There’s a layup waiting for Republican Gov. Jeff Landry’s new Fiscal Responsibility Program which it should take: cancelling the behind-closed-doors grifting by political insiders that has contributed to the state’s inability to reduce the numbers of orphaned oil wells.
This week, Landry created this new board designed to find savings in state government through reviewing spending choices, seeking efficiencies in expenditures, and vetting contracts. One of the very first things it needs to look into is the Louisiana Oilfield Restoration Authority’s sweetheart, if not illegally-administered, deal with the state.
Created during the Democrat Gov. John Bel Edwards Administration, LORA formed in response to a law that attempted to mitigate the incidence of orphan oil wells. These once-productive wells were abandoned by owners when faced with cleanup costs, leaving the state to have to deal with them. This method of contracting out rather than the state handling it (through its own resources or federal grants) sought to build a fund from well production into which owners paid that could be used to address abandoned wells, operating like a form of insurance and less expensively to encourage closure rather than abandonment.
But it was a rigged game from the start. Edwards ally Richard Ieyoub, the former state attorney general, the governor named the commissioner of the Office of Conservation. In turn, he placed another appointee, Johnny Adams, in charge of the project. As plans for this new alternative method came to fruition, LORA was formed by five principals of a management company called Arkus Management Services, including its president and director Van Mayhall III and its treasurer Andrew Berthelot, and five weeks later Ieyoub awarded a no-bid cooperative endeavor agreement to it.
The terms were extremely generous; that is, decidedly taxpayer-unfriendly. It required only $5 million in reserves, of which 20 percent could be held out for LORA and passed along to Arkus as administrative expenses, even if actual expenses weren’t that great. Past $5 million, it didn’t disallow investment that brought earnings to LORA/Arkus rather than to the reserve or to plug wells. And while it mandated that LORA/Arkus plug all wells it secured if necessary, it set no time limit to do that nor prevented LORA/Arkus from plugging other wells not secured to it that typically were less expensively done, allowing it to keep more in earnings. All in all, these terms discouraged plugging LORA’s portfolio of wells when necessary, leaving a huge backlog of about three-quarters of its portfolio, and, given that its portfolio eventually reached $157.1 million with just over $5 million in reserve, a highly levered situation where the state could be on the hook for a lot of supposedly-covered wells.
Worse, without authorization by an amended CEA, LORA was allowed in 2022 beyond the reserve minimum to increase its take from 20 to 36 percent, which records show in large part immediately went into the Arkus employees’ pockets, leaving it unavailable for plugging wells. Not long after, Ieyoub died and new commissioner Monique Edwards (no relation to the former governor) reviewed the data and began questioning the utility of the deal.
She wasn’t the only one. The Legislative Auditor began to sound the alarm over lax Office of Conservation oversight. Worst of all, however, Adams’ relationship with LORA/Arkus came under scrutiny. At one point, Arkus had hired two of his children to work at it. Further, the East Baton Rouge Sheriff’s Office launched an investigation of Adams, over LORA withdrawing $780,000 from its reserve account on Apr. 4, 2023, and moving it to the company’s operating account. Ten days later, Berthelot withdrew $780,000 from the operating account using a counter check. Two weeks after Berthelot’s withdrawal, Johnny and his wife Laurie Adams bought a house for that amount.
Laurie Adams, a Republican, serves on Baton Rouge’s Metro Council. She witnessed the original CEA signed by Ieyoub and Mayhall. Donors to her past campaigns include Mayhall and Berthelot. Even though the criminal case against Johnny Adams came to light a month prior to 2024 Council elections, Adams won reelection handily.
This controversy helped to spur changes in orphan well administration with passage of Act 16 in the Third Extraordinary Session of the Louisiana Legislature last month that gives the state more power and resources to tackle the issue. With that in hand, the experiment through LORA either needs significant reworking or scuttling, standing out as a prominent example of waste, if not fraud, that Landry’s initiative is born to address.