Oil and Gas Decommissioning: At Whose Expense?
In recent bankruptcy cases in the U.S. and Canada, debtors have sought to abandon oil and gas assets and attached plugging, abandonment and decommissioning (collectively, “decommissioning”) obligations. In those cases where abandonment is granted, state and local governments, co-lessees and predecessors-in-interest, among other parties, are often left holding the bag with respect to the substantial cost of decommissioning.
This article discusses the seminal case setting forth the rule governing abandonment when there is environmental liability attached to an asset, recent bankruptcy litigation involving abandonment of oil and gas assets with outstanding decommissioning obligations, the potentiality of entitlement to an administrative expense claim for decommissioning costs paid, and, lastly, proposed best practices for state and local governments and regulators, co-lessees and predecessors-in-interest to proactively protect themselves in the event of a future bankruptcy filing of an oil and gas company.
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