Colorado oil and gas regulators have levied a $344,000 fine they don’t expect to collect from a company that no longer exists.
It was a legal stratagem for the state to seize a $20,000 bond from the bankrupt, Houston-based Alta Mesa Resources LP for failing to clean-up an abandoned well site in Huerfano County.
The bond will cover only a fraction of the estimated $75,000 cost to remediate the well site, with the Colorado Oil and Gas Conservation Commission paying for the rest.
There have been nearly four years of issuing letters, violation notices and hearing notices to seize the bonds. The commissioners were perplexed and not happy.
“This seems awful complicated to clean-up one bankrupt operator well that we’ve known about for upwards of multiple years,” Jeff Robbins, the commission chairman said during a July 7 hearing on the case.
“It is incumbent on this commission to take this as a learning moment and uncomplicate that process,” Robbins said. “This full-time commission ought to have a rule in place that if we think a bond needs to be pulled, we go pull the bond after full due process.”
The commission has seized more than $2.7 million bonds from 78 different defunct operators for 369 wells and 394 sites since 1992, with more than half coming in the last 10 years, according to COGCC data.
Each had to go through this cumbersome bureaucratic process of inspections, letter, violation notices and hearings.
In addition to discussing steps to more quickly get hold of bonds, the commission is now in the process of developing financial assurance rules to guarantee that operators put up adequate funds to plug and remediate a well if it is abandoned.
The draft rules are proposing each well carry the equivalent of a $78,000 bond.
Alta Mesa owned a single well in Colorado, drilled in 2012, along with some oil and water tanks, on its site. In 2017, it plugged and abandoned the well and removed the tanks, but more than a year later COGCC inspectors found the 4.4-acre remained unreclaimed.
A violation notice and fine of $261,000 was issued, but in October of 2018 Alta Mesa and the COGCC entered into a consent order that the fine would be cut by half if the company did the clean-up and remediation. The work, which included removing noxious weeks and regrading and reseeding the site, was supposed to be completed by April 1, 2019.
Inspections in June, August and November of 2019 found that no work had been done on the site. The COGCC sent a registered letter to Alta Mesa in June 2020, but received no reply.
In August, Commission Director Julie Murphy wrote to Alta Mesa formally demanding the suspended $130,000 penalty.
By that time the oil and gas commission was writing to no one and nobody.
“We didn’t receive a reply because Alta Mesa essentially doesn’t exist anymore,” said COGCC hearings officer Steven Kirschner, who has handled the Alta Mesa case. “We had contact through 2018 and 2019 and they essentially went dark.”
Last summer, Kirschner, searching for a contact at the company (the one he had appeared to have disappeared), Googled Alta Mesa and learned the company had filed for bankruptcy in Texas in September 2019.
Colorado had never been notified and by the time Kirschner discovered the filing the court had already approved the company’s bankruptcy plan. It was too late for Colorado to intervene.
The Huerfano County well was neither sold, liquidated nor transferred to anyone as part of the bankruptcy reorganization and now sits in a shell company.
The COGCC began the process of seizing the single bond attached to the well last fall, starting with a new, heftier $344,000 fine and issuing the required hearing notices. But a bureaucratic glitch required reissuing the violation and the hearing notice, adding a few months to the process.
The hearing was finally held July 7, with the commissioners voting to issue the $344,000 fine.
“We hadn’t heard from them since December 2019, I am just kind of trying to understand why we are here in July contemplating this matter, in July 2021,” Commissioner Priya Nanjappa said.
Commissioner Karin McGowan asked “do we have to issue a penalty to have access to the bond?
“This has been going on since 2017, there has been no response, not even recalcitrance,” McGowan said. “I find this frustrating.”
Kirschner said, “it is a due-process issue.”
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