Oil and gas production is inherently risky from an environmental perspective. Damage caused to soil, water and wildlife has been much publicized. A Bank must properly account for these risks in underwriting and monitor these risks over the life of the loan.
The owner also has environmental obligations with respect to wells and platforms when production ceases. These costs are called an “asset retirement obligation” (ARO) or “plugging and abandonment” (P&A) liabilities. This obligation is not necessarily limited to the existing owner(s).
These liabilities can go with assets in a foreclosure sale, bankruptcy §363 sale or reorganization.