Private equity gets into oil and gas

A new report warns of bankruptcies and abandoned wells on Western public land.


Oil and gas drilling infrastructure in Weld County, Colorado.
Major King

Where private equity investors make acquisitions, bankruptcies tend to follow. Brands from Radio Shack to Toys R Us went under after being bought by these firms, as did the company that made the Instant Pot, and hundreds of local newspapers endured layoffs and reduced coverage. Now, private equity investors appear to have found a new target: oil and gas companies operating on public land in the Western U.S.

A new report from Public Citizen, a nonprofit progressive think tank, reveals the industry’s interest in oil and gas extracted from public land in the West (the Private Equity Stakeholder Project co-authored the report). Companies backed by private equity have taken in 78% of all federal drilling permits approved in Colorado since 2017, and 50% of those in Utah. In total, according to the report, private-equity-backed companies hold approximately $380 million in unplugged oil and gas wells in four Western oil states: Colorado, New Mexico, Utah and Wyoming.

In general, private equity refers to investors, such as hedge funds or venture capital outfits, that borrow large amounts of money to acquire struggling companies. The newly acquired company is then saddled with that accumulated debt. Meanwhile, the private equity firm tends to repay itself and its investors using fees, shareholder payments and debt restructuring. These tactics often mean big returns the private equity fund’s investors.

But since private equity tends to focus on declining industries, this profit-squeezing model can result in the acquired companies going bankrupt. The Public Citizen study noted that private equity firms chew through companies quickly, holding them for an average of five years. And when oil companies go bankrupt, orphaned wells can be left behind to leak methane into the atmosphere, while the costs of plugging them ultimately falls on the public.

“The overall point that we’re trying to make is that private equity’s involvement in Western oil drilling adds a layer of uncertainty because these companies turn over,” said Alan Zibel, a research director at Public Citizen. “They get in and they get out very quickly. So it really starts this chain of selling these companies to more and more potentially irresponsible actors.”

“It really starts this chain of selling these companies to more and more potentially irresponsible actors.”

Pumpjacks near Montezuma Creek, Utah. According to a new report, private-equity-backed companies hold approximately $380 million in unplugged oil and gas wells in four Western oil states: Colorado, New Mexico, Utah and Wyoming.
Luna Anna Archey/High Country News

Private equity investment in the oil industry isn’t new. When the pandemic caused energy prices to tank in 2020, nearly 60% of the oil companies that declared bankruptcy had private equity backing, according to the Private Equity Stakeholder Project. Energy prices recovered with global consumption and got another boost from the war in Ukraine. Even so, there’s a documented trend in the past several years of large, publicly traded oil and gas companies offloading their less-desirable assets to private companies with fewer financial resources to pay for cleanup — a trend that fits nicely with the private equity playbook. In the past two years, the Private Equity Stakeholder Project has found that private equity firms spent $25 billion acquiring oil and gas assets from public markets and taking them private.

Some of private equity’s biggest players are getting into the oil and gas game — among them Blackstone, Carlyle Group, Apollo Global Management and KKR — with a noticeable focus on companies in the Western U.S.

One such company is Terra Energy, a major driller in western Colorado and owner of several thousand wells and nearly 600 approved federal oil and gas permits since 2017. Terra’s growth in recent years is a result of consolidations and bankruptcies, beginning with a $910 billion acquisition of WPX Energy Rocky Mountain in 2016. In 2020, Terra scooped up the assets of a bankrupt driller called Ursa Energy. These deals were fueled by a reported $800 million in backing from two major private equity funds. One is Kayne Anderson, a $34 billion Los Angeles-based fund whose executives have been known to boast about investing in renewables, though those investments appear to be heavily outweighed by the firm’s continued interest in oil and gas. Terra’s other backer is Warburg Pincus, led by Timothy Geithner, U.S. Treasury secretary under President Barack Obama. Its website describes major cost-cutting measures: “In the years following the acquisition, Terra has managed to hold production flat while driving per-unit lease operating expenses and drilling and completion costs down by approximately 30% and 10%, respectively.” (Kayne Anderson and Warburg Pincus did not reply to emailed requests for comment).

Pumpjacks along the Animas River north of Durango, Colorado.
Luna Anna Archey/High Country News

The report also details how private equity firms have joined the oil and gas industry cycle of passing along rather than plugging under-performing wells. In 2022, High Country News reported on a company named Bonanza Creek, which sold several dozen old, low-producing wells in northwestern Colorado. In financial disclosures, the company acknowledged at one point that those wells had a resale value of zero dollars. Even so, the wells were passed along to a troubled company called K.P. Kauffman.

