How the Federal Government Can Hold the Oil and Gas Industry Accountable
Longs Peak is seen in the background of a drilling operation near Frederick, Colorado, June 2017. (Getty/Helen H. Richardson/The Denver Post)
Oil and gas companies have been cheating the leasing and drilling system for years, but the Biden administration has the tools to hold them accountable.
by Mariel Lutz and Jenny Rowland-Shea
The oil and gas industry has long taken advantage of the leasing and drilling system on America’s public lands and waters. For years, some of the top leaseholders have faced minimal consequences for repeatedly violating environmental and labor standards, dodging payments, and shedding liabilities. Indeed, these bad actors are still allowed to operate and buy new leases on public lands and waters. The Center for American Progress finds that more than 50 percent of the top oil and gas companies have exhibited one or more bad-actor behaviors, such as abandoning wells, shedding liabilities, dodging royalty payments, or committing environmental or labor violations. (see Methodology) As the Biden administration reforms the federal oil and gas program and aims to hold oil and gas companies accountable, it has an opportunity to create strong limits for bad actors through rulemakings at the U.S. Department of the Interior. Implementing such limits would help prevent the middle class from falling victim, yet again, to oil and gas industry greed.
The current state of leasing and drilling on public lands and waters
Public lands and waters are shared resources that the federal government manages on behalf of all Americans. The federal government manages these public lands and waters in a variety of ways, including for conservation, recreation, grazing, and oil and gas production. The Bureau of Land Management (BLM) manages public land, or onshore, leasing, and the Bureau of Ocean Energy Management (BOEM) manages public water, or offshore, leasing. As of 2022, the oil and gas industry held more than 34,000 leases on public lands, covering more than 23.7 million acres.1 In public waters, the oil and gas industry has more than 12 million acres under lease.2
While many companies participate in federal oil and gas leasing, a small number hold many of the leases. The top 20 companies, and their subsidiaries, operating onshore account for more than 40 percent of leases, covering more than 3 million acres.3 The top 20 companies offshore account for more than two-thirds of leased acres, covering more than 9 million acres.4 Many of the biggest companies have multiple subsidiaries that operate under the company’s original name, making it difficult to determine who is responsible for various oil and gas resources and the associated liabilities.5 Data on oil and gas industry leases are inconsistent and hard to find, further enabling the damaging behaviors of many companies.
The federal oil and gas leasing system has long been criticized by taxpayer, public land, and ocean advocates as being out of date and catering to the industry.6 A November 2021 Department of the Interior report found that “the program falls short of serving the public interest in a number of important respects,” including causing damage to taxpayers, the environment, recreation, and cultures.7 This is in addition to the fact that the federal government already heavily subsidizes fossil fuels, with billions of dollars in direct and indirect subsidies every year.8 All of this has augmented massive profits, with oil and gas companies making more than $200 billion in profits last year alone.9
Together, the top 20 companies onshore and offshore have had more than 3,000 penalties since 2000, according to Good Jobs First’s Violation Tracker.10 This corporate misconduct database “covers banking, consumer protection, false claims, environmental, wage & hour, safety, discrimination, price-fixing, and other cases” from federal, state, and local regulators.11 It likely provides an underestimation of the number of penalties, since the tracker does not cover every company in the top 20. Whether counted or uncounted, however, companies are currently able to continue taking advantage of public lands and waters despite histories of violations that suggest they should not be trusted with public resources.
Common bad-actor practices in the U.S. oil and gas industry
Bad-actor practices involve taking advantage of the leasing and drilling system to the detriment of others. For the oil and gas industry, this involves cheating taxpayers out of their fair share of payments, putting employees at risk, damaging the environment, and leaving others to, quite literally, clean up the mess. And these damaging practices occur on federal lands and waters without affecting companies’ ability to acquire additional leases or permits.12 If these companies do not face accountability for bad behavior, they have no incentive for good behavior. Below are some of the most common examples of bad behavior for which companies that operate on public lands and waters should be held accountable.
