“A recent ruling by a federal judge dictates that oil companies must contribute to the roughly $7.2 billion in cleanup costs of decommissioning oil wells in the Gulf of Mexico. The ruling marks a significant turn in the bankruptcy case of Fieldwood Energy LLC, who are seeking to pass the buck on cleanup costs to prior owners of the oil wells. The implications of this ruling are massive, not just for oil producers, but for insurance companies as well. In this week’s blog article, we break down how the Fieldwood Energy LLC bankruptcy case impacts the insurance industry, and provide insurance agents with an overview of oil and gas bonds.
A Shift in Liability
A decades long problem in the oil industry is a lack of clear guidelines establishing who qualifies as the responsible party for retiring oil wells. So much so, that there are countless orphaned oil wells left unplugged because there is no definitive legal standard for establishing cleanup responsibility. Compounding the problem is the growing trend of smaller, over-leveraged drillers buying up aging wells for pennies on the dollar, depleting the waning oil supply, and then filing for bankruptcy when oil demand drops. But who ends up paying for the cleanup costs? In the end, it is most often the American taxpayer. Enter Fieldwood Energy LLC bankruptcy case. The case is so significant because it sets the precedent that previous well owners, and the insurance companies who issued them bonds, are also on the hook for cleanup costs.”
read the entire article
Bond Exchange 21 July 2021.