An “inescapable obligation” : the treatment of well decommissioning liability in recent oil and gas bankruptcies

Oil prices fell by fifty percent during the latter half of 2014, tumbling from a high of $105 per barrel in June to a mere $53 per barrel by year’s end. As a result of sustained depressed commodities prices, more than 350 North American oil and gas operators and service companies filed for bankruptcy between January 2015 and September 2019, representing more than $162 billion of debt. Despite the existence of federal and state statutes ensuring that operators decommission wells at the end of economic life, these environmental laws frequently lose efficacy in bankruptcy proceedings. This unresolved conflict, among other contributing factors, has led to the existence of tens of thousands of “orphaned wells” in the United States. This thesis paper examines the bankruptcies of American oil and gas operators after the precipitous decline in oil prices to determine whether operators successfully discharged decommissioning liability during bankruptcy. A survey of 2015 bankruptcies shows that 33% of oil and gas operating companies abandoned properties with unmet decommissioning liability and created 285 new orphan wells in eight states. This paper also estimates the cost to plug and abandon wells orphaned from bankruptcies between 2015 and 2019 at more than $200 million. The paper concludes with a discussion of the advantages and disadvantages of several possible solutions to the orphan well problem.