Only 1% of the largest publicly traded oil and gas companies in the gulf are covered by bonds New York, June 9 – As the energy transition accelerates and oil and gas wells in the Gulf of Mexico close taxpayers may be forced to pay tens of billions in clean up costs.  This is a key finding in the report Double or Nothing issued by the Carbon Tracker Initiative today. Currently, Bureau of Ocean Energy Management (BOEM) holds $3.5 billion in active bonds for $34-48 billion in estimated decommissioning costs, leaving at least $30.5 billion in cleanup expenses unsecured.  By law, when a well stops producing operators must close it and restore the location to a safe and clean condition. To pay for clean up companies are required to obtain surety bonds.  The lack of coverage for offshore wells is the result of regulations that allow companies to avoid paying full bonding upfront.  If current operators cannot meet the costs, it falls to predecessor companies because of joint and several liability, which means that co-lessees and prior lessees can be put on the hook. But if no viable responsible party can be found, it becomes the government’s responsibility, pushing these costs on to taxpayers. Rob Schuwerk, executive director, Carbon Tracker North America and co-author of the report, said:  “Double or Nothing represents the risky bet by regulators that the last companies standing will be willing and able to bear the cost of retiring decades of infrastructure and billions of dollars in cleanup costs instead of walking away from legacy subsidiaries.  The only sure-fire way to prevent that is to demand full-cost financial assurance now.” Double or Nothing shows how 78% the decommissioning costs in the Gulf are tied to the largest companies. On average only 1% of their costs are covered by bonds, meaning there is no cash in reserve to protect taxpayers if companies walk away from their cleanup obligations. The top gulf operators are directly liable for the following estimated costs:

• Shell – $3.6 billion
• BP – $3.1 billion
• Chevron – $2.6 billion
• Occidental – $2.6 billion
• Woodside (BHP) - $1.3 billion
• Equinor – $1.2 billion
• Murphy Oil – $1.2 billion
• Eni – $828 million
• Exxon – $776 million
• Hess – $731 million

These amounts could be compounded in the coming years.  As field depletion and the energy transiton push more marginal companies out of business, the last ones standing risk seeing those costs increasing 2.3 to 6.8 times over their direct liability on current leases, adding billions in costs. Double or Nothing highlights how company financial statements of publicly traded oil and gas companies do not fully reflect decommissioning liabilities. Investors are left in the dark because reported asset retirement obligations do not account for contingent joint and several liability and therefore may significantly understate a company’s total liability exposure. Greg Rogers, Senior Adviser to Carbon Tracker, said: “All the top operators in the Gulf of Mexico are subsidiaries of blue-chip multinational corporations; those parent companies are not liable for the obligations of their subsidiaries.  This means they only have skin in the game  so long as the GOM remains a worthy investment. The energy transition will change that calculus, driving down revenues and consolidating cleanup costs on the books of the largest legacy operators, and when it does, the parents will have the option to pay or walk away.” Currently, the BOEM’s regulatory approach relies heavily on joint and several liability as a backstop for defaulting operators. However, the largest producers operate through several subsidiaries, each of which may hold both direct and joint several decommissioning liability. Some subsidiaries carry close to a billion dollars in liability but do not produce oil or gas. Parent companies who take in all the profits are protected by limited liability, meaning the world’s top oil companies may not be strictly liable to cover the decommissioning liabilities of their GOM subsidiaries. As the energy transition progresses, there is a greater risk that parent companies will abandon cleanup obligations in the Gulf. Thus, the current regulatory system makes the wager that the largest companies will continue to see it in their interest to pay to clean up their current and past operations, but the economic impacts of the energy transition will progressively diminish the odds on the bet. Stephen Greenslade, Analyst at Carbon Tracker and co-author of the report said: “This comes down to the same core issue that we have found onshore: the energy transition will bring forward the retirement of a massive amount of oil and gas infrastructure, and money isn’t set aside to pay the costs. Joint and several liability is better than nothing, but only while cash is flowing.” To protect taxpayers and make companies pay for well closure and cleanup the report calls on BOEM to make the following reforms:

• Require full bond coverage
• Implement a combination of sinking funds, third-party guarantees, and diligent monitoring of the financial strength and creditworthiness of current and former lessees.
• Require companies report contingent decommissioning obligations on audited financial statements to better reflect their direct and joint and several liability.

The report continues Carbon Tracker’s work examining the cost of closing and cleaning up oil infrastructure in the US.  The first piece, It’s Closing Time, showed industry has not set aside the resources to meet their AROs.  In Billion Dollar Orphans, researchers found that it will cost $280 billion to plug documented onshore wells in the U.S.  The next report, They Only Fill When They Drill, detailed how state’s incentives lead operators to postpone closing inactive wells. Race to the Top showed how to fix incentives and track success in internalizing retirement costs to industry. Once the embargo lifts the report can be downloaded here: https://carbontracker.org/reports/double-or-nothing/ ### To arrange interviews please contact: Daniel Cronin                           617-678-5263 About Carbon Tracker The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research to date on the carbon bubble unburnable carbon and stranded assets has begun a new debate on how to align the financial system with the energy transition to a low carbon future. www.carbontracker.org