The day the debt-ridden Texas oil producer MDC Energy filed for bankruptcy eight months ago, a tank at one of its wells was furiously leaking methane, a potent greenhouse gas, into the atmosphere. As of last week, dangerous, invisible gases were still spewing into the air.
By one estimate, the company would need more than $40 million to clean up its wells if they were permanently closed. But the debts of MDC’s parent company now exceed the value of its assets by more than $180 million.
In the months before its bankruptcy filing, though, the company managed to pay its chief executive $8.5 million in consulting fees, its top lender, the French investment bank Natixis, later alleged in bankruptcy court.
Oil and gas companies in the United States are hurtling toward bankruptcy at a pace not seen in years, driven under by a global price war and a pandemic that has slashed demand. And in the wake of this economic carnage is a potential environmental disaster — unprofitable wells that will be abandoned or left untended, even as they continue leaking planet-warming pollutants, and a costly bill for taxpayers to clean it all up.
Still, as these businesses collapse, millions of dollars have flowed to executive compensation.
Whiting Petroleum, a major shale driller in North Dakota that sought bankruptcy protection in April, approved almost $15 million in cash bonuses for its top executives six days before its bankruptcy filing. Chesapeake Energy, a shale pioneer, declared bankruptcy last month, just weeks after it paid $25 million in bonuses to a group of executives. And Diamond Offshore Drilling secured a $9.7 million tax refund under the Covid-19 stimulus bill Congress passed in March, before filing to reorganize in bankruptcy court the next month. Then it won approval from a bankruptcy judge to pay its executives the same amount, as cash incentives.
“It seems outrageous that these executives pay themselves before filing for bankruptcy,” said Kathy Hipple, an analyst at the Institute for Energy Economics and Financial Analysis and a finance professor at Bard College. “These are the same managers who ran these companies into bankruptcy to begin with,” she said.
MDC’s listed telephone number appears to be disconnected, and repeated attempts to contact its C.E.O., Mark Siffin, and the company’s bankruptcy lawyers were unsuccessful. Whiting Petroleum and Diamond Offshore did not respond to requests for comment, and Gordon Pennoyer, a Chesapeake spokesman, declined to comment.
The industry’s decline may be just beginning. Almost 250 oil and gas companies could file for bankruptcy protection by the end of next year, more than the previous five years combined, according to Rystad Energy, an analytics company. Rystad analysts now expect oil demand will begin falling permanently by decade’s end as renewable energy costs decline, energy efficiency improves, and efforts to fight climate change diminish an industry that has spent the past decade drilling thousands of wells, transforming the United States into the biggest oil producer in the world.
The environmental consequences of the industry’s collapse would be severe.
Even before the current downturn, methane, a powerful greenhouse gas, was being released from production sites in America’s biggest oil field at more than twice the rate previously estimated, according to a recent study based on satellite data. Some experts say that with the industry in disarray, efforts to fix leaks of methane, which pound for pound can warm the planet more than 80 times as much as carbon dioxide over a 20-year period, may fall by the wayside. Low natural gas prices may lead to increases in flaring or venting, the intentional release of excess gas, the International Energy Agency said this year.
It is also likely that many companies haven’t set aside enough money, as required by law, to restore well sites to their original state. An analysis of recently bankrupt oil and gas companies’ financial statements, prepared for The New York Times, shows a funding shortfall.
The federal government estimates that there are already more than three million abandoned oil and gas wells across the United States, two million of which are unplugged, releasing the methane equivalent of the annual emissions from more than 1.5 million cars.
“They’re sitting there and they’re leaking. And they’re much leakier than a well that’s still in production and being monitored, although those leak, too,” said Robert Schuwerk, executive director for North America at Carbon Tracker. “And companies haven’t been setting aside the money, because they’d rather spend the money on drilling a new well.”
Executives Reap Millions
The various business interests of Mr. Siffin, MDC’s chief executive, have included a towering skyscraper at New York’s Times Square, which once boasted an interactive “NFL Experience” space, a Hershey’s store and an LED sign several stories high. But by last fall, the building — like Mr. Siffin’s separate shale oil enterprise — was bleeding money.
In mid-November, MDC Energy filed to reorganize in bankruptcy court, and creditors foreclosed on the Times Square tower the next month. Only after the bankruptcy did Natixis, MDC’s top lender, learn of the $8.5 million payment to Mr. Siffin, the bank’s lawyer told the bankruptcy court. The fees appeared to be paid with no formal contract, Natixis alleged in federal bankruptcy court in Delaware.
They have since settled, and Mr. Siffin remains chief executive. Bankruptcy judges have sometimes allowed companies to pay bonuses to their executives as incentives for them to stay with the company, a practice that has come under increasing scrutiny.
MDC and its lawyers did not respond to repeated requests for comment. Daniel Wilson, a spokesman for Natixis, declined to comment.
Many oil and gas companies are going through a Chapter 11 bankruptcy, which allows them to restructure or sometimes lower their debts. The process would not release them from environmental obligations — presuming there is money available to satisfy them.
As MDC Energy’s bankruptcy proceeded, so did its methane leak. Texas environmental regulators have issued six violations against MDC at the site related to harmful emissions. An MDC operations manager who spoke on condition of anonymity said he was not allowed to spend money for repairs unless the bankruptcy judge gave permission.
By Hiroko Tabuchi