Let’s talk about orphans, and I don’t mean the ones in Annie. In ‘15, the downturn led to an expansion of the problem of orphan wells.

In Canada, there was a case with a company called Redwater, who owned interests in a number of wells that needed to be P&Ad and declared bankruptcy.

Through two levels of Appeal to the Supreme Court, It was ruled that plugging the old wells superseded the rights of the creditors. Different country but eye opening implications.

Flash forward to present day and it’s easy to find financially weak companies with 1000s of unproductive wells. For prospective buyers of assets, it’s easy in a valuation to discount the cost of the $5k-$200k+ plugging and restoration but in practice, the rainy day fund is never really set aside. It’s used to accelerate drilling, pay G&A or interest expense. Then, when C11 arrives, there is no money left for clean up.

What are States to do? Who will be left holding the bag at the end of the day? It’s a prickly issue. But kicking the can down the road only works for so long, and at some point, these wells are going to need to be reclaimed. And best do it before the matter is decided between state agencies and creditors because the cash leakage that will occur in the courts is the scariest part of all.