Essentially all abandoned wells are conventional vertical not horizontal ones

From an Article by Mike Tony, Charleston Gazette, Charleston, WV, October 8, 2022

Landowners in Harrison, Nicholas, Preston and Wetzel counties has filed the lawsuit in the U.S. District Court for the Northern District of West Virginia in July against Diversified Energy and Pittsburgh-based EQT Corp. A 2018 agreement between the company and the WV DEP requires Diversified to summarize the actions taken to plug oil and gas wells or place them into production during the past year.

Diversified Energy, the largest owner of gas wells in the country, says it doesn’t have to plug wells that West Virginia landowners allege in federal court pose health and environmental hazards, arguing that state regulators relieved them of that responsibility. Diversified Energy Company says an agreement it made with the state Department of Environmental Protection to plug or place into production a set number of gas and oil wells annually shields it from the duty to plug and abandon the wells.

The company says the federal lawsuit from eight landowners in four West Virginia counties would “usurp” the authority of the Office of Oil and Gas, the DEP’s well-plugging and reclamation regulatory unit that state officials have acknowledged is understaffed. Diversified argues it has no duty to plug wells unless it identifies them as candidates for plugging in annual reports it is required to file with the Office of Oil and Gas through 2034.

The lawsuit alleges the two companies struck transfer deals in recent years for many more wells than Diversified can afford to plug and decommission. Industry experts have made similar observations, saying the company’s business model is based on acquiring a high number of low-producing wells that yield short-term dividends but present long-term liabilities mounting as the company puts off well decommissioning obligations.

The DEP estimates older wells that have been poorly maintained will likely total more than $100,000 in plugging costs. New wells that have been properly maintained cost a few tens of thousands of dollars, per the agency. Plugging typically entails using cement to seal wells that are no longer productive to keep toxic chemicals from polluting the air and aquifers.

The landowners’ lawsuit asks the court to make EQT liable for plugging and decommissioning the wells that Diversified took responsibility for in 2018 and 2020, contending that those transfers were fraudulent. The lawsuit petitions the court to award plaintiffs and class members damages from Diversified to compensate them for the cost of plugging, remediation of the abandoned wells.

Most of Diversified’s roughly 70,000 wells are in Appalachia, acquired since 2018 from EQT and Canonsburg, Pennsylvania-based CNX Resources. Diversified acquired more than 12,000 gas wells from EQT in deals in 2018 and 2020 for roughly $700 million. In a response it filed last week to the landowners’ lawsuit, Diversified highlighted a passage of its 2018 agreement with the Office of Oil and Gas stating that the company “requires sufficient time to identify” which wells have a “bona fide future use” that merits them being placed back into production. “For the duration of that process, Diversified has no duty to plug its wells unless it identifies them as a plugging candidate in its reports, and then only on a set schedule,” Diversified’s response contends.

The DEP did not respond to a request for comment on Diversified’s filing. Per the agreement, Diversified must either place into production or plug at least 50 oil and gas wells for which no production was reported in 2017 every year from 2020 through 2034, of which at least 20 must be plugged each year. Diversified has similar consent agreements in Kentucky, Ohio and Pennsylvania. Combined, the company’s agreements in those states plus West Virginia commit the company to plugging at least 80 wells annually out of its tens of thousands of wells there.

The landowners’ lawsuit called those consent agreements a “smoke-screen” that doesn’t impact “private civil liberties that Diversified [and EQT] have to private citizens over private property rights.” The DEP has contracted with a Diversified subsidiary to plug wells. The agency has paid Diversified subsidiary Next LVL Energy LLC over $150,000 since October 2021 for well-plugging, according to West Virginia State Auditor’s Office data.

The DEP awarded Next LVL Energy two contracts to plug and reclaim orphaned gas and oil wells under the federally funded Infrastructure Investment and Jobs Act passed by Congress last year. Next LVL Energy was the low bidder on the two DEP contracts, bidding a combined $10.2 million. The DEP is requiring contractors to identify, inspect and prioritize what documented or undocumented wells to plug, in addition to plugging them and reclaiming the well sites. Under the terms of state-posted contracts, contractors will have the exclusive right to plugging orphaned, abandoned wells within the contract region.