Shedding liabilities
Abandoning wells
When companies are done extracting fuel from a well, they are supposed to properly plug the well so it does not pollute the surrounding area.13 But some companies abandon their wells to avoid paying to clean up damage.14 Abandoned wells have been piling up for decades, with more than 3 million dotting the United States.15 In federal waters, supermajor oil and gas companies—such as BP, Shell, Chevron, ExxonMobil, ConocoPhillips, TotalEnergies, and Eni—are the current or former owners of 88 percent of wells with plugging and abandoning liability.16 Carbon Tracker estimates it would cost $280 billion to plug all existing documented wells, both active and idle, on U.S. land.17 Taxpayers should not have to foot that bill. As of April 2021, evidence existed that Chevron, EOG Resources, and Occidental Petroleum all got new leases after they presumably orphaned some of their wells on federal land.18
Selling old assets
Some companies sell aging assets, such as old oil wells, and avoid the costs of cleaning up and properly retiring the associated infrastructure.19 In 2014, Occidental Petroleum created the spinoff company California Resources Corp., which absorbed Occidental’s California assets and the associated liabilities.20 In 2020, California Resources had more than 17,000 wells and held up to $2 billion in environmental liability—35 percent of all environmental liability in the state—and declared bankruptcy.21
Some companies have been selling their assets for reasons other than avoiding cleanup costs. According to a 2022 ProPublica piece, “Shell has been shedding assets in part to hand off associated greenhouse gas emissions.”22 This is part of a larger pattern in the oil and gas industry, as companies sell polluting assets to try to meet environmental goals.23 More and more frequently, those polluting assets are being sold to companies that have less stringent environmental goals than the previous owner.24
Bankruptcies
In the past 10 years, 60 coal companies have declared bankruptcy, leaving communities with pollution and cleanup costs and former employees without health care or pensions.25 But coal is not the only industry that has seemingly utilized bankruptcy to avoid cleaning up its mess; it would seem that some oil and gas companies are now following a similar playbook.26 One of the largest oil and gas bankruptcies from 2018–2020 was that of Chesapeake Energy, which had $11.8 billion of debt.27 Because of the bankruptcy, Chesapeake was able to settle with the Environmental Protection Agency (EPA) for $1.2 million, even though the EPA estimated Chesapeake could have been liable for more than $25 million of alleged violations.28 From 2018–2020, the 25 largest oil and gas bankruptcies paid almost $200 million to executives while laying off more than 10,000 people.29 In 2020, Diamond Offshore Drilling, despite receiving millions of dollars from a COVID-19 relief bill and paying its executives millions of dollars, laid off more than 100 employees.30 This was the largest bankruptcy in the oil industry from 2018–2020.31
Insufficient bonds
When operating on public lands, oil and gas companies must post bonds to ensure that there is money for cleanup set aside from the outset. Current federal bond requirements, however, are far too low to cover the cost of reclamation, leaving taxpayers to either foot the bill or suffer from pollution. Current bonding standards, which have been proposed to be changed via a proposed rule, only require companies to set aside $10,000 for a single lease, $25,000 for a statewide bond covering all their wells in one state, and $150,000 for a nationwide bond covering all their wells in the United States.32 The biggest companies, however, can have thousands of wells, and the estimated cost for complete reclamation of one well is $76,000.33
Not only are bonds too low, but companies can also use accounting methods to discount estimated cleanup costs.34 Public Citizen looked at 11 companies with more than 57,000 wells and $1.5 billion of environmental liabilities total, based on the companies’ Securities and Exchange Commission records, and found those companies only have $281 million total in bonds.35 Furthermore, based on Carbon Tracker estimates, the combined environmental liabilities for those 11 companies could be more than $10 billion.36 One of those 11 companies is Chesapeake Energy, which Carbon Tracker estimates is up to $2 billion short on bonds for the cleanup of more than 11,000 wells.37
Dodging royalty payments
Oil and gas companies pay royalties, or a percentage of the profits from sales, on the fuel they extract from public, private, and Tribal lands and waters to those respective groups. But there are numerous examples of companies avoiding proper payment of royalties, the consequence of which is that people do not end up receiving their fair share of royalties. According to Accountable US, of the top 20 onshore companies in 2021, 12 had records that show that they have repeatedly and purposefully underpaid the owners of their mineral leases, including the American public.38 For example, that year, Devon Energy agreed to pay more than $6 million to resolve allegations that it “knowingly underreported and underpaid royalties” to the American public, through the Department of the Interior.39 Since 2000, Chevron has been fined more than $213 million for False Claims Act or related offenses.40 EOG Resources, a former subsidiary of Enron, was even investigated by the Department of Interior for “alleged unauthorized drilling, extraction and sale of federal minerals”; it settled for hundreds of thousands of dollars.41
Repeated environmental violations
According to Good Jobs First’s Violation Tracker, the top 20 onshore and offshore oil and gas companies have more than 2,200 environmental violations, or more than one violation every fourth day for more than two decades.42 (see Table 1) This totals more than $44 billion since 2000.43 ExxonMobil has the most environmental penalties: 442.44 BP—the fourth-largest operator offshore—has been fined the most money, more than $36 billion, largely because of the Deepwater Horizon oil spill, which resulted in a $20.8 billion environmental fine, the largest in history.45 Since Deepwater Horizon, BP has been fined more than $1 billion, with 94 offshore leak events in 2021 alone.46 BP was only outdone by Shell, which had 120 leak events offshore the same year, according to the Bureau of Safety and Environmental Enforcement (BSEE).47 Not only was BP allowed to continue profiting from the use of public resources after the Deepwater Horizon accident, but it also has not significantly changed its practices.
On land, there were at least 2,449 spills last year, totaling more than 7.5 million gallons, just in Colorado, New Mexico and Wyoming.48 Occidental Petroleum spilled almost double the volume in 2022 that it did in 2021.49 Almost 18 million people live within 1 mile of active oil and gas wells; a disproportionately high number of these people are part of historically marginalized communities, such as Black, Hispanic, Asian, and Native American communities and those living below the poverty line, so pollution from those wells will affect them first.50
Poor labor standards
The oil and gas industry treats not only the environment poorly, but also its own employees. For example, since 2000, Marathon Petroleum Corp. has had more than 50 labor-related violations that have meant more than $67 million in fines.51 Fieldwood Energy has received almost 1,800 “shut-in incidents of noncompliance,” according to the BSEE, which occur when a violation threatens human health or safety or is otherwise severe.52 A 2023 survey of oil and gas workers showed that companies have cut pay and staff, and one-third of workers say they have been instructed to break safety protocols.53 It’s likely that fatalities, based on BSEE data, and other worker safety incidents are insufficiently reported, further skewing the understanding of labor violations.54 Furthermore, only 4 percent of workers in the U.S. oil and gas extraction industry were in a union last year, leaving most workers vulnerable to exploitation.55