THORNTON – An oil and gas rig whirled away on a recent winter day, just a few hundred feet from the swings and slides in Talon View Park. It wasn’t drilling a well, but plugging a string of old, played-out ones – save four of them.
Those four may not be plugged, even though the operator, Great Western Oil & Gas, wants the wells filled in and the site remediated. These wells, which haven’t produced any oil or gas in three years, could instead end up in the hands of one of Colorado’s most troubled oil companies.
A transfer application for the four wells was filed with the Colorado Oil and Gas Conservation Commission in December by Denver-based KP Kauffman Co., also known as KPK. In October, KPK was hit with the second largest fine ever levied by the state against an oil company.
Still, even though KPK is under a consent agreement to clean up 74 sites and last April was ordered to shut 87 wells and clean up 27 other sites, the Talon View transfer could go through.
“Our space as a regulator is to assure that an operator has financial assurance,” said Julie Murphy, the COGCC director. “We are not involved in the business of the transfer.”
The commission is overhauling its financial assurance rules with the aim of increasing the amount of money set aside for plugging and abandonment. The draft rules, which are the subject of hearing beginning Thursday, pay special attention to transfers, identifying low-producing wells and increasing the monetary requirements for those ownership changes.
More than 42,000 oil and gas assets have changed ownership in the past five years, according to a Sun analysis of state data, including at least 5,909 low-producing, shut-in and temporarily abandoned wells. A share of those marginal wells found their way to small or troubled operators like KPK.
Environmental and community groups warn that this could pose the risk of those old wells eventually being orphaned, leaving the state to pay for plugging and abandoning them.
“This is a common tactic in the oil and gas sector, spinning off liabilities to weaker companies,” said Clark Williams-Derry, an industry analyst with the Institute for Energy Economics and Financial Analysis.
KPK did not reply to email and telephone requests for comment before this story published on Jan. 20. On Jan. 21, KPK’s attorney Ross Watzman sent an email saying the company will not take over the wells near Talon View Park and that they will be plugged by Great Western.
In the five-year span about 250 low-producing and no-producing wells were transferred to KPK – some of them from the state’s top oil and gas companies – bringing the company’s total well count to about 1,250 in 2020. More than 87% of those wells produced less than the equivalent of 2 barrels of oil (BOE) a day in 2020, a level at which industry operators say is uneconomical to run a well.
KPK has “right of first refusal” on four wells
The story of the seven Talon View Park wells is a bit different because there is an established operator who wants to plug them.
Great Western, a private oil company based in Denver, filed the necessary paperwork with the COGCC to plug all seven of the wells. The company said it is planning to plug and remediate 60 to 70 wells in 2022.
“We believe those wells are great candidates for plugging,” said Susan Fakharzadeh, Great Western senior vice president for sustainability and government affairs. “We believe the right thing to be done is for all those wells to be plugged and abandoned.”
But under the terms of a joint-operating agreement with Great Western, KPK has “right of first refusal” on four of the wells.
The transfer application is under review, Fakharzadeh said, and under the terms of its cleanup compliance agreement, all KPK transfers would also be subject to a full commission hearing.
When the wells were drilled in the fall of 2010, by Kerr McGee Corp., they sat on open prairie. By 2019, Talon View Park and the homes of the Todd Creek development began to surround the well pad, which was by then operated by Great Western.
The wells yielded profitable levels of oil and gas In the months after they were brought online.
The Talon View #22-9 well, for example, was producing 75 BOE a day in early 2011. By 2015 it was down to 6.7 BOE. In May 2018 it had slipped to 1.5 BOE a day and hasn’t produced any oil or gas since June 2018. The story is much the same for the other three wells in the proposed transfer.
Between 2017 and 2021, KPK was involved in 732 transfers, which included 219 producing wells and 44 shut-in or temporarily abandoned wells. About 93% of the 219 wells produced less than 2 BOE a day in 2020, according to COGCC data.
The wells came from 11 companies, including some of the state’s large oil and gas companies. In 2018, as Bonanza was beginning to make moves to acquire and merge with other local producers, ultimately creating Civitas Resources, now one of the largest operators in the state, Bonanza Creek shed 104 wells producing less than 2 BOE a day to KPK.
While it was amassing all these wells, KPK was running into a series of problems. In April, COGCC ordered the company to shut 87 wells and clean up 29 sites in Adams and Weld counties, citing a string of violations from covering the road in front of a high school with oily wastes to fouling farm fields.
The company also paid a $1 million fine and committed to spending $1.25 million for pollution control investments, in a January 2020 settlement with the federal Environmental Protection Agency and Colorado air regulators over alleged air emission violations for releasing volatile organic chemicals into the air.
Last August, KPK faced another $16,275 fine as part of another settlement with the Colorado Department of Public Health and Environment for disconnecting a pipeline and venting methane into the air.
The very same month the oil and gas commission staff filed an enforcement action against KPK seeking a $3.2 million fine and the correction of 20 violations at seven sites. The staff also raised the possibility of blocking the company from doing business in Colorado.
The company was eventually fined $2.02 million. (The only fine larger is the $18.25 million penalty Occidental Petroleum Corp., the state’s largest operator, paid for a 2017 house explosion in Frederick that killed two people.)
In October, in negotiations led by COGCC Chairman Jeff Robbins, the fine against KPK was provisionally reduced to $795,000 as part of a comprehensive, five-year cleanup plan for 74 sites. KPK said it couldn’t afford to pay a higher fine.
In January, the commission was updated on the cleanup plan submitted by KPK. “The plan is inadequate,” John Axelson, a commission staffer, told the commissioner. “They submitted a plan that doesn’t meet the basic requirements.”
Axelson said KPK has reported five more spills since the settlement agreement was signed.
Robbins said that the plan was a starting point. “We need more discussion to get across the finish line,” he said. “This is a work in progress.”
“Kick the can down the road”
Williams-Derry, the industry analyst, said that operators like KPK are a challenge. “The regulators are in a tough position,” he said. “The more stringent they are, the more the operators push back and say you are going to end up with hundreds of orphan wells.
“Regulators just don’t want it to happen on their watch. They don’t want to be the ones responsible for any companies going out of business or being responsible for hundreds of orphan wells, so they kick the can down the road, but they are running out of road,” Williams-Derry added.
If Great Western plugged and abandoned all seven wells in Talon View Park, the company would also remove the six large storage tanks, pipelines and oil-water separator on the site and grade and remediate the land, Ty Woodworth, the company’s district engineering manager, said.
“If the four wells stay, the tanks and equipment have to stay,” Woodworth said, even as children continue to play nearby and homes spring up around the site.
Senate Bill 181 changed the mission of the COGCC in 2019 from promoting oil and gas development to protecting public health, safety, welfare and the environment. It also calls for more financial assurances that wells that are transferred will be plugged.
It did not, however, change the standards for transferring a well. In reviewing the KPK settlement, some commissioners raised the question of whether transfers could be limited during the five-year cleanup.
“We can’t bind KPK from a business perspective from doing transfers,” Robbins told the commission in November. “They have that authority outside our rules and regulations.”
Colorado Sun staff writer Tamara Chuang contributed to this report.
UPDATED: This story was updated at 12:30 p.m. on Jan. 21, 2022, to include a comment from KPK.