Diversified acquired Next LVL Energy, a Pittsburgh area-based well-plugging company, in February.

Diversified also argued in its response to the lawsuit that their claims are time-barred under a two-year state statute of limitations for trespass, nuisance and negligence claims, citing past statute of limitations-focused judicial decisions. The company contends the two years the landowners had to file claims began when the wells on their properties stopped producing gas in a two-year window from 2017 through 2019.

The landowners allege that Diversified’s acquisition of thousands of wells from EQT was completed with intent to defraud creditors, including the plaintiffs, in a business model designed to push off decommissioning liabilities for decades. They say Diversified has left them with unplugged, abandoned wells that pose health risks, degrade the environment and hurt their property values.

Much of the lawsuit is based on a report published in April by the Ohio River Valley Institute, a Johnstown, Pennsylvania-based pro-renewable energy nonprofit think tank. That report predicted it was highly unlikely that Diversified will have enough money to plug and abandon all its wells. The lawsuit cites the report to allege that if Diversified had used industry norms to calculate its plugging and decommissioning obligations, then its liabilities would exceed $2 billion instead of the company’s self-reported figure of roughly $520 million, making Diversified insolvent. The report cited Diversified company data and federal projections for natural gas prices. The Ohio River Valley Institute report found that Diversified has used unusual assumptions like implausibly long economic lives of wells though 2095 and an excessively long ramp-up timeline to start plugging and abandoning most of its wells to calculate the value of its asset retirement obligations, liabilities for well plugging and abandoning costs.

In 2020, Greg Rogers, a senior advisor to Carbon Tracker, a London-based think tank researching climate change impacts on financial markets, called Diversified’s business model “a legal Ponzi scheme” in a conference call with the Capitol Forum, a corporate news analysis service. “[I]t only works as long as there’s growth and the perception of profitability,” Rogers said. States mandate that wells no longer producing gas or oil are plugged and abandoned, and that well owners secure a bond or other financial assurance that helps cover the expense of closing wells that aren’t productive anymore.

But Diversified’s critics say its business model could leave West Virginia taxpayers footing the bill for remediating many of the company’s wells. “[I]t is clear Diversified Energy’s economic model is built to fail and could leave residents of West Virginia with billions of dollars in clean up costs,” Ohio River Valley Institute senior researcher Ted Boettner said in an email.

The Office of Oil and Gas, whose authority Diversified emphasized in its lawsuit, has been beset by low inspector staff numbers. The state’s well inspection staff dwindling from 17 to nine in the past two years on the Legislature’s watch has concerned not just environmentalists but royalty owner advocates. The office has faced a $1.3 million shortfall, with officials attributing the budget crunch to permit fees having dried up amid oil and gas industry struggles. Bills that would have restored office staffing levels to what they were before they were slashed in 2020 through annual $100 oversight fees on unplugged wells failed in the Legislature amid opposition from the Gas and Oil Association of West Virginia. The industry group said the fees would be too onerous for operators.

A recent study found that low-production well sites like those dominating Diversified’s portfolio are a disproportionately large source of methane emissions. The April report published in the peer-reviewed scientific journal Nature Communications found roughly half of all well site methane emissions nationwide come from low-production well sites like Diversified’s, which emit six to 12 times as much methane as the average rate for all U.S. well sites. Methane has a 100-year global warming potential 28 to 36 times that of carbon dioxide, according to the U.S. Environmental Protection Agency, making Diversified’s deepening well footprint across Appalachia a climate concern.

API number is a unique identification code

The Ohio River Valley Institute (ORVI) recently released a report entitled Diversified Energy: A Business Model Built to Fail Appalachia. Over the last several years, Diversified Energy has become the largest owner of oil and gas wells in the country! However, Diversified is not, for the most part, in the business of drilling new wells. It is buying up existing, declining wells and milking them now for all they are worth. But in the future thousands of their wells will not be producing enough gas to even pay to operate themselves, let alone to save the money to plug them.

