When an oil and gas driller enters bankruptcy, a host of unique issues often arise, inclu ding how to close abandoned wells in a responsible manner. The United States Bankruptcy Court for the District of Delaware recently confronted this problem in the case of an energy exploration and production company liquidating through Chapter 11, as in City of Beverly Hills v. Venoco (In re Venoco) 2017 Bankr. LEXIS 1457 (Bankr. D. Del. May 31, 2017). In Venoco, the city of Beverly Hills, California and its school district sought a preliminary injunction requiring the debtor to monitor and maintain an oil and gas drilling site and create a separate reserve to fund those obligations. In ruling for the debtor, the court found that the problem created by the wind-down at the site, although a serious one, could be addressed through the claims process rather than the extraordinary relief of a preliminary injunction.
Venoco operated an oil and gas well located on the grounds of a Beverly Hills high school, which it acquired in 1995 by transfer from a prior operator. The underlying lease, which it also assumed, was subject to various contractual as well as statutory and regulatory restrictions. First, the lease itself terminated the right to extract oil and gas from the site automatically on Dec. 31, 2016. It further provided that within 90 days thereafter, all oil and gas operations at the site were to be discontinued in compliance with applicable laws and the site restored to its original condition. Similarly, the California regulatory agency responsible for oversight, known as DOGGR, expressly required cessation of oil and gas production by Dec. 31, 2016, and the wells properly “abandoned” in accordance with applicable law. Furthermore, the original site construction permits granted by the city of Beverly Hills called for the issuance of an Environmental Impact Report concurrent with production termination by Dec. 31, 2016, as well as restoration of the property to its original condition.
