Hacker News Reader

Once again, the American tradition of privatizing gains and socializing losses lives on.

Exactly - this is the #1 issue we need to address economically to my mind.

Not for sure. We are missing the crucial bit of information on how much royalties and over what period of time the school district secured rents.

Here's some background on the kind of typical agreement the school district entered into.

http://oil-gas-leases.com/oil-lease-description.html

The real question would be how much did the owners of these oil companies pocket before declaring bankruptcy.

It’s exactly as the commenter says...taxpayers fund schools that buy land; the school leases mineral/oil rights to private companies (Likely self dealing with these leases too); private energy companies take the public land resources and pay themselves profits leaving the entity insolvent and then files bankruptcy protection; taxpayers Are left liable.

What incentive does an oil company have to not liquidate the company after they exhaust the well and seek bankruptcy protection? In other words say it cost $10M to properly close up the well, you have that in the bank but you pay it to the owners as profit instead of covering the well, company is now insolvent and receives protections.

Why would any oil company not do this on public lands? Do you think these owners disappeared or just set up new companies and got new leases on new public lands rinse and repeat?

You make the companies put that money upfront before starting the well. If that money no longer exist during liquidation the owner goes to prison for fraud.

Very well put! Even when it's not a clear-cut distinction for gains-and-losses, too many proposals and even implementations in America for government programs are public/private hybrids, and the misaligned incentives caused a lot of the problems.

Why wouldn't we socialize the losses here? It's not a handful of elites that just swooped in and took a bunch of money then stuck us with the bill for their garbage. We're all the consumers here. We create the problem with our demand for their product.

Then why are the profits privatized?

Because sufficient voters like to think they will be part of the group who are or one day will benefit from the privatized profits, and therefore imagine themselves enjoying the spoils it would afford.

These companies are designed to go bankrupt to minimize shut down costs.

Then do like Norway and get a US's own Statoil to also socialise the profits.

We can't shame the population to solve a tragedy of the commons problem, it won't ever work, you need a strong power managing the commons to avoid the tragedy.

If you socialize the losses, you incentivize others to cause more additional losses than they would otherwise, as they know they won't have to deal with it.

A better society would have incentives and structures that guide people to reduce these harmful effects and externalities.

Crazy that creditors took priority over cleanup, given that the purpose of the Superfund system is to prevent exactly that from happening.

Call your Congressperson to properly prioritize the charging order with legislation. Environmental cleanup, pensions, then creditors can have whatever is left, instead of privatizing the profits and socializing the losses (Superfund & Pension Benefit Guaranty Corporation).

Or even better, push the liability for this clean-up onto the investors. This sort of environmental vandalism is an abuse of limited liability.

If you owned stock in exxon mobile due to a mutual fund as part of a pension, and you were held liable for an oil spill and lost your life worth, how would you feel?

Exactly - a change in the rules would cause investment managers to more appropriately risk oil assets.

Forcing divestiture by institutional money of petroleum investments? Love it.

As long as you're okay when the general public is shut out of a potentially quite lucrative part of the market, and everything is owned by some foreign shell company, I guess.

I want to push the US public out of industries we’re about to financially destroy, yes.

If the Saudis want to invest and take a bath like their SoftBank and Uber investments, I have no qualms.

Why would they invest, when they can just sell us their own oil at exorbitant prices, now that big part of competition is gone?

If the price is too high, they would sell less oil.

They'll sell less oil than there is currently sold in total at lower price, sure, but if competition from US is out, they'll sell more than they sell right now, at prices higher than now.

Making investors liable when a company goes bankrupt would have lots of other unintended consequences.

Would you even dare to buy ETFs anymore?

Not a great example; Exxon's liabilities for the Exxon-Valdez spill were fully paid by the company in 2009, while it remained a limited-liability company.

Also it's Mobil, not Mobile.

It's this hypothetical person's own fault for not diversifying.

Superfund has been a joke for a while.

Originally, the cost of covering cleanups where the offending party could not pay was covered via taxes on chemical/petroleum products. But since 1995 it's funded by normal taxpayers.

This has also had a huge impact on the ability to actually clean anything up.

"Many sources of funding"? Yeah, all of them the pockets of the public. You can consider me to be unsympathetic to Porter's argument.

"And while we drank, and smoked, and gambled, our leaders taught us why. It's best to not upset the lobbies, more convenient to die.

