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What is an Asset Retirement Obligation (ARO)?

An Asset Retirement Obligation, also referred to as a decommissioning liability, is the legal obligation to pay for the decommissioning or cleanup of an asset at the end of its useful life.  Click the below to learn more about AROs and how OneNexus can help companies manage their ARO liabilities. 

Non-Dischargeable Liability

Non-Dischargeable Liability: in the context of oil & gas operations, AROs are non-dischargeable liabilities created when the operator drills an oil and gas well, at which point the operator establishes the asset retirement obligation on its balance sheet. AROs cannot be discharged in bankruptcy – this obligation is super-senior to all other claims on the estate.

Proper Decommissioning

Proper Decommissioning: AROs in the context of oil and gas wells comprise of several things including 1) proper plugging (capping) and removal of the wellhead, 2) removal of all oilfield equipment from the wellsite and 3) reclamation and restoration of the wellsite to its natural state

Chain of Title:

Chain of Title: The ARO liability resides with the current title holder of the well. If the current title holder declares insolvency, the liability will revert to the predecessor-in-interest (following the title chain). As a result, prior owners and operators who have sold an oil & gas asset potentially decades prior could be held liable for the ARO liability if all the

State Governed:

State Governed: AROs are governed by the State which sets the rules and regulations for proper abandonment of the asset. The State ultimately bears the responsibility of abandoning the asset in the event no owner in the chain of title exists or is solvent to pay for the liability

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