Frustrated, but patient, state oil and gas regulators on Monday gave the troubled KP Kauffman Co. one more, six-month chance to clean up its act or face close to $1 million in fines — or worse.

The Denver-based oil and gas operator, which runs 1,200 low-producing wells around the state, is under an agreement to clean up 74 sites negotiated last November with the Colorado Oil and Gas Conservation Commission.

The commission also levied a $2 million fine, but deferred payment of all but $795,000 pending compliance with clean-up plans. The company, known as KPK, said it couldn’t afford to pay any more. 

Progress, however, has been halting, with recurring disputes between commission staff and the KPK, and the commission concluded the company is failing to meet the targets of the compliance plan agreement.

“KPK continues to have excuses for a lackluster performance,” said Commissioner Karin McGowan.

The commission, however, stopped short of using its power to levy fines, stop approvals for any new oil and gas development or suspend its ability to sell oil and gas.

“We have blunt tools we can impose,” said Commission Chairman Jeff Robbins. “I am looking for a little more creativity.”

Still, Robbins said it is getting to the point where KPK looks to “comply from the top down or not, and if it is or not, I am ready to throw the book at them.”

Commissioner John Messner pressed for imposing fines right away. KPK “is more interested in arguing and fighting over the interpretation of the CPA than implementing it,” he said, referring to the compliance plan agreement the company negotiated in November.

“There is not the possibility or willingness of this operator to get there,” Messner said.

History of problems

KPK has been an enforcement target of the commission for several years. In May 2021, the company was ordered to shut 87 of its wells and clean up 29 sites after a string of violations, including fouling fields and covering roads with oily waste.

In August, the commission staff filed enforcement action against KPK with a 70-page litany of 20 alleged operating violations at seven sites, including improperly storing waste and failing to report and clean up spills.

The commission staff sought a $3.7 million fine and raised the prospect of KPK losing its ability to operate in Colorado.

In September 2021, the commission agreed to a $2 million fine and a compliance plan for the seven sites, plus a global remediation implementation plan covering dozens of other sites.

It deferred all but $795,000 of the fine to be paid over five years.

“Any diversion of resources to penalties would reduce the resources for remediation,” Kevin Kauffman, the company’s CEO, testified at the commission hearing. 

Work on the projects has, however, been slow, with only two completed and many forms and reports being filed late to the commission, making it difficult for staff to keep track of the work.

Still, KPK did, as required by the agreement, hire an independent consultant — MarCom LLC — to oversee its remedial work, and the company said it has spent $1.7 million on remediation since last November.

The company is keeping up the required $150,000 revolving fund for project work and noted that the compliance agreement is for five years and that the past six months has been a start-up period.

“If tweaks and course corrections are necessary, they should be negotiated,” John Jacus, KPK’s attorney, told the commission.

John Axelson, a COGCC environmental supervisor, countered that “there has been an adversarial stance on the part of KPK. … I would hope we would not have to fight over every step in the compliance agreement.”

KPK has missed milestones on 17 of 18 high-priority projects and since the compliance agreement was signed in November the company has had 23 alleged spills, Axelson said. 

Jacus argued that those new spills are not part of the compliance agreement and are not relevant in judging whether KPK is complying with the agreement.

Axelson said they are germane. “We are digging a hole. I don’t see them ever catching up,” he said. “It’s got to stop.”

Do it now … or else

The commission voted to give KPK another six months, with a weekly meeting between Robbins, senior commission staff and KPK to go over work plans. The commission staff will also identify a work priority list.

Robbins will also serve as an arbiter in any disputes between the staff and KPK.

Several commissioners raised questions about whether KPK was committing adequate staff and resources to the compliance plan, though they conceded they do not have the power to order the company to add personnel.

“They think they are doing their best, but their best is not good enough,” Robbins said. “If they are doing their best, they need more.”

Messner identified three sites where KPK has missed deadlines, as well as failures in waste management, and in spill prevention plans and the global remediation plan.  

The deferred penalties from those parts of the settlement come to $965,000, which would be assessed in six months if there is no significant improvement.

Enforcing the full fine could push the company into bankruptcy, said Greg Weiss, an accountant with Harper, Hofer and Associates, testifying before the commission last week on behalf of KPK.

“If you can’t afford to pay the fines, then live within the rules,” Commissioner Bill Gonzales said Monday. “Compliance with the rules is the baseline. … We are not handing out the ‘most improved’ trophies here.”