- Tomos Roberts

https://www.youtube.com/watch?v=Nw5KQMXDiM4

My understanding is that it is standard operating procedure for small LLCs to be spun up for the profitable extraction period and then the wells and LLCs are abandoned when they are no longer useful. All of the pollution and other externalities are dumped on society while a small group of greedy sociopaths take all of the profits. These types of loopholes need to be closed. Ideally all of the people participating in these types of "investments" would be held accountable.

Basically it's a lot of the same people owning and running a whole bunch of entities that are technically not the same but functionally are, but they use legal loopholes to shelter their profits and make other people pay for the cleanup.

> Corporate pork, plain and simple. We can't kill these jobs and this energy source fast enough.

It's interesting you mention that, as I've seen American voters are significantly more interested in job creation and other "Jobs" style political rhetoric. Even going so far as to appearing to "make work" programs like DMVs that could have been automated decades ago.

> American voters are significantly more interested in job creation and other "Jobs" style political rhetoric.

This is the case all over the world. Because normal people understand that you can't eat virtue signalling and moral posturing. Jobs feed families and pay taxes. They have intrinsic value and cannot be done away with easily, with vague scares and promises of bright, green new jobs, some day.

Then why don’t they support capping workweeks at 20 hours per week and increasing mandatory vacation for everyone. Less man hours of labor in market = more jobs.

Because most of these jobs will then move abroad, together with some people who actually enjoy working 40+ hours.

it would be more jobs, but probably fewer total hours.

There are certain fixed costs per employee that means cutting a job into 2 jobs at 1/2 time is not an even trade. Especially when you consider communications costs (eg: an email sent to N people has N times the cost. If N40hrs is 1/2 N20hrs then ever communication costs half as much)

It would have been great (at least from a social good view point) if the “savings” from not cleaning up went to the poor workers, even if the state has to pick up the bill. Meaning, we just live with non-green sources of energy so we don’t hurt oil workers. In this case though, only the corporation benefit. “jobs” is always the excuse but “cxx bonus” is where the money will always end up. This hasn’t changed in last 100 years. So much for democracy and capitalism.

These landowners tried to get money out of their property, and incorrectly assessed the expected outcome. Out of all the "victims", I am least sympathetic to the school district; they are a sophisticated entity, which had a significant amount of money on the line, and should have been smarter. This is an indictment of foolish or incompetent school officials (and perhaps other landowners), not of the bankruptcy system or corporations at large.

Simply put, the school officials made a bet and lost.

I didn't find it in the article, but I'm curious how much the school district made off of the wells.

if nothing, the person who signed off a school on grounds leaking that much methane already "made a profit" just by not being behind bars.

nothing in this article makes sense if you try to imagine the people involved in any of those situations. It's not like those things happened by themselves.

Or there was an information asymmetry, corporate pressure. etc. It may not be quite so simple.

There is always some information asymmetry and outside pressure. If a system is so brittle that it cannot function in the real world, the system is the problem, not the world.

It's not a piece of software my dude.

The responsibility would legally have rested with the well operator, but the well operator went bankrupt.

If you read the article, you will see that abandoned wells often end up in limbo between the bankrupt operator and its creditors. Meanwhile, the landowner is facing the negative externalities of the well (seepage, gas leaks, etc), and often has no choice but to pay to resolve the problems caused by the well being poorly terminated. There are supposed to be bonds in place to pay for these processes, but in practice those bonds only cover a fraction of the cost.

If the landowners didn't want to accept the risks related to resource exploitation, they could have:

- Not allowed the development, and avoided the risks.

- Insured against the risks.

- Sold the land, along with all the risks.

They did none of these, and effectively self-insured; now they expect pity, which they do not deserve.

Your argument totally neglects the fact that "liability," as a legal concept, means it is not necessarily the case that all parties share equal blame.

Had the operator not filed for bankruptcy, it would likely have been responsible for its own failure to appropriately manage the wells.

Had the state or federal government established adequate bonding practices to pay for the plugging of old and unproductive wells such as these, the burden of plugging these particular wells would have been lessened.

Had some other counter-factual been the case, I might feel differently.

The school officials were operating under current conditions, and have no real excuse that I know of.

> now they expect pity, which they do not deserve.

So what you are saying essentially is the school board/county should file bankruptcy so taxpayers are stuck with the liability...then we can extend your argument to the taxpayers for their failure to avoid the risks of funding/operating schools and insuring against them.

Do you feel that way about all the workers/businesses Trumps bankrupt businesses failed to pay by seeking bankruptcy protections?

