Oil Industry Unlikely to Pay Mounting Debts Owed to America

In 2019 I wrote an article that posed the question, “Will the Public End up Paying to Clean up the Fracking Boom?” The following year I wrote the article, “With Bankruptcies Mounting, Faltering Oil and Gas Firms Are Leaving a Multi-billion Dollar Cleanup Bill to the Public” in which I noted that choosing bankruptcy as a way to walk away from environmental and cleanup liabilities was the business model of the oil industry. Five years later, this planned outcome for the U.S. oil and gas industry is even easier to see. 

Amidst all the talk of the recent American LNG boom and the "LNG Pause" there was an interesting development in the industry in May. One of the contractors on Exxon's big new LNG export facility it is building in Texas with QatarEnergy, declared bankruptcy.

Exxon and the country of Qatar are co-owners of the Golden Pass LNG project in Texas and as recently as February reassured that the project was on schedule for LNG exports to begin in the “first half of 2025” and did not mention any issues with its project lead, Zachry Group, going bankrupt 

Even the newly updated timeline seems a tad optimistic now that we have some more details and learn that Zachry Group has been the construction leader on Golden Pass since 2019. So what is the cause of the bankruptcy of the construction lead on such a high profile project in the American LNG export boom? According to the bankruptcy filing, they had to front the money to cover for how the project was going over budget and apparently had little bargaining power with Exxon and Qatar who are accused of "false promises" to pay what they owed. 

“Golden Pass and its owners, using their superior wealth and bargaining power and the economic duress caused by the situation, induced Zachry and the other contractors to front the increased costs with promises that Golden Pass or its owners would reimburse those costs. Golden Pass and its owners also induced Zachry to waive and release over $1 billion in change order claims with false promises to make Zachry whole once the Project was complete.” 

What to do if you’ve been working on a major project for years and Exxon and its partner Qatar say they will make you whole in the future? Zachry was in a tough spot. So, while Exxon was telling everyone that things were on schedule a few months ago, they clearly weren’t sharing all of the relevant details. Optimistic statements about its business are standard operation for Exxon but they have a pattern of not panning out. They had previously said Golden Pass would be in operation this year. 

The schedule for the GPX Project was abnormally important for Golden Pass’s owners, ExxonMobil and QatarEnergy, not only because the new LNG trains would generate billions of dollars a year for them, but also because they had made public statements, such as one by ExxonMobil in an April 27, 2022 press release saying the Project was on track and would commence operations in 2024. 

According to the bankruptcy filing, the project was way over budget and in “numerous” meetings with president of Exxon’s Global Projects Company Jon Gibbs and Mr. Al-Amoodi of QatarEnergy, Zachry was told to just do the work with their own money and not to worry because Exxon and Qatar would “settle up” at the end of the project. 

Due to its power and wealth, Exxon is able to tell people “trust us” and to believe that Exxon will settle up in the future. This bankruptcy story is another example showing that anyone who trusts Exxon will likely end up on the short end of the deal. 

And you know who is currently being asked to trust Exxon and the rest of the rapidly consolidating U.S. oil industry? The American people, who are owed billions by Exxon and the rest of the industry to pay to clean up the millions of oil wells across the country and all of the associated damages from those wells and the products produced by those wells. And the American public is being told that Exxon and the rest of the industry is good for the money at some point in the future. 

This reality was explained in a recent op-ed by an oil industry supporter arguing against having oil companies set aside the money to clean up projects up front and instead being able to "settle up" when the oil and gas is done being extracted. In this op-ed he describes the current situation that requires trusting the big oil companies to settle up once they have extracted all the valuable resources. 

“if any company who could be liable for decommissioning can prove capable of paying for decommissioning, no company is required to buy surety bonds.”

This is the scam that is being played on the American public: big companies are supposedly “capable of paying for decommissioning” their assets so we should trust them to “settle up” when they are done making money off of the oil and gas.  So, do you trust them? I don’t. Which is why I’ve been recommending that the U.S. public get the money they are owed by the industry now, not at some point when the oil is all gone and the industry walks away without ever having settled up. 

Honest Accounting of the Oil Industry is Needed

As the Zachry bankruptcy filing states, Exxon does have superior wealth which creates bargaining power. In that filing it states that ExxonMobil “has assets exceeding $377 billion.”  Exxon’s current market valuation is over $500 billion. It’s interesting how a company with so much money is stiffing its vendors which is resulting in delays in one of its major projects. 

However, is Exxon really worth $500 billion if it started being honest about all of its debts and liabilities? Nope. Exxon and the U.S. oil industry are avoiding massive liabilities being booked against their market value with the simple approach that they have “superior wealth and bargaining” power. It also helps that they own most of the politicians in America. 

So what is Exxon really worth? This is a question that should be answered now so that the American people can see if Exxon can actually make good on their promise to “settle up” with us in the future. 

