The independent oil and gas company KP Kauffman has been ordered to shut in shut 87 of its wells and clean up 29 sites in Adams and Weld counties. (Colorado Oil and Gas Conservation Commission)

Oil and gas company KP Kauffman, under fire for a spate of alleged operating violations, is facing a proposed $3.7 million fine and the possible loss of its right to operate in the state as a three-day hearing on its case opens before the Colorado Oil and Gas Conservation Commission on Tuesday.

The enforcement action against the company, also known as KPK, was brought by commission staff after citing the company for allegedly violating more than 20 different operating rules, including improperly storing waste, failing to report and address spills and not taking proper environmental precautions.

“Staff has been struggling with KPK for some time and it is staff’s hope that through this enforcement matter KPK will finally live up to the obligations it owes to the people of the state of Colorado,” the commission staff said in its prehearing statement.

In April, the commission ordered 87 of KPK’s wells shut and a clean-up of 29 sites for violations ranging from fouling farm fields to covering the road in front of a high school with oil wastes.

KPK is challenging each of the violations, which cover more than 70 pages, maintaining that in many cases the company did take the required actions and the issue was simply one of timing and that some of the charges are duplicative.

The penalty the staff is calling for is “disproportionately high,” the company said in its pre-hearing filing, and would “jeopardize KPK’s ability to continue operating in Colorado, including timely performance of corrective actions or remediation.”

KPK operates about 1,200 oil and gas wells on the Front Range, mostly acquired not through drilling but through transfers of ownership from other oil and gas companies.

The majority of the wells produce the equivalent of less than a barrel of oil a day, and only five of the company’s wells produce more than 10 barrels a day, according to an analysis by the League of Oil and Gas Impacted Coloradans, or LOGIC, a nonprofit community group.

Were KPK to go out of business and the state inherit its wells for plugging and abandonment it would increase five-fold the number of orphan wells in Colorado. KPK has posted a little more than $1.1 million in clean-up bonds, according to the COGGC, about $900 a well.

“This is not an easy thing the commission is contemplating,” LOGIC Deputy Director Andrew Forkes-Gudmundson said. “But the COGCC is not causing this problem.

“KP Kauffman created this problem by conducting unsafe, environmentally dangerous operations as part of its business model,” he said.

KPK did not immediately reply to an email request for comment.

Some of the violations centered on flow lines, which carry oil, gas and water to collection tanks have been a source of leaks and spills, according to COGCC inspections.

But in one of the cited instances KPK said it “denies that it did not take reasonable precautions. KPK performed all corrective actions in an expeditious manner to mitigate re-pressurization of the flowline.”

In another alleged violation involving a spill, KPK said the incident did not require reporting to the COGCC. “This was a minor gas release, not a spill or release of (exploration and production) waste or produced fluids, and the minor release did not impact a public byway,” the statement said.

The COGCC has slated three days of hearings, possibly a fourth, to go through the alleged violations. The five-member, full-time oil and gas commission will have the final say over the regulatory decision on the complaint.

“Whatever the decision is, it is going to be litigated, so the staff is trying to build an airtight case,” Forkes-Gudmundson said.

Mark Jaffe

Special to The Colorado Sun Twitter: @bymarkjaffe