>The responsibility would legally have rested with the well operator.

This is only half true. The responsibility is delegated to the operator by the land owner, but it is ultimately the land owner's liability. Consider if the land owner was leasing the rights to the operator and then decided to change the lease agreement in a way that made the operator insolvent. If it were the way you describe the operator would be hostage of the landowner. Allowing the liability to pass upstream to the property owner makes complete sense.

It is entirely true.

Economic benefit derived only as a landowner or from a royalty interest is generally not sufficient to establish liability for plugging a well. If the operator were solvent, it would have had to pay.

Also, Venoco's bankruptcy wasn't caused by this lease agreement.

https://www.conservation.ca.gov/calgem/idle_well

Absolutely the wrong way to think about this. Treat it like any other development that could be hazardous.

If the school board pays for the construction of a new auditorium, and the new building is left half-finished by a bankrupt contractor, you would blame the contractor rather than the school board itself. This should be no different.

The school district must conduct due diligence on its counter-parties, to an extent determined by the scope of the project and level of risk. If the school officials failed to do basic research on the contractors, or did not hedge against risks, I would blame the officials and not the contractors.

The school officials have a responsibility to the public, while the contractor does not.

> The school officials have a responsibility to the public, while the contractor does not.

You do realize what you're writing ?

Next time you'll be robbed by some entity, you'll sure remember that it's your fault, that you had to conduct due diligence.

How deep do you go, at some point they have to trust whoever they're contracting has done the job properly sealing the wells or verifying that the wells are sealed. The school board isn't an oil company they don't have the expertise to evaluate everything independently.

> How deep do you go, at some point they have to trust whoever they're contracting has done the job properly sealing the wells or verifying that the wells are sealed. The school board isn't an oil company they don't have the expertise to evaluate everything independently.

They can hire independent experts to assess whether the job has been done correctly, the same way one would get a second opinion on work that has been done that's outside one's field of expertise. There are plenty of engineering firms that will inspect bridges, oil wells, and other infrastructure.

Alternatively, they could choose to not get in the oil business in the first place.

Yeah that's what I meant trusting at some point. They have to trust the people they hired actually verified and that the steps in their verification were actually enough.

They're barely in the oil business, they've just renting out the land, some small space, the mineral rights to cover holes in their budgets.

A school board paying for an auditorium is a thing school boards normally do. Don’t you think it’s a little weird to have energy extraction on that property too? I do.

Let's not lose the point. The question at hand is, "who should be responsible for the cost of plugging a well when it reaches the end of its life?" The answer to that question does not tell us whether or not a well should be drilled near a school.

If you're from Oklahoma, Texas, or another major oil-producing state, you have probably seen oil wells situated near schools, neighborhoods, or other sites that may present a hazard to young people. California is one of the largest oil producers in the country, so I'm not surprised that they have oil production in urban/suburban areas. Weird? Maybe. Unhealthy? Probably.

Drilling at the site precedes the establishment of the school in 1927, as there is a large oil field beneath Beverly Hills into which around 100 wells have been drilled from four clusters, one of which is the school's property. That oil field was discovered in 1900. A single year's production at the school used to produce millions of dollars' worth of oil (not including natural gas).

So, at some point administrators in the district weighed the pros and cons and said, "ok we'll tap into that revenue source." Whether that was a weird or not-weird decision, I think it was reasonable to assume that the well operators would follow lawful practices and would not be able to duck the cost of plugging wells at the end of their life. Venoco certainly made a lot of money from its decades of operating those wells.

California backed the school district in this dispute. The California State Lands Commission went after Venoco for the money, but a federal judge in Delaware affirmed the bankruptcy court ruling and denied California's claim.

I think this situation says way more about bankruptcy law and bonding requirements for oil and nat gas wells, than it says about well placement. This is not an isolated problem. As bankrupt producers like Whiting and Chesapeake are sure to be followed by other firms in the coming months, we are going to see more examples of the same.

Bonding requirements should reflect the real cost of plugging wells, and creditors of bankrupt petroleum companies should not be permitted to recoup assets before those assets are used to cover the cost of mitigating environmental hazards.

That principle holds whether the well is on a school district's property, on private property nearby, or out in the middle of nowhere.

Should we hold school districts more liable than other landowners for the costs of plugging wells? Or should a licensed well operator be expected to set aside money for plugging the wells that it operates?

If only they had sought VC money to help guide them right?