Letter to the Editor: Contractual obligations and toxic waste

Contractual obligation to clean up toxic waste

The Louisiana legislature will consider a flurry of industry-backed bills in the coming weeks — all of which aim to inhibit the right of property owners to sue oil companies for failing to clean up a “legacy” of land contamination left behind from decades of hazardous production operations.

As the legislative battle surrounding “legacy lawsuits” comes to a head and our elected officials must choose between supporting the contractual rights of landowners or the profits of oil companies, we should all keep in mind the lessons learned from Hilcorp Energy and its problems in the Erath Oil and Gas Field.

Hilcorp, the largest oil producer in Louisiana, purchased the Erath Field from Texaco in 1995 at the dramatically discounted price of $1.5 million. One of the reasons Hilcorp was able to acquire the southern Louisiana oilfield on the cheap is that Erath came saddled with a significant environmental liability. That is, liability in the form of contamination, including asbestos and radioactive waste (primarily radium-226) from past production processes.

Since the 1995 purchase, Hilcorp has made more than $100 million operating in the Erath Field. Not a bad return on investment, even by bloated oil industry standards. But now, much to Hilcorp’s indignation, there are landowner lawsuits pending that threaten to cut into the company’s record-breaking profits. But Hilcorp and its fat-cat CEO Jeffery Hildebrand have no one to blame but themselves.

As part of the 1995 deal, Hilcorp assumed Texaco’s legal obligation to clean up the toxic material left on private property. That legal obligation is clearly stated in the 1995 Purchase and Sale Agreement that formalized the transaction. Further­more, Hilcorp promised to indemnify Texaco for any damages caused by historical operations in the field. In other words, Hilcorp —like many other oil producers that purchased discounted fields —assumed all liability for all contamination at the site.

These are contract cases, pure and simple. Hilcorp is violating the terms of its contract requiring a complete cleanup of the existing contamination in the Erath Field.

Despite the absence of any sort of legal leg to stand on, Hilcorp — and dozens of other smaller oil companies across Louisiana — have orchestrated an aggressive campaign to deny landowners their day in court. The industry is putting heavy pressure on the Republican-controlled state legislature to pass a bill that would strip landowners of their legal right to sue oil companies (like Hilcorp) for damages to their private property.

Hilcorp’s CEO Jeffery Hildebrand recently warned (or threatened, depending on your point of view) members of the state Senate that if there’s no legislative remedy to roll back these kinds of landowner lawsuits the “consequences…are dire for our business and for the industry as a whole.”

What Mr. Hildebrand conveniently failed to mention is that a “legislative remedy” would likely be unconstitutional. The U.S. Constitution declares that no state shall “pass any bill…or law impairing the obligation of contracts.” That stipulation seems to preclude the sort of legislative coup Hildebrand and the rest of the oil industry are pinning their hopes on.

We shall soon see if our elected officials side with the people or with Big Oil. Although we fully understand the considerable power and influence of the oil industry, we expect our elected officials to act responsibly and act on the side of justice (not to mention the Constitution) by voting down this industry-backed legislation.

– Stuart H. Smith

This letter originally published in the April 23, 2012 print edition of The Louisiana Weekly newspaper.