Environmental liabilities can come back to bite anyone, even if you’re a billionaire who should know better.

_{By Christopher Helman, Forbes Staff}

Back in 2010, Chief Executive Jay Allison of publicly traded Comstock Resources decided to sell a small oilfield in the town of Laurel, Mississippi. It was a modest operation, decades past its heyday, with just a few dozen wells pumping out a thousand or so barrels per day. Dallas-based Comstock was eager to jettison the field.

A prospective buyer called Petro Harvester Oil & Gas, then a portfolio company of private equity giant TPG, commissioned a due diligence report on the assets. What consultants from Lafayette, La.-based Fenstermaker found was not pretty. “Housekeeping was poor at all the facilities within the Laurel field,” they wrote. Across a dozen sites and 79 wells Fenstermaker found rusting and corroded equipment, leaking pipes, worn-down containment levees, and unlined pits for storing toxic wastewater. Fenstermaker stated its concern that whoever acquires the asset should dig a little deeper into the extent of environmental damage potentially caused by oilfield wastewater seeping into the earth.

And yet none of these concerns proved to be a deal breaker; Petro Harvester acquired the assets for $75 million. Allison and his team at Comstock were understandably happy to wash their hands of the Laurel asset and move on. According to court testimony, they packed up all their Laurel records and sent them over to Petro Harvester and assumed (wrongly it turns out) that they wouldn’t have to deal with the Laurel field again.

Comstock transformed itself over the next decade. In 2018 it traded $620 million worth of its stock to Dallas Cowboys owner Jerry Jones for oilfields in North Dakota. A year later Jones invested another $475 million into Comstock to back its acquisition of Covey Park Energy, a Louisiana-based natural gas driller, and he injected yet another $100 million in cash early this year when the company almost ran out of cash. Jones now owns 70% of the company, a stake worth $2.2 billion, or about 15% of his $14.2 billion fortune. Comstock is now largely a shale gas pure play, focused on drilling in the Haynesville field of Louisiana. It’s a good business when natural gas prices cooperate, like in 2022 when Comstock made $1.1 billion net income on $3.1 billion in revenue. Yet the past 12 months have been tough; as natural gas prices hit multi-decade lows Comstock’s revenues have dropped to $1.4 billion, with a net loss of $20 million. Shares are down 20% in a year.

And they may have farther to fall, as Jones now finds his Comstock investment exposed to the long tail of environmental liabilities still lingering in Laurel. This month, in Jones County Circuit Court in Laurel, a jury trial is set to begin, pitting Comstock against the family of Deidra and Marlan Baucum. The Baucums have claimed since their original 2014 lawsuit that oilfield toxins buried on the 38-acre site formerly owned by Comstock have migrated beneath the 10 acres where they live.

Their complaints became more strident in 2016 when Deidra Baucum, 61, went to see the doctor about a chronic sore throat only to be diagnosed with esophageal cancer. She had never been a smoker. An operation removed much of her windpipe, and her stomach now rests atop her right lung. She has to sleep sitting up. “Many times we could smell the material from the well site at our home,” recalls Deidra Baucum. “But we never thought it would be harmful. We assumed regulatory agencies were monitoring the situation.”

Naturally occurring toxins like arsenic, mercury and radioactive radium collect in the same rock strata as petroleum and come up out of the ground along with oil, gas and prodigious quantities of saline water. After the oil is separated, the wastewater has to be disposed. It’s too toxic to just pipe it into a river, so oil companies utilize EPA-regulated deep disposal wells — which are supposed to be drilled below any useful freshwater aquifers and carefully cased and cemented to avoid any leakage. The disposal well adjacent to the Baucums is said to have received 25 million gallons of injected waste. Some subset of that is believed to have leaked into more shallow soils via unlined evaporation ponds. Witnesses also claim that dozens of crusty, chemical-laden drums and radioactive metal were buried on the site.

The Baucums believe these toxins not only caused Deidra’s cancer (now in remission) but they may have caused a cluster. Within a third of a mile of the disposal well, 15 of their neighbors have contracted cancers, 8 already died. The most dramatic witness account comes from a neighbor, Jeremy Stevens, who according to an affidavit, says it was around 2008 when he and his brother Chad saw unusual activity on the Comstock land, less than a quarter mile from their grandparents’ house. “We saw construction equipment on an area west of the well and many holes dug in the ground. There was pipe and drums everywhere and cut up metal in the holes,” wrote Jeremy in an affidavit. “The barrels were crusted with green, yellow and white stuff.” Chad said in his affidavit that when he passed by the site one day there were backhoes digging next to the drums. When he came back later the holes had been filled in and the drums were gone.

