Oklahoma disposal wells bought by AEP spinoff named in earthquake lawsuit

Reuters News
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Posted: Jun 10, 2016 7:09 AM

By Luc Cohen

NEW YORK (Reuters) - Oklahoma oil and gas assets purchased by White Star Petroleum, a spinoff of soon-to-be-defunct American Energy Partners, included disposal wells that had previously been named in a lawsuit over earthquakes in the state, court documents show.

The litigation, which is ongoing, seeks to limit the volumes of wastewater the disposal wells' previous owner, Devon Energy, along with three other defendants, can inject into deep underground caverns.

In announcing the $200 million asset deal in April, neither Devon nor Energy and Minerals Group (EMG), the private equity firm backing White Star, disclosed that the disposal wells were included in the sale.

White Star has not been named in the case, but a lawyer for the plaintiffs said he may bring them in should the case clear a motion to dismiss filed by the defendants.

"It's unusual that people are able to sell during a pending lawsuit," said Richard Webster of Public Justice, who represents the Sierra Club, the plaintiffs in the federal lawsuit. "For White Star, they are taking on a fairly big risk here."

The environmental group asked for an order requiring Devon, Sandridge Energy Inc, Chesapeake Energy and New Dominion, LLC to reduce wastewater volumes and pay to reinforce structures that are vulnerable to earthquake damage.

In response, Devon argued in a court filing that the suit would not be effective because it does not encompass all disposal well operators in the area in question - citing its sale of "all of its disposal wells" relevant to the lawsuit to "another operator that is not a defendant in this lawsuit" as an example.

Devon also questioned the court's authority in the case, noting that the Oklahoma Corporation Commission, which regulates oil and gas activity in Oklahoma, had "exclusive jurisdiction" over the wells. The Corporation Commission has issued some directives aimed at reducing seismicity, which has fallen somewhat this year.

Devon declined to comment, and neither EMG nor White Star responded to requests for comment.

Meanwhile, Sandridge's involvement as a defendant was stayed when it filed for bankruptcy last month, which could save the company legal costs and exempt it from the discovery process while it is undergoing bankruptcy proceedings.

"It is a significant cost savings," said Natalie Ramsey, chair of Montgomery McCracken's bankruptcy and reorganization practice. "The first thing I'd be doing is running into court and pushing out discovery deadlines for Sandridge."

(Reporting By Luc Cohen; Editing by David Gregorio)