E&C Democrats Demand Answers from Diversified Energy Over Concerning Environmental Liabilities that Could Result in Thousands of Orphaned, Methane-Leaking Oil & Gas Wells

Energy and Commerce Committee Ranking Member Frank Pallone, Jr. (D-NJ), Energy, Climate, and Grid Security Subcommittee Ranking Member Diana DeGette (D-CO), Oversight and Investigations Subcommittee Ranking Member Kathy Castor (D-FL), and Environment, Manufacturing, and Critical Materials Subcommittee Ranking Member Paul Tonko (D-NY) wrote to Diversified Energy Chief Executive Officer Rusty Hutson today demanding answers for the company’s extensive and growing long-term environmental liabilities. The four Democratic Committee leaders cited concerns over unsustainable amounts of methane pollution and reports that the company may be severely underestimating the costs of plugging and cleaning up its wells.

Methane, the key component of natural gas, is an incredibly potent greenhouse gas that is approximately 80 times more powerful than carbon dioxide.

“As the largest owner and purchaser of oil and gas wells in the United States, Diversified Energy is responsible for remediating a substantial share of the country’s aging oil and gas wells, but we are concerned that your company may be vastly underestimating well cleanup costs,” wrote Pallone, DeGette, Castor, and Tonko to Hutson. “Such an underestimation would threaten Diversified Energy’s ability to cover environmental liabilities associated with cleaning up its oil and gas wells, which could create thousands of orphaned, methane-leaking wells and undermine efforts to respond to the worsening climate crisis.”

Since 2016, Diversified Energy has acquired thousands of existing oil and gas wells throughout the United States. These acquisitions have made Diversified Energy the largest well owner in the country, with more than 70,000 oil and gas wells under its direct control – more than either Exxon Mobil or Chevron, two of the largest oil and gas producers on Earth. A significant number of those wells are low-producing wells, known as marginal wells, which are notoriously expensive and difficult to maintain. Committee Democrats questioned Diversified Energy’s claims that its “Smarter Asset Management” initiative and other proprietary practices allow the company to circumvent these issues and extract oil and gas from marginal wells for long periods of time with fewer methane leaks.

The four Democratic Committee leaders wrote that Diversified Energy’s rosy projections appear to affect cost estimates for plugging wells. They also voiced concern over reports that indicate the company may be employing an unusual method for estimating marginal wells’ remediation costs that may underestimate future liabilities. For instance, when Diversified Energy acquired wells from CNX Resources Corp. in 2018, CNX Resources estimated remediation would cost $197 million – however Diversified Energy determined that remediating the same wells would only cost $14 million.

“Researchers examining Diversified Energy’s accounting practices found that agreements with states would allow the company to defer environmental liabilities that they estimated at more than $2 billion,” the four Democratic Committee leaders continued in their letter. “Deferring 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. 

“If this analysis is accurate, it is highly unlikely that Diversified Energy will have adequate funds to clean up all of its marginal wells when they should be retired. Failing to adequately account for plugging and cleanup costs would put Diversified Energy at risk of not being able to cover its environmental liabilities, which would lead to thousands of newly orphaned wells,” the four Committee leaders continued.

“The environmental liabilities from both orphaned and marginal wells are a great concern for Committee Democrats,” Pallone, DeGette, Castor, and Tonko continued in their letter to Hutson.  “These wells often present a public safety danger, as toxic pollutants can escape from old equipment into the air and surrounding environment, putting local communities and the environment at risk.”

The Democratic Committee leaders concluded by demanding answers from Diversified Energy about the company’s activities, particularly as they relate to potential methane gas emissions. They are requesting documents and answers to their questions, including the following, by January 3:

• How the company’s “Smarter Asset Management” program is implemented and how it differs from industry-standard practices;
• Details surrounding who is tasked with conducting well visits, the number of employees dedicated to this task, and what procedures Diversified Energy uses to evaluate them;
• Whether Diversified Energy uses continuous methane monitoring systems or devices to detect methane leaks from its wells, gathering lines, transportation infrastructure, compressor stations, or any other operations;
• What standards Diversified Energy follows for plugging unproductive wells and cleaning up well sites;
• Details surrounding how Diversified Energy is handling the approximately 9,800 wells that the company’s own survey found to have detectable methane emissions; and
• What methodology the company uses to estimate the remediation costs of wells.

The full letter is available HERE.

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