Transcript of Upstream Tutorial: How to Track Asset Retirement Obligations Featuring New Louisiana Data

Sep 19, 2023

On September 15, The Capitol Forum provided an Upstream tutorial on how to track asset retirement obligations leveraging recently obtained and curated oil and gas production and ownership data from Louisiana. With the addition of Louisiana, Upstream now accounts for roughly 80 percent of U.S. natural gas output and the operations of each large, publicly traded natural gas explorer and producer. The full transcript, which has been modified slightly for accuracy, can be found below.

The video of this tutorial is also available here.

DANIEL SHERWOOD:  Hello and good morning, everyone. Thank you so much for joining us at The Capitol Forum to view our recently added Louisiana data to our Upstream oil and gas production database, It spans the Appalachian Basin and the Haynesville Shale Basin in Louisiana.

We’re going to do a just a quick moment here of administrative housekeeping, and we’re going to dive right in and get ourselves ready for the weekend. For any questions. I’ll try my best to monitor the questions chat here. We also received a few questions before the beginning of today’s event, which I’ll make sure to either get to, but please feel free to remind me if I forget.

So with that, let’s get started. So here we are. I’m sharing my screen. Please let me know if there’s any problems in seeing things. The font might be a little small. I’ll zoom in here where I can. So this database tracks both the production output and underlying ownership of assets. We built it to do a better job of understanding what these non‑producing, non‑plugged wells look like initially in the Appalachian Basin, to get a better idea of Diversified Energy’s inventory. But then we’ve continued to grow.

Where other data providers may be focused just on drilling permits or focused on just those horizontal wells that are producing all that oil and gas that kind of make up most the output of the industry, we try to focus on the operations in totality, every little piece of paper that we can get our hands on. And we try to reflect it here in this database.

So we have historical records. We have historical pipeline records, plugging records, transfers, and more. From any state source that we can find, we figure out a way to scrape it, aggregate it, and sort it so that it can be interpreted by a user. Otherwise, from every state, it differs how they report oil, how they report their company name, how they report where they drill, and the list goes on. So we try to curate this to kind of smooth over some of those inconsistencies so that we can get a true understanding of ownership.

So let’s navigate here through the platform. So you’ll see these are where our primary tabs are at the top, the home, the operator, wells, regions, transfers, articles, reports and data tab. The operators is where we put a lot of our work. And so we have events that date back to 1900 and we have production and permitting information that dates back to the fifties and all of that is reflected in here. You can watch that in the events tab as Standard Oil, for example, is broken up and then kind of comes back together again. It’s one of my favorite things to see.

So let’s focus on what we’re here for in Louisiana. And all of these operators, this is with all of the different states that we have. We have this filtering component on the left so that you can isolate a number of different factors. The number of wells you’re looking at, if you’re looking for a company and its alias, if you want to isolate just the state, here are the 750 operators in Louisiana.

So here we would navigate to the regions tab and then list states and isolate Louisiana, which I’ve just preloaded right here. And you have a map. Now, all these little bubbles, we can’t physically display every single wellbore that’s in Louisiana. So this visualization just randomizes what you can see. But as you can see right now, the closer and closer you get, it’ll reflect what’s there and what’s not. You’ll see yellow is active, blue is abandoned, white is oftentimes orphaned, sometimes permitted and drilled. You can click on each well of your interest and navigate to that well in particular, which will give you information about the ownership and its historical production, when it was drilled, how deep it is, etc. The magic component of Upstream here, though, isn’t just this. We’ve all seen this before, right? Let me show you what really makes this sing.

So one of the operators that we’ve done the most work on in Louisiana so far in mapping their legacy operations is BP. And so here, I’ve done what I showed in that earlier tab. I’ve filtered the operator tab by Louisiana. I’m going to navigate to BP here, and this is what they—each company that has any kind of wellbore record in the states where we have data, we’ll have a profile page like this. And if we’ve mapped the subsidiary to the parent, which we endeavor to do in each instance, you’ll be able to see those relationships.

So here we’re in the top level parent operator. BP—formerly British Petroleum, as you’ll see here—and the organizational hierarchy tab here at the bottom left. This indicates all that work we’ve done in the back end. So tying the different entities that are affiliated with this organization that would otherwise be missed if you just downloaded the data from Louisiana.

And to take a step back to explain—and while I explain this, I’ll leave this up. And again, we have this for every single company where we’ve mapped these relationships. You can go onto this organizational chart tab where it kind of looks at the umbrella of what we’re uncovering. And I’ll zoom back and explain what all this is. And I’ll do it through the lens of our Diversified investigation.

