Plugging Liabilities Are Debt That Skips The Balance Sheet
The model came over on a Friday afternoon. Twenty pages on a package of shallow wells that had been producing since before I finished law school, every assumption argued over twice, except one. The plugging obligation sat in a single line near the bottom of the last page, a round number somebody had dropped in so the page would foot. A round number in a model is a note to yourself that the work is still undone. I am Rosser Newton, and after more than 35 years around energy transactions I read the last page first. The reserve tables tell me what a seller believes about the future, and the abandonment line tells me how hard he has thought about the end of it. This matters to an owner long before he ever thinks about selling. The plugging bill is the one number a lender, a buyer, and a regulator will all eventually price, and the owner is the only one of the four who gets to price it early, while he still has time to do something about it. Why Plugging Obligations Behave Like Senior Debt ...