A class-action lawsuit filed by West Virginia landowners against the nation’s largest oil and gas well owner claims its purchase of older wells were fraudulent and seeks to force their prompt decommissioning.
The 2022 suit is moving forward in federal court after a judge recently denied a motion to dismiss filed by the well owner, Diversified Energy Co.
Diversified owns more than 60,000 wells in the Appalachian region, a number of them abandoned or non-producing. The West Virginia lawsuit claims that two sales of older wells by EQT, the largest gas producer in the U.S., to Diversified are fraudulent under state law and that liability for their plugging should revert to EQT, which has more financial resources.
Diversified’s financial practices are questionable and it does not have enough funds to plug its entire inventory of assets, according to an Ohio River Valley Institute report. “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,” ORVI states.
The West Virginia suit stems from two deals between Diversified and EQT in 2018 and 2020 in which approximately 12,000 wells were sold to Diversified, freeing EQT of the plugging and decommissioning costs. The suit claims the transfers were fraudulent because they were done with the intent to defraud the landowners.
“By concealing plugging and decommissioning liabilities and exaggerating their revenue streams, Diversified created a veneer of profitability that allegedly allowed it to push off their well decommissioning liabilities decades into the future,” the lawsuit states.
In its 2022 sustainability report, Diversified reported that it significantly expanded asset retirement capabilities, and retired 200 Appalachian wells, a 47 % increase from the previous year.
Well owners are required to plug wells are no longer producing to prevent the release of methane, a powerful greenhouse gas that affects public health and contributes to climate change. The abandoned well problem is prevalent in Pennsylvania and across the tri-state region as many old, legacy horizontal wells drilled years ago before permitting and regulation existed were abandoned by companies that no longer exist.
Pennsylvania Department of Environmental Protection officials have documented over 25,000 abandoned wells in the state, and West Virginia officials have documented over 4,500, but estimate there are tens of thousands more. DEP said the average cost to plug a well is $33,000 but has been rising. DEP has been able to plug only a few wells each year due to a lack of funding, spending approximately $40 million over the past 30 years. The agency has been working to ensure that operators do not abandon their plugging responsibilities, but bonding requirements are much lower than the plugging cost, which could leave taxpayers on the hook.
The federal Infrastructure Investment and Jobs Act will provide millions to states to ramp up well plugging. Pennsylvania could receive as much as $400 million over the next 10 years.
While DEP and regulators in other states are working to rapidly ramp up their plugging efforts, even that large amount of money may not enable all wells to be plugged, especially more are abandoned.