Big oil companies are dumping their old wells onto tiny firms just to dodge billions in cleanup costs.
While we assume drillers are responsible for cleaning up their wells, a massive secondary market exists to transfer high-liability 'dying' wells to 'judgment-proof' firms. When the well finally stops producing, the new owner simply goes bankrupt, leaving the multi-billion dollar cleanup bill to the public.
Cutting Costs or Cutting Corners: Asset Reallocation in Oil and Gas Production
SSRN · 6425013
Reallocation of assets across firms can lead to efficiency gains, but it can also lead to distortions via rent-seeking. We examine the link between asset reallocation and rent-seeking enabled by differences in the expected cost of environmental liabilities. Focusing on the US oil and gas industry, we develop a conceptual framework that incorporates both firm specialization in well types and the judgment-proof problem, by which undercapitalized firms can avoid environmental liabilities. We then b