You know, four and a half years ago, we were trying to figure out how many wells this company really owned, what their production really looked like. They had gone on a spree of acquisitions. They had a couple of affiliate entities that had changed names. They had a couple of other entities that were a subsidiary of an acquired entity that never changed their names. And there were a number of different ways that these operators were left over in the state records and left on the vine to dry.

And what is commonplace for these operators is after they finalize an acquisition, they’ll transfer. They’ll do the appropriate paperwork that they need to do to get those really high producing, high quality assets on their books. Because that’s what they bought those assets for. That’s what they’re most interested in. Let’s get that oil and gas out of the ground, make us money, and pass it onto investors or keep it in-house and obviously many variations therein. But you get the idea.

All the while, the older entity, whether it’s what was bought or a subsidiary before the name was changed, just sits there. And the new company that bought it never takes credit for, oh hey. I want that liability. I want that well that’s not been plugged. I want that well that’s never produced and might be leaking. And it’s just easier to say, oh, you know, BPX KCS Resources LLC, no, no, no. We never bought that. And so that’s what happens a lot.

And so what we’ve done in Upstream is go to companies and say, hey, look. We found these 60 non‑plugged wells in West Virginia that are right on your coal mine and all the permits are underneath your company or your former company’s subsidiary before you went bankrupt. And by all indications, these would still be yours and thus not the public’s responsibility to plug. And in some instances, they say, oh, you know, you’re right. Or they say, you know, we divested those. And then those wells get taken responsibility of whoever bought it. And in other instances they say, no, you’re wrong. And they hope the regulator doesn’t do anything. So it’s not always a perfect solution at the end of the day, but it’s definitely a step in the right direction.

So now zooming back into Louisiana and here we are in BP. And just to show you all the different names, like all of the different ways that this can manifest itself, is like when you see these name variations here in the about box, you probably can’t see that text. But here in this about box, you see these name variations. And this demonstrates that there were other groups that somewhere in the state data, some wells still were tied to the British Petroleum. And some people might search that, sure. But if you didn’t think of that, you would miss those. Whereas, here it’s automatically tied in to the appropriate entity.

And all of those ties, all of those maps, are corroborated by supporting documents, which brings us to this events subtab within each operator. And all of those events you can see. So when it went from BP Amoco to BP in 2001 or when it absorbed Standard Oil in 1987. And if you wonder to yourself where do they get this information here, you can click on these supporting documents and navigate to the original Securities and Exchange Commission document that was filed talking about the former confirmed name of Standard Oil Company/IN. Amoco Corporation, these are holdings. This is how we kind of extract all this information to be able to tie it back to its appropriate entity.

Just really quickly, before I move on into more specifically asset retirement obligation identifications, I just want to show a funny little kind of anecdote about just the fascinating information that lives in the back end of Upstream, just waiting for an enterprising individual to pick it up. And again, as a friendly reminder, please feel free to ask any questions. Or if anything doesn’t make sense, I’m happy to revisit anything.

So, yes, these events are all over the place. And it’s fascinating to watch as the bankruptcies tick up in our event history database and as they go away. You can watch the boom and bust of these relatively quite volatile commodity cycles. And the stories never change. Whether it’s a coal company divesting its oil and gas assets or it’s a steel company divesting its oil and gas assets, whether it’s a utility that used to own an upstream production asset and then divested it to another producer, which then sold it to a pipeline company which then bought it again and resold it back to the original seller, all these different things, they come and go in waves.

And an example I wanted to highlight was here in Gulfport Energy Corp. This is a company that we’ve done a lot of work on, as you can see here in the events tab. It’s part of why I had it open. They filed bankruptcy most recently in 2020. They have assets both in the Appalachian Basin and in the SCOOP STACK basin, and they have a long history. I’ve written about them for two and a half years and I had no idea until we uploaded this Louisiana data that they had a history where they specifically were targeting legacy assets that were underperforming and trying to reinvigorate them with some type of a nuclear technology. The company couldn’t turn that into something that was economical, filed bankruptcy and now fast forward 25 years and they’re still kind of struggling with horizontal drilling. But just little gems like that. I think they really stick out to me. Because being able to tie together these older entities that own significant assets. And it speaks to the origin stories of some of these companies.

So what I was just referring to about their history is in this document which I’ve pulled up here, and you can see their prior bankruptcy. And this not their 2000s bankruptcy. This is their 1992 bankruptcy, The company “was engaged in acquiring mature oil and gas properties in the Louisiana Gulf Coast area, increasing both production and total oil and gas recovery through the use of advanced technologies, including sophisticated radioactive logging equipment.”

