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New Ohio River Valley Institute Report Shows Conventional Oil & Gas Well Owner Diversified Energy Lacks Resources To Plug Wells, Including 22,507 Wells In PA

A new report from the Ohio River Valley Institute shows Diversified Energy, the nation’s largest owner of primarily oil and gas wells, does not have enough funds to plug its entire catalog of wells.

If Diversified or other companies that own low-producing wells in the region were to go out of business, states could be on the hook for billions in plugging costs since operators are not required to set aside sufficient funding for well decommissioning upfront.

Diversified Energy In PA

In Pennsylvania, Diversified Energy owns 22,507 conventional oil and gas wells-- 19,609 of those are said to be producing wells.

In 2019, the Department of Environmental Protection signed a settlement with Diversified that requires over 1,400 of the company’s wells be plugged. Read more here.

The company also agreed to post a $7 million surety bond for the wells covered by the settlement, plus an additional $20,000 to $30,000 bond for each abandoned or nonproducing oil and gas well acquired in the future. Read more here.

However, Diversified continues to regularly get notices of violation from DEP for attempting to abandon its wells without plugging them. Read more here.

Attempts to abandon wells without plugging them are a pervasive practice in Pennsylvania’s conventional oil and gas industry. Read more here.

In November, the Environmental Quality Board accepted a rulemaking petition for study that would increase the cost of bonding for conventional and unconventional wells to the cost taxpayers would have to pay to plug those wells. Read more here.

The DEP is due to report to the EQB at their next meeting on May 18 on the status of their evaluation of the petition.

However, Pennsylvania state law does not require oil and gas wells drilled prior to April 1985 to be covered by any bonding for financial assurance. A change in law, not regulation, is needed to close this loophole. Read more here.

Most of Diversified’s wells fall into the pre-1985 bonding exemption.

Diversified Energy In Appalachia

“Diversified’s portfolio of low-producing wells, along with the 100,000 or more additional marginal wells in the region, represents a huge and looming financial threat,” according to report author and ORVI Senior Researcher Ted Boettner. “There’s an oncoming wave of soon-to-be-orphaned wells that could be offloaded onto the public, becoming costly wards of the state.”

Since 2017, Diversified has amassed tens of thousands of aging, low-producing oil and gas wells, earning revenue by eking out the little fuel that remains. States require the company to plug and abandon wells that no longer produce oil or gas.

But Diversified has extended its decommissioning obligations and skirted plugging costs by employing uncommon accounting practices, the report finds.

“Diversified claims it can plug wells at a cost less than half the industry average. They claim their dying wells will continue producing at an economic rate for decades.” said report author and ORVI Research Fellow Kathy Hipple. “These unusual assumptions—as well as accounting practices that function to punt cleanup costs down the line—are not used by any other company in the industry.”

Methane Emissions

ORVI’s analysis also indicates that Diversified has used a variety of tactics to under-represent total emissions of methane, a potent greenhouse gas.

“Our investigation shows a pattern of startling drops in company-reported emissions after Diversified buys leaking wells from other owners,” said report author Dr. Anthony Ingraffea, Dwight C. Baum Professor of Engineering Emeritus at Cornell University.

“In Pennsylvania, wells purchased by Diversified log about 90% fewer emissions than the same wells under previous ownership. The company has flouted the regulatory system by publishing aberrant reports, exploiting legal loopholes, and skirting testing responsibilities,” said Dr. Ingraffea.

Public Funding

To help finance its business model, Diversified has capitalized on public subsidies and lobbied state and local officials.

The company has received more than $250 million in Marginal Well Tax Credit funds since 2020, and unusual accounting practices have helped the company avoid standard industry taxes on most acquisitions.

Click Here for a copy of the report.

NewsClips:

-- Post-Gazette - Anya Litvak & Laura Legere: Too Big To Fail: How One Gas Company Can Leave A Mark On Pennsylvania [Diversified Energy] [2018]

-- Post-Gazette - Anya Litvak & Laura Legere: Diversified Gas Expects To Push Well Plugging Liabilities Decades Into The Future [2018]

-- Post-Gazette - Laura Legere & Anya Litvak: DEP Strikes Well-Plugging Deal With Largest Conventional Oil And Gas Operator In Appalachia [2019]

-- Post-Gazette - Anya Litvak: Diversified Is Picking Up More Shale Well In PA, This Time From EQT [2020]

-- Bloomberg Green: Diversified Energy, An Empire Of Dying Wells Making One Man Rich

-- Post-Gazette - Anya Litvak: For Diversified, Well Plugging Goes From Liability To Moneymaker [2022]

Related Articles This week:

-- DEP Oil & Gas Advisory Board Has Spill Reporting, Funding For Well Plugging; Permit Fees; Carbon Capture; New Regs On April 25 Agenda

Related Articles:

-- New Abandoned Wells: DEP Records Show Abandoning Oil & Gas Wells Without Plugging Them Is Pervasive In Conventional Drilling Industry; Who Is Protecting Taxpayers?