New Mexico Lawsuit Alleges ExxonMobil and Empire Petroleum Engaged in Massive Accounting Fraud Over Aging Oil Wells

A high-stakes legal challenge filed in New Mexico District Court alleges that ExxonMobil, Empire Petroleum, and their respective subsidiaries orchestrated a sophisticated accounting fraud scheme that could eventually saddle state taxpayers with nearly $200 million in environmental cleanup costs. The lawsuit, which centers on the transfer of hundreds of aging oil and gas wells, suggests that the companies deliberately undervalued their legal obligations to plug and remediate these sites, potentially setting a new legal precedent for how the energy industry handles its "legacy" liabilities. If the plaintiffs are successful, the case could fundamentally restructure the financial transparency required when major oil corporations offload declining assets to smaller, less capitalized firms.

The litigation stems from a 2021 transaction in which ExxonMobil’s subsidiary, XTO Energy, sold several hundred mature wells to Empire New Mexico, a subsidiary of the Tulsa-based Empire Petroleum. According to the complaint, the two entities engaged in a "massive" undervaluation of the debt inherent in the sale—specifically the Asset Retirement Obligations (ARO) associated with the eventual decommissioning of the wells. By reporting these liabilities at a fraction of their estimated real-world costs, the plaintiffs argue the companies violated New Mexico’s Fraud Against Taxpayers Act. The core of the allegation is that the undervaluation allowed Empire Petroleum to acquire assets it could never realistically afford to clean up, effectively rendering the company insolvent from the moment of purchase and placing the wells at high risk of becoming "orphaned."

The Mechanics of the Alleged Fraud

At the heart of the legal dispute is a stark discrepancy between reported accounting figures and the actual costs of oilfield remediation in the 21st century. When XTO Energy transferred 670 wells to Empire New Mexico, the companies reportedly agreed to value the eventual cleanup costs at approximately $6.1 million. This figure averages out to roughly $9,100 per well. However, the plaintiffs—Theron Horton, a forensic data analyst, and Greg Rogers, a corporate lawyer and former CPA—contend that this estimate is mathematically impossible given current regulatory standards and geographic realities.

Using data from the New Mexico Oil Conservation Division (OCD), the plaintiffs point out that the state-wide average for plugging and remediating a single well is approximately $214,000. In their detailed filing, Horton and Rogers utilized a per-foot basis to estimate that the wells in the XTO-Empire transfer actually require an average of $236,000 each for proper closure. After factoring in a 30 percent contingency fee for complications common in older wells and accounting for 23 sites that are already plugged but require further remediation, the plaintiffs calculated the true Asset Retirement Obligation to be $199,576,929.

This $193 million gap represents what the suit describes as a "corporate shell game." By offloading these liabilities at an undervalued rate, a major producer like ExxonMobil—which was one of New Mexico’s top five producers in 2025—can remove long-term debts from its balance sheet. Meanwhile, the smaller buyer, Empire Petroleum, assumes a portfolio of wells that are nearing the end of their economic lives without the capital reserves necessary to manage their "funeral" costs.

A Novel Legal Approach: From Environment to Accounting

The lawsuit is categorized as a "Qui Tam" action, a legal mechanism that allows private individuals to file a case on behalf of the government. Under the New Mexico Fraud Against Taxpayers Act, the state’s Attorney General was given the initial opportunity to prosecute the suit. While the Attorney General’s office declined to take over the case after a months-long review under seal, the law permits Horton and Rogers to move forward independently.

The plaintiffs argue that their approach represents a paradigm shift in environmental litigation. Rather than focusing on specific instances of oilfield pollution or regulatory violations of the Oil and Gas Act, the case targets the bookkeeping. By framing the issue as accounting fraud, the lawsuit bypasses the often-slow administrative processes of environmental agencies and goes directly to the financial integrity of corporate disclosures.

"It is critical that each of us do everything we can to stop the tsunami of corruption that threatens the very existence of our country," stated Horton, who spent years developing data analysis tools to track oil and gas production trends. His partner, Rogers, who previously worked for the primary law firm of the energy giant Enron and served as an adviser to the Master of Accounting program at the University of Cambridge, described environmental accounting fraud as "particularly immoral." He argued that if companies are permitted to lie about the costs of cleanup during sales, they are essentially stealing from the public treasury by pre-emptively dumping their debts onto the state.

