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Will the public bear the cost of the oil industry’s unfunded liabilities?



ImpactAlpha, Oct. 6ExxonMobil was eclipsed last week by solar and wind producer NextEra Energy, which briefly became the largest US energy company by market value. Exxon’s value has dropped by more than half this year, underlining “the multi-year shift from traditional toward renewable energy,” UBS’s Mark Haefele said in a note.

But oil is still exacting a price from U.S. taxpayers, who could be saddled with more than $280 billion when oil and gas wells are decommissioned or abandoned. In “Billion Dollar Orphans,” CarbonTracker documents the scale of such unfunded liabilities. Texas alone faces up to $117 billion in cleanup costs. “If this is coming to an end, we need to do some smart thinking about what comes next,” CarbonTracker’s Robert Schuwerk told ImpactAlpha.

BP’s new business-as-usual: falling fossil fuel demand

Socialized risks

The surety bonds oil and gas companies are required to obtain cover just 1% of the potential costs, Schuwerk says. The report tallies the cost of closing 2.6 million known wells. Not included: an estimated 1.2 million undocumented wells. “There is work to be done to restore the land that these wells are built on, but no money set aside for it,” Schuwerk says.

Mispriced risk

The ability to escape future liabilities encourages producers to drill new wells, and leave idle ones unplugged, even as the COVID crisis has accelerated a shift to low-carbon energy. Most at risk: U.S. shale producers. More than three dozen have filed for bankruptcy in just the first eight months of this year.

North Dakota is financing an effort to put hundreds of oilfield workers back to work plugging abandoned wells and reclaiming land with CARES relief funds as well as bonds seized from some oil operators. 

Big Oil is betting its future on plastics. Oops.

Adverse agenda

Exxon plans to invest $210 billion into projects that will increase its carbon emissions by 17% over a seven-year period, according to internal memos reviewed by Bloomberg. Actual emissions are five times greater when car emissions and other downstream uses are included.

Not a single oil major has vowed to stop greenlighting new extraction projects, according to Oil Change International. “If oil and gas companies were serious about the Paris Agreement, they would end new oil and gas exploration and extraction now,” the group says, “and phase out production from existing developed reserves.”

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