Diversified already has a little more than 2000 wells in West Virginia right now that should already have been plugged! They only plugged 75 of these wells since January last year. Their disclosures to their stockholders (in Great Britain) raise a question whether thousands more that will need plugging will be coming, and whether Diversified will have the money in the future to plug somewhere around 10,000 wells in West Virginia that reach the end of their economic lives. We think they will become orphaned wells.

If you have a Diversified well on your land, and if it is not producing, please get hold of us. We would like to help to try to get it plugged while some money is still available, or by some other means, rather than have it left unplugged on you. Contact us through lawyer and co-founder Dave McMahon whose contact information is at the bottom of this blog.

Generally you will know if the well on your land is operated by Diversified because it will have Diversified’s name on it. If it does not and you still suspect it might be a Diversified well then:

There are two ways we can find out if the Diversified well on your land is producing (and if it is in fact operated by Diversified). One, you can send us your surface tax ticket or the information on it (we would need the county, district name, map and parcel number from that). Two, another more certain way to make sure we have the right well is for you to go to the well and get the API number off of the well. That number will look like 047 – 0_ _ – 0 _ _ _ _. (Other numbers that don’t look like that can be an old company well number of an equipment part number) Get us that API number. Here is a web page about API numbers. Or that page tells you how you can look up the information yourself on the West Virginia Geologic and Economic Survey website and others.

While you are there at the well listen to hear if it is making a hissing sound in the pipes. That will mean that it is producing and we may not be able to get it plugged soon, but if you have other questions about it let us know. (If it is making a hissing sound as gas is escaping out of the pipes into the air, be sure to contact us!) If there is a no sound it may not be producing and, again, let us know about it – we might be able to do something to get it plugged to stop devaluing your land or before it pollutes your surface land, groundwater, air etc,

To avoid any lawyer ethical problems, or even the appearance of impropriety, this communication is branded as “advertising material”. We also have to note that the lawyer responsible for this email is David McMahon, a co-founder of WVSORO. His number is 304-415-4288. His address is 1624 Kenwood Rd, Charleston, WV 25314. His email is wvdavid@wvdavid.net. He is the person to contact about the well on your property.

>>> Advertising Material from David McMahon, Lawyer, Charleston, WV

Reference ~ West Virginia Surface Owners’ Rights Organization, 1500 Dixie Street, Charleston, WV 25311
info@wvsoro.org 304 346 5891

Diversified Energy apparently counts with match sticks, WV & PA & OH beware

From an Article by Mike Tony, Charleston Gazette Mail, April 30, 2022

The WV well inspection staff dwindling from 18 to nine in the past two years on the Legislature’s watch has concerned not just environmentalists but royalty owners who see a corrosive connection between the state’s well inspector shortage and a growing orphaned well problem.

“[Inspectors] may spot problems that can be fixed to keep the well from becoming essentially uneconomic or they could spot a well that needs to be plugged,” West Virginia Royalty Owners Association President Tom Huber said. “As these wells grow older and older and older, that’s when they become orphaned, and then there’s no one to go after to get to plug the well.”

The Ohio River Valley Institute cited an analysis of more than 20,000 Diversified wells in Pennsylvania in observing a sharp decline in company-reported methane emissions post-acquisition.

Diversified reported a well was inaccessible for testing for leakage more than 3,200 times after wells associated with those reports were reported accessible by previous well owners more than 2,000 times the previous year. “Interestingly, [previous ownership] could get to the wellhead,” report author and Cornell University engineering professor emeritus Anthony Ingraffea said. “So I guess the trees grew up very, very quickly after Diversified acquired the wells.” Last year, Bloomberg Green reported it found methane leaks at most of 44 Diversified well sites it visited, including eight in West Virginia.

