David Solomon’s bid to rebrand Goldman Sachs as environmentally green is going up in flames — courtesy of a bankrupt oil and gas company in North Dakota.
That’s the charge from critics — and creditors — who claim that Goldman, as a key lender of debtor-in-possession financing to Nine Point Energy, has failed to curb the driller from flaring natural gas into the atmosphere as part of what looks like hard-knuckle Chapter 11 negotiations.
In April, Nine Point flared over 155 million cubic feet of the greenhouse gas from its North Dakota wells. That’s more than two-and-a-half times what they emitted prior to the company’s February bankruptcy filing, and equates to more than 21 million miles driven by passenger vehicles, according to the Environmental Protection Agency.
That also amounted to a whopping third of its production — well north of the 9-percent limit allowed by environmental regulators, who cite emissions of carbon dioxide, as well as nitrogen oxides that cause acid rain, ozone and smog.
Goldman — whose CEO Solomon pledged in March to detail this year how “climate-risk considerations” figure into the bank’s business strategy — is in a lending group led by Alliance Bernstein that’s poised to take ownership of Nine Point to forgive $250 million in debt.
But the deal has hit a snag over a lawsuit from Caliber Midstream, a pipeline company whose contracts to safely transport the gas Nine Point rejected in Chapter 11. Caliber is suing for $150 million in construction costs.
Nine Point’s gas flaring provoked a befuddled response from a Caliber attorney at the start of the bankruptcy. Alfredo Perez of white-shoe law firm Weil Gotshal noted that Nine Point was “literally flaring the natural gas that would otherwise come into our system for some reason, in an effort to … put pressure on us, I’m not quite sure exactly why, but it’s part of our theory,” according to a March 17 court transcript.
At the same time, a lawyer for Nine Point noted, “In terms of the flaring of the gas, I just want to make perfectly clear that is not a harm to our creditors” — apparently referring to creditors other than Caliber. “We are actually saving money by doing so, given the cost of the gathering system for those — for that gas transport.”
That, in turn, provoked a testy op-ed piece in Bloomberg earlier this month, with columnist Liam Denning writing that “if producers feel free to flare when it’s financially expedient, then it rather makes a mockery of the whole idea of regulations.”
Spokespeople for Goldman and Alliance Bernstein declined to comment. Sources close to the lenders insisted the firms’ ability to control Nine Point’s actions as DIP lenders is limited. Somewhat contradicting that, the sources also said the lenders have prevailed upon Nine Point in recent weeks to reduce its gas flaring with steps that include installing on-site generators that use the gas.
On Tuesday, a source close to Goldman said Nine Point, as of July 8, had ratcheted down its natural gas flaring to 9 percent of output per state guidelines. It expects to maintain that rate going forward.
“We continue to weave climate-risk considerations into how we do our business,” Goldman CEO Solomon said in March, pledging to elaborate later this year. “We will lay out in detail how we’re taking climate-risk considerations into account both in our business practices and our business selection.”
“We’re committed to elevating our corporate environmental, social, and governance [ESG] practices — to that end, we’re strengthening our corporate statements on climate change,” Alliance Bernstein said in a September report.