So I think it goes to show the breadth of the kind of storytelling devices that this has. And so whether it’s mature reinvigoration of assets or carbon capture and sequestration, that’s all information that can be isolated by various filters, whether it’s the type, brine and disposal, for instance, or operational status orphaned. So this shows us, for instance, that there’s 4,178 orphan wells in Louisiana. If I wanted to, I could export these results and people will often react, wait, there’s operators? And yes, there are many, some of which are active. Which is why this data, in my opinion, is so important.

Okay, so let’s talk more about IAOS. So here I’m back in the home page where we started. If you click on this Reports tab, this is an interesting component of one of the offerings of Upstream is where we can generate these bespoke reports that you can download. You can also download the data within the platform, which if we have time at the end, I’ll give an example of.

One of the most used reports internally at The Capitol Forum that we generate is this one: Inactive, abandoned or orphaned and shut in wells list. As you can see, we just regenerated it on 9/11. That IAOS sheet is what a full list of every non‑producing unplugged well, in the states that we have data for. Someone asked for a breakdown of those by age.

So this would be a great way to get that that data point. So I would click this and it would download to my computer. It’s nine megabytes and I don’t want to test us. So I’ve downloaded it already. And this is what the data output would look like once you’ve downloaded that IAOS sheet, for anyone who is trying to figure out what the age of those would be.

So writ large, of course, none of this data is perfect. Every single state that we’ve gone to when we’ve tried to confirm anomalies we found or tried to understand different categories that don’t seem to be as easy to sort, they’re always—I guess not always, but more often than not, they’re like, oh, we actually don’t know. Or like we made a mistake. Or the company hasn’t reported it correctly.

So there’s going to be a lot of noise. And that’s just something that you have to kind of accept when dealing with this. That being said, we’ve done everything in our power and poured significant resources into trying to quiet that noise as much as we possibly can. But that being said, we can’t create data where there’s none. So in order to, for instance, find the age of these wells, the most valuable data point in my mind would be the SPUD date or the last producing date. And SPUD date is —well, I can get the actual definition here from our database. But basically, it just means when it’s drilled and ready to start producing. And as you probably can see, but it is not always populated. There are a couple. And if it was just whoever asked the question on the phone with me, just one on one, I would sort this and create an equation to figure out the number of years and then find that average. Stereotypically, they’re quite old though. When we reported on this in the past, they can be as old as 50 to 80 years. They usually average a 20 to 35 year time span. But I’m painting with a broad brush there, of course.

So this is this is what you get. This is the output. For the purposes of this conversation. I wanted to isolate it just in Louisiana. So I took just Louisiana data. That’s this sheet. And then I created a pivot table. So this is a pivot table. And this pivot table, this count of well IDs, that’s giving us a well count of how many non‑producing, unplugged wells these various companies have. So you’ll see Texas Petroleum Investment Company in Louisiana. So you’ll see TPIC at the top. Hilcorp number two. Both of those are private entities. Both generally have a long record of noncompliance and environmental violations. Eventually, you get to some public ones there. You see Exxon there taking the top place for publicly traded companies that own non‑producing, unplugged assets. Diversified there, Comstock there. That’s public. BP. Denbury, which is about to get bought by Exxon. We’ll talk about that hopefully a little bit later. And the list goes on. Chesapeake. And, I mean, these are all significant numbers, 118. You know, these are not a few wells here and there.

So let’s talk about that. What’s going on here? Let’s use Texas Petroleum Investment Company as our first kind of case study, switching you back to the platform. So here we are in Texas Petroleum Investment’s operator tab, where I would have just navigated to this main operator tab in Texas Petroleum Investment Company. Now you see there’s not an organizational hierarchy. So this one’s relatively straightforward. There may have been some typos we corrected, some operator ID, serial numbers that we corrected. But for the most part, this reported itself straightforward. So that’s nice, right?

Something that we help with relatively often is when journalists come calling after some kind of emergency or situation like this has occurred. So here’s this tragedy in Louisiana where people’s health was negatively impacted by the lack of structural integrity of these assets. That same day, a different outlet did kind of a deep dive on this operational history and wanted to identify where this well was. And there was a little bit of information, but there was kind of a bit of a scramble to find it. We weren’t connected with this outlet at the time, but if we were, I would have been able to find that.