Diversified reported retiring 136 wells in 2021, exceeding its requirements of plugging 80 wells in West Virginia, Pennsylvania, Kentucky and Ohio and moving the company closer to a stated goal of plugging 200 wells across Appalachia by 2023, according to its 2021 annual report.

In a statement, Paul Espenan, vice president of environmental health and safety at Diversified, defended the company’s environmental record. Espenan said the company has invested in pursuing opportunities to use excess plugging capacity to support other operator retirements. Espenan said recent company efforts to equip well tenders with handheld methane detection devices, deploy aerial leak surveys and upgrade equipment resulted in year-over-year reductions in methane intensity as the company works toward a target of net-zero greenhouse gas emissions by 2040. “Sustainability is core to our unique approach as a responsible operator that unlocks value, delivers free cash flow and is committed to asset stewardship through the full life of acquired, low-decline producing assets,” Espenan said.

The 136 wells retired last year represent less than half of 1% of all the wells in Diversified’s portfolio. The company said in its 2021 annual report that it established an in-house plugging team in West Virginia last year.

Diversified and its subsidiaries have 22,876 non-plugged wells in West Virginia, DEP spokesman Terry Fletcher said. Diversified-owned companies have plugged roughly 130 wells in the state since 2018, Fletcher said. The DEP estimates that older wells that have been poorly maintained will likely total over $100,000 in plugging costs. New wells that have been properly maintained cost a few tens of thousands of dollars, per the agency.

The state’s Oil and Gas Abandoned Well Plugging Fund, created in 2020 by House Bill 4090 to pay for reclaiming abandoned wells without a responsible operator, has a balance of $1.86 million, Fletcher said – a fraction of Carbon Tracker’s $7.6 billion estimate of the cost to plug wells that ceased production in West Virginia.

The Office of Oil and Gas reports about 6,300 documented orphaned wells and estimates an additional 9,000 undocumented orphan wells statewide. The plugging workload for even a small portion of Diversified wells would be unlike anything the state has ever tackled before. A study last year by the Interstate Oil & Gas Compact Commission noted that West Virginia funded plugging of three orphan wells in the state from 2018 to 2020.

A total of 472 wells have been plugged under the state’s program, according to the report by the Interstate Oil & Gas Compact Commission, a multistate governmental entity that promotes what it calls efficient recovery of oil and gas resources and environmental health. Fletcher said DEP records indicate that state-funded well plugging has been occurring since at least 1993.

The DEP expects to plug 160 orphaned wells — roughly 1% of its statewide orphaned well estimate — in the initial grant phase of the Infrastructure Investment and Jobs Act enacted in November, under which states are eligible to receive up to $25 million for cleaning up orphaned oil and gas wells. Fletcher has said the DEP is identifying all areas where staff can be increased given the Office of Oil and Gas’ personnel shortage.

The state Legislature has failed to adopt bills that would restore the Office of Oil and Gas to its previous personnel level despite pressure from environmental, surface and royalty owner advocates to shore up the office’s funding.

The Governor’s Office did not respond to a request for comment on why the office did not add any measures addressing the inspector shortage to the agenda of last week’s special legislative session despite the office’s previously stated support for bills that would have increased funding for state oil and gas inspectors. The governor announces the convening of a special session through a written proclamation referred to as a “call” because it calls the Legislature into session. The Legislature cannot take up items outside the call during a special session.

“We want to make sure that these wells, the gas, the oil that is produced, is sold so the royalty owners can be paid royalties on those products and [that the gas and oil] are not wasted through leakage or broken tanks that seep the oil out into the ground,” Huber said. “So we support any effort to add inspectors.”

Burd argued a proposed $100 annual oversight fee for unplugged wells would have been onerous for operators. It would have applied to wells producing 10,000 cubic feet or more of gas daily. The bill stalled in the House after passing the Senate.

“It speaks to a kind of lax regulatory culture in West Virginia, I guess,” May said. The Ohio River Valley Institute has proposed a production fee ranging 3 to 7 cents per thousand cubic feet in West Virginia, Pennsylvania and Ohio over the next 25 years to provide enough funds to decommission most of the states’ unplugged well inventories.

