Responsibility for cast-off wells, pipelines could fall to other companies and taxpayers

Oil firm's plan to abandon 1,700 Gulf of Mexico wells could mean 'environmental disaster,' say rivals

Responsibility for cast-off wells, pipelines could fall to other companies and taxpayers

BY TRISTAN BAURICK | Staff writer/ Environment reporter    Jul 2, 2021  nola.com

 Houston oil company that grew into one of the largest producers in the Gulf of Mexico before going bust last year is planning to abandon hundreds of oil wells and pipelines it acquired over the last decade, potentially adding to the fast-growing tangle of neglected oil and gas infrastructure off the Louisiana coast.

In its second bankruptcy filing in less than three years, Fieldwood Energy LLC has proposed abandoning what could amount to 1,715 wells, 281 pipelines and 276 platforms.

The wells Fieldwood wants to discard account for about 6% of the active wells in the Gulf. Responsibility for the unwanted infrastructure would likely fall to past owners, including BP, Royal Dutch Shell and Chevron, or the federal government — and, therefore, taxpayers.

In objections filed with the U.S. Bankruptcy Court in Houston, other oil companies predicted catastrophe. Numerous oil spills, gas leaks and explosions could be on the horizon if Fieldwood's cast-asides are not properly closed up and maintained, they warned.

BP, the company at the heart of the 2010 Deepwater Horizon oil disaster, was particularly pointed.

“Because hurricane season in the Gulf of Mexico begins at the same time as (Fieldwood) seeks to abandon its obligations, it is critical and of utmost importance that any abandoned wells and platforms and related assets meet all necessary regulatory requirements to avoid or reduce the risk of an environmental disaster,” lawyers for BP said in a June 1 objection to Fieldwood's plan.

Chevron said Fieldwood proposes to “foist billions of dollars of safety and environmental obligations upon the U.S. government, taxpayers, and others.”

The expected obligations associated with properly decommissioning and plugging Fieldwood's wells and other infrastructure could top $9 billion.

“How these enormous obligations are dealt with is critically important,” Chevron’s lawyers wrote in an objection.

Shell’s lawyers warned that approving Fieldwood’s plan could encourage more operators to shed underperforming wells.

Fieldwood and its lawyers did not respond to calls and emails for comment.

The company, which has an office in Lafayette, spent the past decade aggressively buying up oil leases from larger companies, eventually becoming the biggest asset holder in the shallow Gulf. As the oil giants and other large players in the industry shifted their focus to deeper water, inland shale sources and elsewhere, Fieldwood executives saw opportunity to step in.

In 2014, Fieldwood CEO Matt McCarroll told the Houston Business Journal that the Gulf had been “given up for dead." He expressed confidence that his strategy of buying up low-profit offshore leases would pay off.

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“We do what we know,” McCarroll said. “Know what you’re good at and stick with it.”

The oil market didn't move in Fieldwood's favor. Prices tumbled in 2014 from highs above $100 a barrel as production from hydraulic fracturing continued to surge and OPEC members elected to keep pumping oil.

Over the next few years, oil held around $50 to $60 per barrel, only to plummet early in 2020 as demand cratered during the coronavirus pandemic. At one point in 2020, prices turned negative, indicating there was so much oil sloshing around, producers were worried about where to store it.

Only in recent months have prices started to rebound with the economic recovery. On Friday, oil prices hit $75.23 a barrel.

Oil and gas production in the shallow Gulf, where Fieldwood was focusing its growth, has been declining for the past two decades. Meanwhile, well abandonment has been on the rise. According to a 2017 LSU study, about half of the Gulf’s 53,000 wells are now unused. Other parts of the world are experiencing the same trend. A recent study by Norwegian researchers said offshore well operators in the Gulf, North Sea and elsewhere are “informally talking about an upcoming ‘plug and abandonment’ wave.”

Even when properly decommissioned, wells pose environmental and safety risks. Plugs can fail and metal well linings are prone to rust. Wells can also re-pressurize, pop their tops and begin spewing oil. Climate change is triggering stronger and more frequent storms that can damage abandoned oil and gas infrastructure.

Methane emissions are another growing concern. A 2020 study by McGill University estimated that the amount of methane seeping out of abandoned wells in the U.S. has been underestimated by 20%. Methane pollutes water, degrades air quality and hastens global warming much faster than the carbon dioxide emitted from burning fossil fuels, the study said.

Oversight of abandoned oil and gas infrastructure is often lacking. A federal audit released in April found that energy regulators are allowing companies to abandon infrastructure in the Gulf at an increasing rate while failing to monitor the integrity of almost 9,000 miles of active pipelines.

Large oil companies are worried Fieldwood may saddle them with all the responsibilities that come with their old wells. If Fieldwood is successful, more small and mid-size operators may use bankruptcy as a means of offloading even more wells, the companies said.

What Fieldwood is proposing “is truly unprecedented” and “fundamentally flawed,” Chevron’s lawyers said. “In reality, the debtors’ plan is a liquidation” rather than a bankruptcy. “It will use other people’s money to satisfy the debtors’ multi-billion dollars of safety, environmental and other liabilities.”

Fieldwood’s next hearing in U.S. bankruptcy court will be on July 9 at 10 a.m. via phone and videoconferencing.

 

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Guess who pays if these companies do not.

Oil Companies Are Ordered to Help Cover $7.2 Billion Cleanup Bill in Gulf of Mexico

Large oil producers will have to foot some of the costs of capping and abandoning offshore wells they used to own

Some of the world’s largest oil companies have been ordered to pay part of a $7.2 billion tab to retire hundreds of aging wells in the Gulf of Mexico that they used to own, capping a case that legal experts say is a harbinger of future battles over cleanup costs.

A federal judge ruled last month that Fieldwood Energy LLC, a privately held company that currently controls the old wells and had sought bankruptcy protection, could pass on hundreds of millions of dollars in environmental liabilities to prior owners and insurers of the wells as part of its reorganization plan.

Exxon Mobil Corp., BP PLC., Hess Corp., Royal Dutch Shell PLC and insurance companies had objected to the plan. The dispute, litigated for months in federal bankruptcy court in Houston, centered over who should bear the enormous costs of capping and abandoning wells, primarily in the shallow waters of the Gulf of Mexico where an oil spill could wreak havoc. The companies could still appeal the ruling.

The exact future costs of the cleanup are still unclear, but lawyers for BP estimated its liability could top $300 million, while lawyers for Exxon said its exposure could total as much as $373 million. A group of insurers said they could be on the hook for more than $1 billion.

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