Houston Partner Gerry Pels, Chair of the Firmwide Environmental Section – Energy and Industry, provided insight to Law360 on obstacles faced by drillers cutting production and shutting down oil wells as Saudi Arabia and Russia continue to flood the market and the COVID-19 outbreak weakens demand. While shutting a well in is less expensive than plugging and abandoning it, it may cause long-term risk to operators who are already vulnerable, he said.
“Could cleaning something up to a minimum-standard only ultimately result in long-tail liability if, for example, you're near a body of water?” Pels said. “It may be in your long-term best interest to do more than the regulatory minimum if there's a reasonable likelihood of long-term risk.”
However, as eliminating costs becomes the priority for oil and gas companies, Pels acknowledged this may not be possible.
“In a downturn like we're having, it's going to be the smaller operators who may not have the resources they would like to address the plugging and abandonment issue,” he said.
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