But West Virginia regulators are left to make the most of sweeping federal investments in well reclamation and contend with a projected rise in gas production without strength in numbers. The big numbers are on Diversified’s side — at least for now. “I think more inspectors would mean less orphaned wells, which is a good thing in the long run,” Huber said.

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Diversified Set to Track Appalachia Oil, Gas Methane Leaks with Aerial Scans

From an Article by Matthew Veazey, Natural Gas Intelligence, December 8, 2021

Methane leak detection provider Bridger Photonics has been selected to perform multi-year aerial scans of Diversified Energy Co. plc’s natural gas production and distribution assets, initially in Appalachia.

Bridger plans to deploy its laser imaging, detection and ranging (LiDAR) equipment to track the emissions. “Our Gas Mapping LiDAR technology will efficiently detect, pinpoint and quantify typically more than 90% of basin emissions to inform and streamline Diversified’s repair and maintenance activities,” said Bridger CEO Pete Roos.

Diversified, whose Central Region holdings include the Haynesville and Barnett shales and assets in the Midcontinent, said the LiDAR program would be extended to those assets as well. The company noted that early 2021 field trials of Bridger’s LiDAR technology on a “large segment” of Appalachia pipeline detected fugitive natural gas emissions “well below” 500 parts per million, which is the U.S. Environmental Protection Agency (EPA) leak definition threshold.

Diversified said it would spend $3 million annually over the next three years on LiDAR aerial emissions scanning activities. The total $9 million commitment “supports our near-term goal to reduce our 2020 level methane emissions by 30% by 2026 on the way to net-zero by 2040,” said Diversified CEO Rusty Hutson Jr. “Adding aerial emissions detection to the handheld devices we’ve placed in the hands of our skilled well tenders further enhances our ability to detect and repair fugitive emissions across our asset base.”

By way of proposed changes to the U.S. Clean Air Act, the EPA is seeking to broadly limit methane emissions across oil and gas operations. The new mandate would add covered methane sources at well sites, natural gas gathering and boosting compressor stations, gas processing equipment, as well as transmission and storage equipment.

The Biden administration wants to curb methane emissions from oil and gas operations beyond U.S. territory as well. In November, President Biden hosted his counterparts from Canada and Mexico for a trilateral summit, which featured a pledge to develop a “‘North American strategy on methane and black carbon.’” Also, the Biden administration and the European Union have endorsed a target to cut methane emissions 30% worldwide by 2030.

You will not believe what Diversified is getting away with ....

From an Article by Mike Tony, Charleston Gazette Mail, April 30, 2022

All is often not well when gas wells end.

In 2020, Carbon Tracker, a London-based think tank researching climate change impacts on financial markets, estimated the costs of plugging gas and oil wells that ceased production in West Virginia exceeded $7.6 billion — with bonds totaling just $28.7 million to cover that expense. That same year, a senior advisor to Carbon Tracker reflected on the business model behind thousands of those wells in West Virginia and across Appalachia in a conference call with the Capitol Forum, a corporate news analysis service. The advisor called that business model a “legal Ponzi scheme.” ~~~ “[I]t only works as long as there’s growth and the perception of profitability,” Greg Rogers said.

Headquartered in Alabama and led by Lumberport native and cofounder and CEO Rusty Hutson Jr., Diversified Energy has become the largest owner of oil and gas wells in the country. Most of the company’s nearly 70,000 wells are in Appalachia, acquired since 2018 from regional producers such as Pittsburgh-based EQT and Canonsburg, Pennsylvania-based CNX Resources.

“But … if your production is falling on those wells, especially if it’s falling faster than you think, then you’re going to need to continually acquire more and more wells,” Rogers said of Diversified’s business model. “The problem is you’re acquiring more and more liabilities as you do that, these liabilities for the closure.”

