Private equity is getting into oil and gas

Private equity investors appear to have found a new target: oil and gas companies operating on public land in the Western U.S. 

According to a new report co-authored by Public Citizen and the Private Equity Stakeholder Project, private-equity-backed companies hold approximately $380 million in unplugged oil and gas wells in four Western oil states: Colorado, New Mexico, Utah, and Wyoming. 

Private equity generally refers to a group of investors that borrow large amounts of money in order to acquire other companies. The newly acquired company is then saddled with that accumulated debt while the private equity firm repays itself and its investors using fees, shareholder payments, and debt restructuring, tactics that can mean big returns for the private equity fund’s investors. Private equity tends to focus on declining industries, and this profit-squeezing model can result in the acquired companies going bankrupt.

Examples abound when oil companies go bankrupt and leave orphaned wells to leak methane into the atmosphere while the costs of plugging them ultimately falls on taxpayers. “The overall point that we’re trying to make is that private equity’s involvement in Western oil drilling adds a layer of uncertainty because these companies turn over,” said Alan Zibel, a research director at Public Citizen. “They get in and they get out very quickly. So it really starts this chain of selling these companies to more and more potentially irresponsible actors.” 

Rather than plug their low-performing assets, companies often sell them to less financially solvent operators. A 2019 Government Accountability Office report found that 99 percent of federal oil and gas leases have financial assurance bonds that would be unable to pay for the full cost of cleanup. The Bureau of Land Management proposed a rule In July that would substantially increase the bonds for federal oil and gas operators to cover the cost of cleaning up wells. 

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Report: Private equity is getting into oil and gas 

High Country News | Public Citizen

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