Diversified Energy oversees the largest number of oil and gas wells in Appalachia. The company is increasingly coming under fire for its management of the wells involved, and for a crypto-mining operation that it recently walked away from. The company acquired the largest base of wells in the United States, outpacing all of its competitors combined. It is now finding itself under fire for the long-term financial viability of the program and its environmental stewardship, particularly as it moves toward plugging its thousands of low-producing wells. Recent violations and a detrimental crypto-mining project have put a spotlight on whether Diversified Energy is serious about being a good steward.

Regulatory Scrutiny and Abandonment Allegations

The Department of Environmental Protection (DEP) was on it. They released 11 notices of violation to Diversified Energy for allegedly abandoning shale gas wells in Pennsylvania. These egregious violations have raised troubling doubts. They called into question the company’s compliance with environmental regulations and its dedication to responsible management of the aquifer system.

The violations violate concerns over Diversified Energy’s ability to manage such an acquisition. Or that they’re losing money through an unsustainable portfolio of legacy, low producing wells, most of which are long past their economic useful life. Plugging these wells can cost well over $100,000 per well. This major one-time cost presents a major moral hazard, calling into question Diversified Energy’s capacity to fulfill its ecological promises.

"Diversified must not be allowed to walk away and leave others to clean up its mess" - Charles McPhedran

The company’s financial strategy has come under fire. A 2022 report by the Ohio River Valley Institute described Diversified Energy's business model as "built to fail Appalachia," suggesting that the company's focus on acquiring mature, low-producing wells without adequately addressing long-term plugging liabilities could ultimately leave the region with a significant environmental and financial burden.

"They're able to squeeze out this money in these assets because of economies of scale. The only thing they can do is keep buying wells, and as long as they don't have to be accountable for those liabilities, it works." - Boettner

Diversified Energy's CEO, Rusty Hutson Jr., has defended the company's approach, emphasizing its focus on efficient operations and cost reduction.

"Our game is acquiring existing mature production, operating it more efficiently than everyone else would, driving costs down, enhancing production on wells that hadn’t been given much time, or attention, or capital, driving margins and then paying dividends to our shareholders." - Rusty Hutson

Crypto-Mining Venture and Subsequent Abandonment

In December 2023, Diversified Energy received a permit to install crypto-mining equipment at the Longhorn A well pad in Pennsylvania. This creates an interesting opening into a new and uncharacteristic line of business for the company. The company suddenly left its crypto-mining venture high and dry. This leads to legitimate concerns about its operational practices and overall commitment to environmental responsibility.

The abandonment of the Longhorn A well pad has led to accusations that Diversified Energy violated a consent order and agreement. According to reports, the company falsely asserted in media that the wells had been retained in production readiness. The reality is that the DEP’s own recent inspection proves that assertion wrong.

"Diversified’s claim that the wells are still equipped is contrary to the Department’s observations during the recent inspection and has not been further verified by Diversified" - Tom Decker

Not surprisingly, local residents and environmental groups are outraged at the expected environmental impacts. The unexpected quiet at the Longhorn A site is what has really fueled their fears.

"All we know is that that property seems to have been abandoned. What might be next?" - PJ Piccirillo

Financial Strategies and Asset Management

Diversified Energy Company’s financial misdeeds have recently been exposed, namely its asset management and liability management schemes. In mid-January 2024, the company sold most of its Appalachian business. This came on the heels of their 2022 announcement to offload 2,500 wells in Ohio, which drew widespread alarm about their long-term focus on the region and their desire to leave behind environmental responsibilities.

Diversified Energy is currently looking for state grants to plug wells across the rest of Pennsylvania. This reflected the company’s ongoing effort to improving the environmental footprint of its operations. In its settlement to a class-action lawsuit, the company agreed to plug 2,700 wells throughout Appalachia by 2034. This decision underscores their commitment to address well-plugging liabilities, and while it is a long time coming, better late than never.

The company's large portfolio of low-producing wells across Pennsylvania, West Virginia, Kentucky, and Ohio presents a significant financial challenge, as plugging each well can cost more than $100,000. Environmental groups and others remain dubious as to whether Diversified Energy can actually absorb these costs. This skepticism comes from their corporate structure, which focuses on buying up old, established wells and making their money by cutting costs.

"We're going to end up left with all of these wells to plug. There's nothing stopping them." - Boettner