The Economic Context of "Stripper Wells" and Market Decline

The wells involved in the XTO-Empire transfer are largely what the industry refers to as "stripper wells"—marginal producers that yield less than 10 barrels of oil equivalent per day. According to state records, the average age of the wells in this specific sale is over 63 years. Data from the New Mexico Energy, Minerals and Natural Resources Department indicates that while 375 of Empire New Mexico’s wells are listed as active, only 302 reported any production in early 2026.

The financial health of the purchaser, Empire Petroleum, has also come under intense scrutiny. Although the company is publicly traded, its SEC filings reveal a precarious financial position. Over a three-year period leading up to the suit, the company recorded net losses totaling $100 million. During the same window, its long-term debt tripled, and its stock price plummeted by nearly 90 percent from its four-year peak. Plaintiffs argue that these indicators show a company that is "undercapitalized" and likely to follow a common industry trajectory: a slow decline into bankruptcy, leaving the state responsible for hundreds of non-producing, leaking wells.

Broader Implications for the New Mexico Permian Basin

New Mexico is currently the second-largest oil-producing state in the U.S. and the third-largest producer of natural gas, largely due to the prolific Permian Basin. However, this production comes with a massive "legacy" footprint. The state currently has over 1,035 documented orphan wells—sites with no solvent owner to pay for cleanup. An additional 1,400 wells are currently in the administrative pipeline to be declared orphaned, and 3,000 more are expected to follow shortly.

A report from the state’s Legislative Finance Committee recently warned that New Mexico could be liable for between $700 million and $1.6 billion in cleanup costs in the coming years if bonding and transfer practices are not drastically reformed. Currently, the state’s bonding requirements are so low that they often cover only a fraction of a percent of the actual costs. For instance, Empire New Mexico’s current bonds would only cover the cleanup of approximately five wells at the state’s average cost, despite the company owning hundreds of aging sites.

The environmental stakes are equally high. Unplugged or improperly abandoned wells are known to leak methane—a potent greenhouse gas—as well as saline wastewater and volatile organic compounds (VOCs) into the air and groundwater. Studies by HEI Energy have documented extreme levels of air pollution in New Mexico towns like Loving, located in the heart of the Permian Basin, where old infrastructure continues to off-gas toxic chemicals long after it has ceased to be profitable for its owners.

Chronology of the Crisis and Potential Solutions

The timeline of the current legal and legislative battle reflects a growing urgency among New Mexico officials to address the "orphan well tsunami":

• 2021: XTO Energy (ExxonMobil) completes the sale of 670 aging wells to Empire New Mexico.
• 2022: Empire Petroleum reports an ARO of only $6.1 million in its year-end SEC filing.
• August 2023: Horton and Rogers file the Qui Tam lawsuit under seal.
• June 2024: Nine environmental groups petition the New Mexico Oil Conservation Commission to tighten bonding and transfer rules.
• Early 2025: The New Mexico legislature passes a bipartisan bill to divert oil and gas conservation tax revenue into the state’s Reclamation Fund to pay for orphan well cleanup.
• February 2026: The Qui Tam lawsuit is unsealed, and the New Mexico Attorney General declines to intervene, allowing the private plaintiffs to proceed.

Legislative efforts to fix the problem have met with mixed success. Representative Matthew McQueen has proposed "back-to-the-source" liability laws, which would allow the state to pursue previous solvent owners of a well if the current owner goes bankrupt. This model is already used by the federal Bureau of Land Management (BLM). In a recent instance in the San Juan Basin, the BLM successfully forced four major companies, including BP America and Marathon Petroleum, to pay for the cleanup of 23 orphaned wells they had sold years prior.

"All these things would be easier if just the responsible parties stepped up and did the right thing," McQueen said. "Transfer the well if you need to, but make sure that you have a good transferee."

As the case against ExxonMobil and Empire Petroleum moves forward in the district court, it serves as a critical test of whether the judiciary will hold oil giants accountable for the "accounting gymnastics" used to distance themselves from their environmental footprints. If the plaintiffs prevail, the ruling could force a massive revaluation of assets across the entire oil and gas industry, potentially preventing the next generation of orphan wells from becoming a permanent burden on the American taxpayer.