In this article by journalist Dana Drugmond, who has been a leader in covering this issue, we learn that last week the state of Vermont passed their new Climate Superfund law which “aims to recover climate-related costs incurred by the state from large oil and gas companies.” This is likely just the beginning for this approach by states and countries and the total liability will likely be massive.

The state of California investigated Exxon’s role in the plastic industry and in April Attorney General Rob Bonta told Reuters. "The lies and deceit Exxon used to cover up the truth about the non-recyclability of plastic is well documented." But the big news in plastics liabilities was what we learned this week in an article by Hiroko Tabuchi titled, “Lawyers to Plastics Makers: Prepare for ‘Astronomical’ PFAS Lawsuits.” The PFAS liabilities are expected to “dwarf anything related to asbestos” and also are being compared to the tobacco lawsuits. At the core of the issue is one that should be familiar to anyone aware of Exxon’s history. 

“And we’re being exposed without our knowledge or consent, often by industries that knew how dangerous the chemicals were, and failed to disclose that,” Erik Olson, senior strategic director for environmental health at the Natural Resources Defense Council, explained to Tabuchi. “That’s a formula for really significant liability.”

As they say, Exxon knew. Which means that if these lawsuits proceed as expected, Exxon will likely have to pay. Would you be surprised to learn that the Exxon-controlled American Petroleum Institute lobbied against “legislative efforts to restrict the use of toxic PFAS?”  

Those were just two stories from the past week about large potential liabilities for the U.S. oil industry. In April, Justin Nobel’s new book on radioactive contamination from the oil industry was published. If the oil industry is held accountable for knowingly dumping radioactive waste, it will be another huge financial liability. Again you won’t be surprised to find out that the oil industry has known about this for decades. As Justin wrote for DeSmog:

In a 1979 Congressional hearing, Texas oilfield regulators, using figures calculated by the American Petroleum Institute, provided a clue as to just what more rigorous regulations, ones that actually labeled the oilfield’s most dangerous waste as hazardous, might mean for the industry:  a “one time cost of over $34 billion to bring existing operations into compliance” and “as high as $10.8 billion per year.” That number would be drastically higher today, but no one has done the math, in part because the full picture of costs and harms has remained unknown.

We need to do the math.

Of course then there is the long list of climate damage lawsuits facing the industry, which the Wall Street Journal highlighted again this past week.  

And issues of water contamination and the liabilities due to pumping all of the toxic wastewater into injection wells which are causing various expensive problems. 

That is a long list of big liabilities but then there are all of the abandoned wells for the industry to clean up. This is the money we are being told that Exxon and the other major oil companies will “settle up” with us once they are done extracting all of the profitable oil and gas. And it is a big deal. Analysis shows that the California oil industry is already facing a clean up bill for the abandoned oil and gas wells that is bigger than the combined total expected future profits of the California oil industry. So to even come close to “settling up” all remaining future profits from California oil and gas would have to go directly to fund cleaning up the mess they have made. And the fact that isn’t happening should make it pretty clear to everyone how trusting the oil companies to “settle up” is a losing proposition. It would be prudent for the American people to take a look at the rest of the U.S. oil industry and see how close it is to the tipping point California has already crossed. At what point are the outstanding liabilities greater than the value of the oil and gas left in the ground?

The Big Fraud is Happening

It’s worth noting again that Exxon is being sued for fraud for overstating how much oil it could produce in the Permian. I’ve been writing about the pervasive fraud in the U.S. shale oil industry for years. In one case of fraud I documented, it was revealed that when the engineers heard what the executives had promised for potential oil production they “fell out of our chairs laughing.” In that same article I noted how one of the employees who challenged Exxon’s wildly optimistic predictions was told to make the numbers work to support management’s claims, did that, and submitted that work in a document with a file name of “This is a lie.” Beyond the fraud on a company level, the fraud that the oil industry has already accomplished is making everyone believe that there are unlimited amounts of oil in U.S. shale. When the industry complains that President Biden won’t let them produce more oil, this is a lie in service of the big fraud. A few years ago I was talking to a source who has professional relationships with executives in the shale industry and laid out my case for widespread fraud. The source didn't say I was wrong but downplayed my characterization of fraud by saying, “Everybody lies. That is just how it is.” Sadly, there is plenty of evidence to back up this claim if you look. 

Which brings us to the current predicament. The U.S. oil industry has lied about how much oil they can produce in the future and at the same time is using that fictional future oil as collateral which it will use to “settle up” with the public. All of the talk of holding the U.S. oil industry liable for its true debts to the public, similar to what was done with the asbestos and tobacco industries, is working under the assumption that the oil industry will actually have the oil to make the money to pay its debts. But what if it doesn’t? What good would it have been to win lawsuits against the tobacco industry if the industry couldn’t grow more tobacco to pay its debts? The big fraud is proceeding as planned. The reality is that if the oil industry is going to pay its debts to the public, it needs to start doing that now. Not in 10 or 20 years. Because extractive industries have a foolproof business plan: Once the profits are gone, they declare bankruptcy, walk away and leave the cleanup bill (and forever chemicals and radioactivity) for the rest of us.