Louisiana auditor notes gaps in oversight of abandoned oil wells

(The Center Square) — The Louisiana Legislative Auditor has raised concerns about the Department of Energy and Natural Resources’ Office of Conservation oversight of the Louisiana Oilfield Restoration Association and its effectiveness in dealing with abandoned oil and gas wells.

The assessment focused on the Joint Efforts Agreement reached in November 2019, under which the oilfield restoration association delegated financial security to well operators and assistance in plugging abandoned wells, a growing environmental and financial problem for the state.

As of October 2023, the Oilfield Restoration Association had provided nearly half of Louisiana’s well safety funds, totaling $157.3 million, aimed at preventing further expansion of abandoned wells.

However audit found several significant gaps in EPA oversight and CEA conditions. The association’s oilfield restoration operations, managed entirely by Arkus Management Services, have no clear government financial monitoring or contingency plans for potential fund shortfalls.

In addition, the CEA’s lack of comprehensive guidelines has allowed the oilfield restoration association to maintain significant financial flexibility, including investment income, which the audit suggests could encourage delays in plugging efforts.

The Conservancy also authorized the Oilfield Rehabilitation Association to increase withholding fees for administrative expenses from 20% to 36% after minimum reserve requirements were met, resulting in the Oilfield Rehabilitation Association withholding an additional 1.1 million since mid-2022 dollars.

This fee adjustment markedly increased Arkus Management’s profits, by an average of 151.5% for its owners over the three months.

Because the oilfield restoration association calculates administrative expenses as a set percentage of annual fees rather than based on actual costs, any remaining funds may be considered profit.

The Oilfield Rehabilitation Association says it operates as a nonprofit because it pays 100% of these expenses to Arkus as management fees, but acknowledges that Arkus itself may profit from those fees.

“LORA and Arkus are owned by the same five individuals, all of whom were employees of Arkus from 2020 to 2023,” the report said.

Despite these changes, the EPA has not reviewed whether these increased costs meet the administrative needs of the oilfield restoration association, nor has it reviewed the oilfield restoration association’s cost structure.

Moreover, the environmental department failed to ensure that the oilfield restoration association prioritized the purchase of wells it had secured that subsequently became orphaned; of the 175 such wells remaining idle until 2023, 130 remain unresolved. Without an audit provision in the CEA, the audit office itself cannot access the oilfield restoration association’s financial records, limiting comprehensive oversight.

The auditor’s report recommended increased monitoring of the conservation office, including tighter controls over oilfield restoration association spending, stricter prioritization of well plugging and periodic assessments of administrative costs.