up dangerous wells once they’ve finished production. In New Mexico, State Land Commissioner Stephanie Garcia Richard has pushed to ensure companies cleanup responsibly on their own dime.

Of course, the industry won’t give up billions in profits without a fight, so it’s imperative that leaders like Newsom, Shapiro, and Garcia Richard continue their efforts. And even more elected leaders and state regulators need to get into the game to protect taxpayers, landowners, and the public. In the end, it may take a combination of state and federal regulators and elected leaders, working in partnership with everyday citizens, to stop Diversified and similar companies and disrupt this devastating fossil fuel playbook.

But it’s clear that disruptions to these tactics are increasing and putting painful divots in Big Oil’s profits. Chevron’s fourth quarter Securities and Exchange Commission filing revealed a close to $4 billion loss of value because the company that bought its wells in the Gulf of Mexico filed for bankruptcy and because of tighter regulations in California that limit the transfer of wells. Federal law on offshore drilling clearly states that the previous owner can be held liable—and Chevron is now responsible for decommissioning those wells.

One thing’s for certain: Investors are no longer madly in love with Rusty Hutson and his deceptive practices.