The gas well on Susan Dennison’s Harrison County childhood home has failed her smell test in more ways than one.
Dennison, 62, said she and her husband, Bill, would spend more time on the Wilsonburg property if not for an odious smell from the well wafting across most of its 20 acres.
“If you’re sitting out on your back porch to try to relax, you don’t want to get a big whiff of something that’s going to make you think, oh, geez, is my house going to blow up?” Dennison said.
So instead, the couple spends more time over 200 miles away in Bethesda, Maryland, where Dennison reflects on a lawsuit that she hopes will result in the well back in Harrison County being plugged so she and Bill can enjoy the land where she grew up.
“[M]ore things should be done to keep people accountable for the way they leave things,” Dennison said.
Dennison is one of eight plaintiffs in a federal class-action lawsuit alleging that two of the most prominent natural gas producers in Appalachia struck transfer deals in recent years for many more wells than the acquiring company can afford to plug and decommission.
The upshot, they say, could be billions in cleanup costs dumped on taxpayers and landowners like themselves.
Eight landowners in Harrison, Nicholas, Preston and Wetzel counties filed the lawsuit in the U.S. District Court for the Northern District of West Virginia earlier this month against Diversified Energy Company and EQT Corp.
They contend that Diversified’s acquisition of thousands of wells from EQT was completed with intent to defraud creditors, including the plaintiffs, in a business model designed to push off decommissioning liabilities for decades.
Much of the lawsuit is based on a report published in April by the Ohio River Valley Institute, a Johnstown, Pennsylvania-based pro-renewable energy nonprofit think tank, that predicted it was highly unlikely that Diversified will have enough money to plug and abandon all its wells, citing Diversified company data and federal projections for natural gas prices.
“I don’t have respect for that particular business model,” Dennison said.
Landowners like Dennison have been left with unplugged, abandoned wells that pose health risks, degrade the environment and hurt property values, the lawsuit asserts.
Headquartered in Alabama and led by co-founder and CEO Rusty Hutson Jr., Diversified Energy has become the largest owner of oil and gas wells in the country. Most of the company’s nearly 70,000 wells are in Appalachia, acquired since 2018 from regional producers such as Pittsburgh-based EQT and Canonsburg, Pennsylvania-based CNX Resources. Hutson is a Lumberport native.
Diversified acquired more than 12,000 gas wells from EQT in deals in 2018 and 2020 for roughly $700 million.
The Ohio River Valley Institute report found that Diversified has used unusual assumptions like implausibly long economic lives of wells though 2095 and an excessively long ramp-up timeline to start plugging and abandoning most of its wells to calculate the value of its asset retirement obligations, liabilities for well plugging and abandoning costs.
Filed by attorneys from the Charleston-based Bailey & Glasser law firm and Appalachian Mountain Advocates, a Lewisburg-based environmental law and policy firm, the lawsuit cites the Ohio River Valley Institute report to allege that if Diversified had used industry norms to calculate its plugging and decommissioning obligations, then its liabilities would exceed $2 billion instead of the company’s self-reported figure of roughly $520 million, making Diversified insolvent.
“[Diversified’s] business model is built around low decline assets paying out cash flow in the form of dividends to retail investors,” Tom Loughrey wrote in a June 2020 company analysis for Friezo Loughrey Oil Well Partners, an analytics firm serving investors in the oil and gas sector. “The problem with these structures, and why they always fail, is the valuations eventually exceed the future cash flows; the company must replace assets at an increasing rate until hitting the wall.”
Diversified is only the 15th-largest producer in Appalachia despite being its largest well owner, Ohio River Valley Institute researchers found, citing data from the Capitol Forum, a market analysis company.
An Environmental Defense Fund study released in April found that low-production well sites like those dominating Diversified’s portfolio are a disproportionately large source of methane emissions.
The report published in the peer-reviewed scientific journal Nature Communications found roughly half of all well site methane emissions nationwide come from low-production well sites, which emit six to 12 times as much methane as the average rate for all U.S. well sites.
Methane has a 100-year global warming potential 28 to 36 times that of carbon dioxide, according to the U.S. Environmental Protection Agency, making Diversified’s deepening well footprint across Appalachia a climate concern in addition to a feared threat to states’ bottom lines.
A Diversified spokesman said earlier this month that the company was reviewing the suit’s claims and “takes a unique and proven approach” to produce natural gas and provide local energy.
“An analysis of Diversified’s financials reveals that the company is, quite intentionally, playing a high-stakes shell game designed to hinder and delay its creditors by decades upon decades,” the lawsuit alleges.
The well transfers to Diversified has allowed EQT to make money by shedding plugging and decommissioning liabilities that it knew or should have known Diversified could not satisfy, the lawsuit argues.
The lawsuit cites a May 2020 statement by EQT president and CEO Toby Rice in which the company reported that selling assets in West Virginia and Pennsylvania to Diversified for $125 million in cash would relieve EQT of $47 million in asset retirement obligations and other liabilities.
An EQT spokeswoman did not respond to a request for comment.
The defendants have not yet filed a response to the lawsuit.
The lawsuit asks the court to make EQT liable for plugging and decommissioning the wells that Diversified took responsibility for in 2018 and 2020, contending that those transfers were fraudulent. The lawsuit petitions the court to award plaintiffs and class members damages from Diversified to compensate them for the cost of plugging, remediation of the abandoned wells.
The filing also asks the court to create a fund from damages collected from EQT to plug and decommission class members’ wells in West Virginia and a separate fund from damages gathered from Diversified to plug and decommission wells.
“I would primarily like to get [the well] plugged so we could possibly enjoy having the house there,” Dennison said of her Harrison County property.
The plaintiffs are Dennison and seven other owners of properties on which abandoned Diversified wells are allegedly located: Wetzel County property owner Mark McEvoy, Nicholas County property owners James and Susan Tawney, Harrison County property owner Samuel Stark, Preston County property owner Mark Goff and Marion County property owners Carol and George DelRosso.
Diversified and its subsidiaries had 22,876 non-plugged wells in West Virginia in April, according to state Department of Environmental Protection spokesman Terry Fletcher. Diversified-owned companies have plugged roughly 130 wells in the state since 2018, Fletcher said.
The DEP estimates that older wells that have been poorly maintained will likely total more than $100,000 in plugging costs. New wells that have been properly maintained cost a few tens of thousands of dollars, per the agency.
Diversified could have 60,000 wells to plug and abandon throughout Appalachia at the end of consent agreements reached with regulators in West Virginia, Pennsylvania, Kentucky and Ohio committing the company to decommissioning some 80 wells annually for the next 15 years.
Diversified reported retiring 136 wells in 2021, exceeding its state requirements and moving the company closer to a stated goal of plugging 200 wells across Appalachia by 2023, according to its 2021 annual report.
But those retirements represent less than half of 1% of all the wells in Diversified’s portfolio.
The state’s Oil and Gas Abandoned Well Plugging Fund, created in 2020 by House Bill 4090 to pay for reclaiming abandoned wells without a responsible operator, has a balance of $1.86 million, Fletcher said — a fraction of London climate impact think tank Carbon Tracker’s $7.6 billion estimate of the cost to plug wells that ceased production in West Virginia.
“[Diversified’s] business model is not good,” Dennison said. “They’re out for themselves and not to take care of the land and the people who own it.”