It’s been over a year since Colorado passed rules intended to hold oil & gas operators accountable for plugging their wells once they’re finished with them.
The rules, called financial assurance rules, were designed so operators would be required to pay a bond upfront that partly covered the cost eventually plugging the well. This would help prevent more orphaned wells from becoming the responsibility of the state. Orphaned wells left unplugged by operators who go bankrupt pollute the surrounding environment, contribute to global warming, cause health issues in humans, and force the state to pay for the clean-up. A study by progressive think-tank Bell Policy Center released last year found that, left unchecked, the orphaned well crisis could overwhelm Colorado’s budget.
The Colorado Oil and Gas Conservation Commission (COGCC), the state’s oil and gas regulatory agency, labeled the rules “the strongest in the nation,” after their passage. But environmental activists warned that the rules were inadequate, too soft on the bad actors of the oil and gas industry.
Colorado oil and gas operators had until Feb. 1 to file their financial assurance plans, a deadline which had already been pushed back several times. At the deadline, just over half, 125 or 225, active operators had submitted their plans. Ultimately, all of the active operators submitted plans but there have been no fines announced for the late submissions.
As of Tuesday, the COGCC staff had approved 72 financial assurance plans (32% of the total), denied 37 (16%), and not reached a decision on 116 (52%), according to COGCC public data.
In March, the environmental advocacy group Rocky Mountain Wild released “Irresponsible Operators,” an interactive map that visually plots out Colorado’s oil and gas landscape by breaking down the details and legitimacy of every proposed financial assurance plan.
Alison Gallensky, a conservation geographer for Rocky Mountain Wild, created the map using her experience looking at maps of oil and gas activity compared to key biological areas of Colorado in an effort to prevent ecosystem destruction. This map can view wells by the riskiest operators and sort by city, county, state House, or state Senate districts.
“The state estimates the cost of cleanup at about $120,000 per well on average,” Gallensky wrote in her introduction to the project. “However, many operators have proposed putting aside only a few thousand dollars, far short of what is required. If operators don’t clean up after themselves, the state of Colorado and taxpayers are on the hook to do so. Currently, about a third of operators have proposed cleanup costs less than state estimates, which presents a major decision for the COGCC.”
Risky operators are defined as operators that have a track record of polluting or own a lot of risky assets. Risky assets are low-producing wells, wells at the end of their useful lifespan. Oil and gas producers with primarily low-producing wells are more likely to go bankrupt and low-producing wells are constantly leaking methane and other volatile compounds, which is why experts also call them “uneconomic” wells.
Gallensky is impressed by the number of financial assurance plans denied by the COGCC.
“I haven’t really thought of it that way but I think that that’s wonderful if this did have that influence, that simply having this tool out here brought attention to this issue and supported the Commission in making good decisions,” Gallensky said in an interview with the Colorado Times Recorder. “I know in the past I may have been suspicious that the Commission was always taking the side of industry so it’s really heartening that they are trying to hold these operators accountable.”
The map highlights 40 operators that own a large number of low-producing wells and that have submitted financial assurance plans that provide less than 50% of the clean-up cost per well required by state law. As of this morning, four of these plans have been approved by the COGCC (10% of the total), 16 denied (40%), and 20 pending (50%).
One of the operators that had its plan denied by the COGCC is KP Kauffman, a troubled operator and prolific polluter based in Denver. KP Kauffman has had 279 environmental spills at oil and gas well sites since 2020, according to public data. All the following data is sourced from the COGCC database.
KP Kauffman proposed a per-well bond coverage of $9,517, just under 8% of the state estimate of well-site clean-ups costing around $120,000. That estimate is just an estimate, clean-up and plugging costs can range from $90,000 to $150,000 depending on the circumstances, but it is almost impossible for it to be as low as KP Kauffman is suggesting.
The COGCC is requiring KP Kauffman to have full single-well bonding because 1,022 of its 1,206 wells (85%) are low-producing.
The justification KP Kauffman gives for such a low estimate is that it is basing its clean-up costs off of “demonstrated” costs, which the COGCC does not define but is evidently an option for oil and gas operators to come up with their own figure for how much each well will cost to plug. In this case, possibly because of KP Kauffman’s past offenses, the COGCC denied their proposal.
Drew Gibson, a researcher at the Carbon Tracker Initiative, praised the COGCC decision.
“If this philosophy is applied to all operators, this means that operators cannot simply use the costs they themselves would spend on decommissioning but instead must provide financial assurance to cover the costs the state would incur to decommission the operator’s wells should they become stranded,” Gibson said. “This is the appropriate yardstick since financial assurance is intended to protect the state and its taxpayers.”
A notable operator whose financial assurance plan is still pending is OWN Resources, based in Wray, CO near the Colorado-Kansas border. OWN is a large operator with 3,311 wells but 1,893 of them (57%) are low-producing.
This plan is seen by environmentalists as particularly egregious because OWN proposed it pay $8.3 million over 20 years, 2% of what they should be paying based on how many low-producing wells they control. Like KP Kauffman, OWN used deflated demonstrated costs in its proposal to justify a lower price. OWN also tried to redefine what a low-producing well is, loosening the state’s definition so that fewer of its wells would classify as one. Low-producing wells are required by financial assurance rules to be full-cost bonded in most circumstances, according to the COGCC.
Another important note for OWN is that currently, the COGCC does not factor in inflation to its bond payments, so the contract it accepts now could be worth considerably less in 20 or 30 years, which some of the financial assurance payment plans do go until.
Maralex is one of four companies on Rocky Mountain Wild’s list to have their plan approved by the COGCC. Maralex is based in Ignacio, CO, and operates 46 wells in Colorado and even plugs a few every year. None of its wells are low-producing.
While Maralex did have a plan approved by the COGCC last month, it was not the plan the operator preferred. The commissioners denied the plan proposed by Maralex but approved a backup plan that would require triple the financial assurance bond amount compared to the original plan. Maralex is allowed to blanket bond its wells because it has no low-producing wells.
The company is free of low-producing wells because of a deal made on Jan. 1, 2020, where Maralex sold 131 mostly low-producing wells to a company called Vision Energy, also based in Ignacio, CO. This deal was first reported by Nick Bowlin of Capital & Main.
Vision Energy lists Maralex as one of its parent companies on its website and they share a mailing address and a CEO. While nothing is confirmed, this looks a lot like the national trend, also present in Colorado (KP Kauffman, for example), of shell companies designed to buy dying wells and then go bankrupt, freeing companies from needing to pay to clean and plug them.
While there are still questions surrounding whether the COGCC is able to implement these rules, especially checking to see if well plugging is happening when promised, Gallensky is simply glad there is going to be some accountability for these operators.
“We created this website to demonstrate that while Colorado’s current financial assurance law may indeed be the toughest in the country, we’re a long way from it actually being followed by these irresponsible operators,” said Gallensky. “It is time for the COGCC to enforce the law and require these companies to pay for their messes, instead of allowing them to walk away from their responsibility. I think it has been demonstrated that the responsible operators are taking this responsibility seriously. I think there are instances where they’ve shown a clean-up can be done right, we just want to make sure every operator in the industry is held up to that same standard.”
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