DENVER — A Colorado oil and gas company must come up with $133 million over the next decade to make sure its more than 1,000 wells will be plugged and abandoned — a move the state’s top regulatory agency said shows they're serious about making the oil and gas clean up after itself.
"We want operators to be incentivized to plug their wells and clean them up,” Heidi Leathwood, a climate policy analyst with the grassroots group 350 Colorado, told Denver7 Friday.
Leathwood has been watching as Colorado moves forward with a new process for holding oil and gas companies accountable for cleanup costs.
The Colorado Energy and Carbon Management Commission (ECMC) will decide, company by company, how much to collect as financial assurance.
"The financial assurances are kind of like putting a security deposit down when you're renting an apartment,” Leathwood said. Just like a security deposit creates “an incentive to leave the apartment really clean so that you can get your money back at the end,” the financial assurance encourages companies to take care of their responsibilities. If they don’t, that money can be used "to plug the well and clean it up as needed.”
Colorado’s commission established new rules for financial assurance last year, and they’re currently going through hearings that will establish how serious the commission is about holding operators accountable.
Commissioner John Messner said in hearings last week that “in order for [the ECMC] to make the statement that we have some of the strongest financial assurance regulations in the country, it is our responsibility to apply the rules in the way that they were intended to be applied.”
So far though, the commission has experienced some confusion and disagreements on how to interpret the new rules – as seen in hearings for KP Kauffman, which started in August and ended last week.
KP Kauffman operates roughly 1,000 “low producing” wells which will need to be plugged and cleaned up in the coming years.
But the company, the commission and the cities of Frederick and Dacono – where most of those old wells are located – all disagreed about how much that cleanup will cost.
KP Kauffman estimated it would cost about $10 million total.
However, the commission was not convinced.
The commissioners have previously accused KP Kauffman of repeated violations, including failure to remediate contaminated sites, and ordered the company to pay $2 million in fines. The company hasn’t paid and is instead suing to block the state’s order.
Commissioner Brett Ackerman said in the financial assurance hearings that “history matters here. KPK's historic inability to assess, reclaim and remediate sites does not elicit strong confidence in their expertise in these matters.”
Ultimately, the commissioners decided to require the company to pay $133 million over the next ten years – more than three times as much as the company proposed.
KP Kauffman will have 90 days to post a bond for 10% of the total, $13.3 million. The company must add another 10% each year for the next 10 years.
Denver7 asked KP Kauffman about its next steps. The company provided written responses to our questions through a public relations representative. KP Kauffman said the commission has treated their company “more harshly than other operators” by charging “the largest bond for any oil and gas operator in the U.S.”
“Requiring KPK to post the highest bond in the land could drive the company into insolvency, putting its more than 1,000 wells into the state’s orphan well program and making clean-up the responsibility of Colorado taxpayers,” the company said.
“KPK is now exploring all administrative and judicial options for relief,” the operator said.
Leathwood, the climate advocate, said KP Kauffman “has historically fought back against being held accountable, and they are an egregious violator.”
"They should be able to afford the costs of doing business, which include cleaning up the wells,” she said. “I would like to see the commission holding even more operators responsible for paying those full average costs up front.”