After shedding its bad assets and emerging from bankruptcy, Bonanza Creek was acquired by a private equity fund and rolled together with another driller to create Civitas Resources, now one of the state’s largest oil companies. Civitas, backed by private-equity firm Kimmeridge Energy Management, recently bought up billions of dollars’ worth of high-value oil and gas assets in Texas. Now, it is looking to sell some of its underperforming Colorado wells, according to the Denver Business Journal.

This is a persistent problem within the industry. Rather than plug their low-performing assets, companies often sell them to less financially solvent operators. Existing regulatory regimes, meanwhile, are unable to force companies to put forward the true cost of cleanup. This is a particular problem on federal public land. A 2019 report by the U.S. Government Accountability Office found that 99% of federal oil and gas leases have financial assurance bonds that would be unable to pay for the full cost of cleanup.

In July, the Biden administration proposed substantial increases to the bonds for federal oil and gas operators. But for now, private equity-backed drillers continue to operate on public land with only a fraction of the full cost of cleanup set aside. Nichole Heil, research and campaign coordinator with the Private Equity Stakeholder Project and one of the study’s authors, said that the standard private equity model — making large, debt-backed investments and moving through companies quickly, all in the name of immediate profit — undercuts efforts to manage public resources responsibly. If bankruptcies follow, the public could be be left with a hefty price tag.

“The fact that the private equity model looks to find outsized profits in a short amount of time doesn’t allow a lot of room for how we think about the plugging of oil and gas wells,” Heil concluded.

Nick Bowlin is the interim South Desk editor at High Country News. Email him at [email protected] or submit a letter to the editorSee our letters to the editor policy. 

High Country News Classifieds
    California Coalition for Rural Housing (CCRH) seeks a strategic and visionary Executive Director: View all job details here-
    The new novel by Ray Ring, retired HCN senior editor, tackles racism in the wild, a story told by a rural White horsewoman and a...
    Title: Digital Engagement Specialist Location: Salt Lake City Reports to: Communications Director Status, Salary & Benefits: Full-time, Non-Exempt. Salary & Benefits information below. Submission Deadline:...
    Title: Conservation Field Organizer Reports to: Advocacy and Stewardship Director Location: Southwest Colorado Compensation: $45,000 - $50,000 DOE FLSA: Non-Exempt, salaried, termed 24-month Wyss Fellow...
    Who We Are: The Nature Conservancy's mission is to protect the lands and waters upon which all life depends. As a science-based organization, we create...
    Apply by Oct 18. Seeking collaborative, hands-on ED to advance our work building community through fresh produce.
    High Country News is hiring an Indigenous Affairs Editor to help guide the magazine's journalism and produce stories that are important to Indigenous communities and...
    Staff Attorney The role of the Staff Attorney is to bring litigation on behalf of Western Watersheds Project, and at times our allies, in the...
    Northern Michigan University seeks an outstanding leader to serve as its next Assistant Vice President for Diversity and Inclusion. With new NMU President Dr. Brock...
    The Clark Fork Coalition seeks an exceptional leader to serve as its Executive Director. This position provides strategic vision and operational management while leading a...
    Help uphold a groundbreaking legal agreement between a powerful mining corporation and the local communities impacted by the platinum and palladium mine in their backyard....
    The Feather River Land Trust (FRLT) is seeking a strategic and dynamic leader to advance our mission to "conserve the lands and waters of the...
    COLORADO DIRECTOR Western Watersheds Project seeks a Colorado Director to continue and expand WWP's campaign to protect and restore public lands and wildlife in Colorado,...
    Whitman College seeks applicants for a tenure-track position in Indigenous Histories of the North American West, beginning August 2024, at the rank of Assistant Professor....
    Dave and Me, by international racontuer and children's books author Rusty Austin, is a funny, profane and intense collection of short stories, essays, and poems...
    Rural Community Assistance Corporation is looking to hire a CFO. For more more information visit:
    The Absaroka Beartooth Wilderness Foundation (ABWF) seeks a new Executive Director. Founded in 2008, the ABWF is a respected nonprofit whose mission is to support...
    Field seminars for adults in natural and human history of the northern Colorado Plateau, with lodge and base camp options. Small groups, guest experts.
    Popular vacation house, everything furnished. Two bedroom, one bath, large enclosed yards. Dog-friendly. Contact Lee at [email protected] or 520-791-9246.
    We characterize contaminated sites, identify buried drums, tanks, debris and also locate groundwater.