“[Diversified’s] business model is built around low decline assets paying out cash flow in the form of dividends to retail investors,” Tom Loughrey wrote in a June 2020 company analysis for Friezo Loughrey Oil Well Partners, an analytics firm serving investors in the oil and gas sector. “The problem with these structures, and why they always fail, is the valuations eventually exceed the future cash flows; the company must replace assets at an increasing rate until hitting the wall.”

States mandate that wells no longer producing gas or oil are plugged and abandoned and that well owners secure a bond or other financial assurance that helps cover the expense of closing wells that aren’t productive anymore. Two recently released reports suggest Diversified’s expanding well portfolio poses long-term risks both to West Virginia’s bottom line and its environmental safety.

The Ohio River Valley Institute, a Johnstown, Pennsylvania-based pro-clean energy nonprofit think tank, published a report April 12 predicting it is highly unlikely Diversified will have enough money to plug and abandon all its wells, citing Diversified company data and federal projections for natural gas prices. Plugging and abandoning costs will be higher than the revenue generated by Diversified’s current well inventory by 2056, the report projects.

The report finds 96% of the company’s producing wells in West Virginia, Pennsylvania, Kentucky and Ohio produce less than five barrels of oil equivalent per day. Wells producing less than that amount are considered financially distressed by the Colorado Oil and Gas Conservation Commission, the report notes. “The numbers just don’t add up,” report co-author and Ohio River Valley Institute research fellow Kathy Hipple said.

A week after that report was released, a Environmental Defense Fund study found low-production well sites like those dominating Diversified’s portfolio are a disproportionately large source of methane emissions. This study published in the peer-reviewed scientific journal Nature Communications found roughly half of all well site methane emissions nationwide come from low-production well sites, which emit six to 12 times as much methane as the average rate for all U.S. well sites.

Methane has a 100-year global warming potential 28 to 36 times that of carbon dioxide, according to the U.S. Environmental Protection Agency, making Diversified’s deepening well footprint across Appalachia a climate concern in addition to a threat to states’ bottom lines. “The percentage of methane emissions is disproportionately high,” said Karan May, senior campaign representative for the Sierra Club in West Virginia. “When I put that together with Diversified, it just scares me for what’s happening in Appalachia particularly.”

Diversified is only the 15th largest producer in Appalachia despite being its largest well owner, Ohio River Valley Institute researchers found, citing Capitol Forum data. “Diversified’s business model is based on harvesting cash flows from its wells and delaying P&A [plugging and abandoning] costs for as long as possible,” the Ohio River Valley Institute report concluded.

Diversified could have 60,000 wells to plug and abandon throughout Appalachia at the end of consent agreements reached with regulators in West Virginia, Pennsylvania, Kentucky and Ohio committing the company to decommissioning some 80 wells annually for the next 15 years.

“[T]hey’ve become too big to fail,” report co-author and Ohio River Valley Institute research fellow Ted Boettner said. The Ohio River Valley Institute report finds that Diversified has used unusual assumptions like implausibly long economic lives of wells though 2095 and an excessively long ramp-up timeline to start plugging and abandoning most of its wells to calculate the value of its asset retirement obligations, liabilities for well plugging and abandoning costs.

The report also says the company appears to be avoiding its obligations to report methane leakage from its wells, citing an analysis of emissions reporting submitted by Diversified for more than 20,000 active wells in Pennsylvania. Ohio River Valley Institute’s researchers and other industry experts anticipate a rapid decline in gas production. That would leave Appalachian states particularly vulnerable to being on the hook for cleaning up thousands of additional orphaned wells.

“[W]hen one company owns so many of these wells, that risk is just huge,” Boettner said. “Who’s going to be left holding that bag? It’s important that our state oil and gas regulators take a huge look at this company and figure out a way to ensure that they can cover these costs.”

West Virginia’s leaders have let the state’s inspection unit responsible for looking after wells statewide atrophy in recent years, declining to shore up funding for well regulators even amid a surge in production. The West Virginia Department of Environmental Protection has reported major manpower shortages in its Office of Oil and Gas, which manages the state’s abandoned well-plugging and reclamation program.

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