ExxonMobil And Subsidiaries Face Lawsuit For $200 Million Fraud Scheme In NM To Dump "Orphan Wells"
Oil companies ExxonMobil, Empire Petroleum, and their subsidiaries engaged in accounting fraud that could cost the state nearly $200 million, a lawsuit filed in New Mexico District Court alleges. If successful, plaintiffs say the case could change how old oil and gas assets are sold, leading to fewer orphan wells in the future. The case stems from the sale of several hundred old wells from ExxonMobil subsidiary XTO Energy to Empire Petroleum subsidiary Empire New Mexico in 2021. The suit alleges the fraud occurred when the two companies “massively” undervalued the debt obligations inherent in the sale — namely, the eventual well cleanup costs — violating New Mexico’s Fraud Against Taxpayers Act.
The plaintiffs claim the undervaluation led Empire Petroleum to take on wells it would never realistically have the money to plug, immediately making the company insolvent and at risk of bankruptcy. “Orphan” wells have no known or solvent owner. In New Mexico, the state is the final stop for these wells on state and private lands (the federal government is responsible for those on federal and tribal lands), making it responsible for the expensive plugging and remediation costs. The plaintiffs contend this was a likely goal of the transaction. In a report released last year, the state’s Legislative Finance Committee said New Mexico is already liable for more than $200 million in cleanup costs for the orphaned wells currently on its books.
It is what’s known as a Qui Tam suit, a case brought by individuals on behalf of a government while first giving that government the chance to prosecute the suit. If it declines, the plaintiffs move forward with the case. The suit was filed last August and was under seal until last week as the New Mexico Attorney General’s office reviewed it. The Attorney General’s office did not explain why it did not take the case itself.
EDIT
The plaintiffs argue that the $17.8 million price tag for the well transfer didn’t properly account for the eventual cleanup costs of the hundreds of low-producing and moribund wells that were sold, or the fact that nearly all of the wells are old and nearing the end of their producing lives, with an average age of over 63 years. The plaintiffs claim that the two companies, through XTO Energy and Empire New Mexico, agreed to value the eventual, obligatory cleanup costs — known as asset retirement obligations — at roughly $6.1 million. Horton and Rogers claim that figure should be nearly 33 times that amount, or $199 million. “Either the assets are worth a lot more than they say they’re worth,” (Ed. - plaintiff Greg) Rogers said, “or they’re discounting the [asset retirement obligation] based on the likelihood that they’ll never have to pay it.”
EDIT
https://grist.org/energy/oil-companies-accused-of-massive-accounting-fraud-in-new-mexico/