Here we are in Saint Mary’s Parish. So which you would navigate to with this regions tab and isolating Louisiana. And then you can go into the various parishes and counties in our database. The map moved itself a little bit on me while we were going through the different tabs, but before that I had it located specifically on the part of the bay where this incident occurred. And then let’s pretend right now that it’s that well, but it’s not. Like I said, my map moved on me. But let’s just pretend it’s that well. And then I’ll be able to navigate to this well.

And these are the wells that were a part of this issue. This blue one saying this is Texas Petroleum and it’s blue, which means it’s abandoned, which means it needs to be plugged. So in Louisiana, generally speaking, you need to plug a non‑producing well after five years. Let’s see, the last production year was 2009. So just in a matter of moments, we found a non-compliant, non‑plugged well owned by this company that has an outsized inventory of those types of assets that is directly implicated in an emergency.

So that’s just an example of a kind of well and operator combo of an analysis where you don’t even need to get into kind of these more nuanced ownership queries. Like there’s some kind of very straightforward files here where it’s like, look. You’re an active, bona fide company. You’re registered to conduct business in Louisiana. You have a registered agent. You are making money off of producing wells in the state. You know, what gives? And that’s been a relatively effective method in bringing about action on some of these wells in some instances. In others, not so much.

So let’s really quickly pivot back to the Excel sheet. And this is the last case study that I wanted to highlight before we can kind of open it up to a more general discussion.

So as I said already, ExxonMobil sports the highest count of unplugged wells in Louisiana at this moment. And we reported about this pending merger. And on Monday, I believe, if not Tuesday, Denbury announced that the Hart-Scott-Rodino Act waiting period had passed. And so, now all they need is the stockholder approval. So it’s quite likely this merger is about to go through. So Exxon is set to add that 168 of unplugged, non‑producing wells to its already number one spot.

Now, the reason why I wanted to highlight Denbury rather than looking at Exxon is Denbury’s business model—and this is what our articles look like. And as you can see in the Upstream platform, we have a little tab for articles where you can navigate there and all of our energy pieces are sort of right there. And you can click read, learn and you can also navigate from our library right back to Upstream.

So here I am in our most recent on the Exxon Denbury deal. Just very quickly on Denbury, their business model is purported to focus around carbon capture and sequestration. As we wrote, their principal business is oil production through enhanced oil recovery, much of which is through carbon that comes from natural deposits, not industrial sources. They’ve done a good job of making people think that all this CO2, I think, is used from industrial sites and that is increasing and they plan to continue to increase that. But right now, something like 60 to 70 percent of their oil production that comes from enhanced oil recovery is from CO2 from natural deposits, which have a declining reserves last we looked into it.

Why am I talking about all this? Because carbon capture and sequestration companies, one of a new kind of industry talking point is that these non‑producing, unplugged wells can be re‑utilized for storage, for injection, for a number of different kinds of possible ways in the energy transition. Now, we could talk all day about the scientific implications of that. Has that been battle tested yet? And I’d be very interested in that discussion.

But before we even talk about the technological feasibility, I think that Danbury’s liability inventory makes it that much more relevant to reframe the conversation about repurposing non-used wells. They are no stranger to distressed operations, having filed for bankruptcy in 2020, and have struggled to demonstrate that their CO2 focus is going to be economical and advantageous. Obviously, with this Exxon merger, that’s kind of a change for them as far as their struggle is concerned. And they’ve grown very involved from the perspective of an oil and gas industry player because they greenwash their oil production assets by getting more credit for using CO2 in the process.

And because they’re a smaller company, and because they have less cash, and they were already struggling to figure out how they would expand their CO2 pipeline network, it makes the fact that you see all these blue and red dotted wells in the middle of, you know, like nothing. You know, I’m not seeing any yellow dots or very little yellow, which would mean active wells. So it’s like, what is this company doing? What are they sitting on?

And so let’s take a look at that. And so here I am in Denbury’s well sub‑tab. I’m isolating their abandoned, inactive, shut-in and orphaned wells. And I’m going to download that. And like last time, I’ve already pre‑downloaded it just to save us some time. And just give me five seconds as I navigate to that Excel sheet and similarly—and so this kind of gets to one of the questions about getting into the age. But in Louisiana, there’s shut‑in status wells. There’s a little bit of a nuance where they can be temporarily plugged. So I’m not even considering these. These are all of the just no‑plug whatsoever. And we’re coming in at 2018. So we have 87 wells that by statute should have been plugged yesterday that Denbury is operating. And while a company might want to say, hey, we can retool this for carbon sequestration one day. If I was a regulator, I’d say, okay, you know, retool the well that is going to be inactive in five years and fulfill your statutory obligation.

