Cutting Costs or Cutting Corners: Asset Reallocation in Oil and Gas Production

Sarah C. Armitage, Judson Boomhower and Catherine Hausman

No 34961, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Reallocation of assets across firms can lead to efficiency gains, but it can also lead to distortions via rent-seeking. We examine the link between asset reallocation and rent-seeking enabled by differences in the expected cost of environmental liabilities. Focusing on the US oil and gas industry, we develop a conceptual framework that incorporates both firm specialization in well types and the judgment-proof problem, by which undercapitalized firms can avoid environmental liabilities. We then build a novel dataset with hundreds of thousands of well transfers over 1992 to 2023, showing that oil and gas wells are transferred frequently, particularly as they age and their revenues decline. Moreover, low-value wells are especially likely to be transferred to low-value firms. Transferred wells produce similar amounts in later years, but are less likely to be plugged – thus posing greater environmental risk. We conclude with policy implications related to well plugging, bonding requirements, and decarbonization.

JEL-codes: G33 G34 L25 L71 Q35 Q58 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-bec, nep-ene and nep-env
Note: EEE IO LE
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