The case has had a decade of twists and turns. The circuit court initially dismissed the complaint and sent them to the Mississippi Oil & Gas Board for adjudication. Baucum attorney Michael Simmons of Cosmich, Simmons & Brown in Jackson, Miss. appealed to the state Supreme Court, arguing that regulators had no business adjudicating the case because they had no mechanism for resolving tort claims and because the Baucum had no “nexus” connecting them to the oil companies (they hadn’t entered into any contract or granted anyone permission to foul their land). In 2021 the Mississippi Supreme Court sided with the Baucums and sent the case back to be tried on the merits. That alone was a significant victory for plaintiffs’ rights, says Simmons, as this will be the first personal injury case against an oil company in Mississippi to go all the way to trial.

Soon after the Supreme Court decision, Petro Harvester, which TPG had since merged with another failing portfolio company Rockall Energy, filed for Chapter 11 bankruptcy. That was bad news for Comstock. Although bankruptcy is an effective way to discharge financial liabilities, it doesn’t get rid of environmental ones. As has long been customary in the oil and gas business, if a company becomes insolvent and can’t pay to clean up a mess it has made, the responsibility to do so travels back through what’s called the chain of title. Basically, if you ever owned a stake in an oilfield, and you’re still solvent, then landowners and regulators can seek you out and hit you up to pay for past environmental damages.

If the Baucums win their case, other plaintiffs will follow. As we drive around their Laurel neighborhood, Marlan, 62, points out the homes of other cancer sufferers, living and dead. “We’re only the first one. After we win, the floodgates are going to open,” he says.

Incredibly, Comstock has never disclosed this litigation to its public shareholders. In legal filings Comstock insists that if ground pollution is there, third party contractors would be to blame. Comstock’s chief operating officer Daniel Harrison testified under oath early this year that the company would never knowingly dump toxins, “We do not do that. We do not bury equipment anywhere.”

Indeed, Harrison testified that they never even bothered to tell Jerry Jones about the case, on the grounds that it was immaterial. What constitutes materiality? The SEC goes by the U.S. Supreme Court’s definition that a fact is material if there is “a substantial likelihood that the … fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”

Bob Bowcock, an environmental tort attorney and longtime sidekick of real life Hollywood heroine Erin Brockovich, laughs at the idea that this mess could be “immaterial.” He has consulted with the Baucums and studied the site and says their entire neighborhood will need to be razed and tainted soil hauled away.

Formentera Energy bought the Laurel field assets out of bankruptcy in 2022, so the Baucums sued Formentera too, but soon dismissed them as plaintiffs once it was clear the company was inclined to operate responsibly and improve the site. “We went over and beyond on remediation,” says CEO Bryan Sheffield, who previously built Parsley Energy and sold it to Pioneer Natural Resources for $8 billion. “Any time I take over an asset I clean it up.”

Despite assurances, the Baucums fear Formentera only scratched the surface. According to John Ryan of Pace Analytical Services, which conducted eight soil borings on the Baucums land at depths from 4 to 28 feet deep and found high levels of contaminants, the recommended course of action would include installing a 30-foot-deep subterranean wall of impermeable bentonite clay in order to prevent further migration of toxins toward streams. Monitoring would need to continue “into perpetuity,” according to Ryan. This could cost $30 million.

Though a Comstock manager insisted in court that any metal processed on the site would have been hauled away, an expert electromagnetic survey last year by Allen Engineering & Science determined that “metallic waste is buried at depth.” But if it is metal, why bury it when the Laurel scrap yard is just a couple miles away and they’ll pay for it? Stevens says they took a piece of it to the yard and it tested “hot” or radioactive, which the yard won’t touch. “Both my grandparents died of cancer,” he said.

The case has had some bizarre twists. Three witnesses have alleged that Comstock attorney Norman Bailey has tried to intimidate them into changing their stories. Jeremy Stevens, who is now in his late 20s, testified under oath that Bailey showed up at his house unannounced and “to my surprise Mr. Bailey began telling me I was too young to know what I was seeing” in the field. “He told me I was wrong.” After a hearing on the allegations in early August, the judge reprimanded Bailey. Then in recent weeks, Comstock attorneys filed a motion with the court requesting that the judge bar Jerry Jones from even being mentioned at trial. The reason? So not to prejudice potential jurors who don’t like the Cowboys, the football team Jones has owned since 1989.

A key unanswered query: why not disclose this case to shareholders, and what other long-lived, open-ended environmental and legal liabilities has Comstock not told them about? “This lawsuit should have been settled years ago,” says Marlan, “and probably for less money than it is going to cost them now.”

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