So I think there’s ways to kind of take apart some of this narrative about what to do with under producing wells versus orphan wells. And the industry will conflate all these statuses often. And at the end of the day, if it’s not produced in line with the statutory provisions and it’s not been plugged, from a legal perspective, that’s the end of the discussion in my view. Whether or not regulators want to play hacky sack with the company to see if the company will actually bring these plans to fruition is up to them. But as you can see from some of the times, these three or four decades long moments of these wells just sitting there idle, never doing anything, I think history, for the most part, would demonstrate that would be a risky move.

Okay. So that’s basically everything I have prepared for things to show. I was going to take us through a couple of wells that were plugged through the IIJA program, demonstrating how you can confirm that sometimes those wells that are getting plugged right now, by the congressional funds, are owned by active companies. But instead, I’m going to answer some of the questions that came in and then just give a five-minute breather for any others.

Okay. I’m first going to go with the number of non‑producing wells that require plugging in Louisiana. I think the easiest way for me to do that would be through Excel. And the total number is 29,526 unplugged wellbores that aren’t producing right now according to this, our most recent data. So that is including some shut in wells that are temporarily plugged. But again, as far as the statute iss concerned, the remediation is not complete.

Of course, I can send this information to people who are interested. But yes, the number is 29,526. And I’ll show another way we can get it without even having to download anything. And then you’ll have to excuse me for a moment as I catch up on some of the questions that are coming in. So here I’m in the wells tab. I’m filtering it by Louisiana. Then I’m going to operational status and I’m filtering it by abandoned, inactive, orphan and shut‑in. And if anyone’s sitting there and wondering what the heck do any of these things mean, anywhere in Upstream if you see this small dashed underscored, light blue line, you can click on it and it’ll give you a definition which will demonstrate to you how we’re trying to sort these things. And so here again, you see 29,526 wells.

Okay. So I also got a question about how to identify public company AROs. And I thought that was a great question. And this is kind of general but pretty much no matter what, they should have it somewhere in their security filings, not always in their 10-Qs, those quarterly filings, but in the 10-K, the annual report filing. That’s a great place to look for it, and not to sound too pedestrian, but stereotypically, how I’ll do that is I’ll go in there into the 10-K, control F. I and Julia—and by the way, I need to give Julia credit and Matt Probus credit for helping me launch all of this. So thank you, Matt and Julia. And I’m sorry I didn’t do that at the beginning.

But yes, to go into the 10-K, control F, and look for certain search terms. So like ARO, for instance, or retirement obligation or decommissioning are usually good hits. And then you’ll see they’ll disclose it in their balance sheet. And that number is not that good. Beyond the fact that there are further AROs that are not being accounted for because they want to pretend it’s not theirs. But even the number that they are reporting and take responsibility for will vary quite a lot from year‑to‑year. Whether it’s because of commodity prices or because of a sale or whether it’s because of a change in production plans, there’s a number of different ways that companies can say, sometimes very legitimately, other times there’s a couple of other factors that are being kind of shuffled around or being emphasized over others. But regardless, there’s a number of different explanations that they can give to the Securities Exchange Commission as to why that would change.

So, when I first started looking at this years ago, I thought that it would be very, very easy to track. But then because of how nebulous the number would be due to all the other factors that influence how it’s disclosed. But that’s how it should be listed in the balance sheet.

Okay, one second. This is great. I got someone, does this include offshore wells? Yes. Offshore, shallow wells. It does not include deep shore federal wells. So here I am listing states. I’m going into Louisiana. And you can see GPS coordinates on the shallow water wells were crazy. So we did the best we can. But this is about as deep in the sea as we get. And you’ll see plenty of abandoned wells here too. This one way out there. State lease. Hate to see it. Wow.  Drilled in 1954. 1993. This one’s not taken over by the state yet. Talos. So yeah, this was Talos’s well. So now you’re watching me do live research and why no one wants to do this.

All right. But yeah, this is the fun—look at this. You all need access. And so, yes, this is what the offshore wells look like. And as you can see, they’re having a hard time with the imagery because we’re in the water. One day we’ll have pipelines in here is my dream.

Okay, moving on. I think that’s it. Sweet. You all, thank you so much for joining. I tried my hardest to present all this data in a nice, concise way. And we didn’t even get into decline rates and transfers. And there are a lot of different ways that this data can be interpreted and analyzed that can go a super, super far way for on the ground analysis. I’m happy to get you folks my contact information and answer any specific questions as it relates to an operator, as it relates to the federal grant program, as it relates to plugging or as it relates to the production side. Really appreciate you all joining and I hope you have a good day. Thank you. This will conclude our presentation.