Ok.P. Kauffman faces huge bond invoice as Colorado regulators discover $133 million is required to correctly shut 1,089 wells

Ok.P. Kauffman, the embattled oil and fuel operator suffering from violations and threatened with a shutdown, should provide you with $133 million to guarantee 1,089 of its wells will likely be correctly plugged and deserted, the Colorado Vitality and Carbon Administration Fee dominated Thursday.

The ECMC, previously the Colorado Oil and Fuel Conservation Fee, rejected the corporate’s estimates for plugging and remediation as insufficient.

“I’m not certain the operator submitted an utility within the spirit that we adopted the monetary assurance guidelines,” Commissioner Karin McGowan mentioned.

The corporate, referred to as KPK, mentioned it’ll problem the ruling. “KPK is exploring all administrative and judicial choices for reduction,” the corporate mentioned in a press release, including that it was upset within the choice.

KPK has 90 days to publish 10% of the whole quantity, $13.3 million, including one other 10% every year for the subsequent 10 years. The $133 million monetary requirement is greater than 3 times as a lot as the corporate proposed.

“If the commissioners’ order have been to face, KPK can be the highest-bonded oil and fuel operator within the U.S.,” the operator mentioned.

KPK’s legal professional John Jacus mentioned the corporate is a “cash-flow enterprise” working on slender margins. It has already mentioned it can’t afford to pay a $2 million fantastic levied by the ECMC, which regulates oil and fuel operations.

“Now we have 90 days to satisfy it or we received’t,” Jacus mentioned, on the outset of a three-day listening to on KPK’s monetary assurance plan that ended Thursday.

Below the state guidelines, among the many methods an operator can meet its monetary assurance necessities are by a money bond, surety bond, a letter of credit score, an escrow account, or a third-party belief fund.

“We don’t have the liquidity to put in writing a examine for monetary assurance in no matter your quantity,” Jacus mentioned.

If the corporate fails to publish the required quantity it will likely be referred for an enforcement motion, ECMC spokeswoman Megan Fortress mentioned.

This isn’t KPK’s first go spherical with state regulators

KPK, which operates 1,200 principally low-producing oil and fuel wells, isn’t any stranger to ECMC enforcement actions.

In Could 2021, it was ordered to shutdown 87 wells and clear up 29 websites after a string of violations, together with fouling a farm subject and overlaying the street in entrance of Frederick Excessive Faculty with oily waste.

KPK then agreed in November 2021 to a settlement with the ECMC for a complete cleanup of spills and releases from wells, tanks and flowlines at 79 websites, and resolving 20 violations. The settlement additionally allowed the corporate to pay solely a fraction of a $2 million fantastic.

By February, the ECMC, pissed off by the shortage of progress on the websites, reimposed the $2 million fantastic and informed KPK to halt promoting oil and fuel. The corporate filed a lawsuit in Denver District Courtroom difficult the order and was granted a keep on penalties pending a trial.

The monetary assurance choice by the commissioners, the corporate mentioned, “is the most recent in a sequence of rulings wherein KPK has been handled in another way and extra harshly than different operators.”

In its monetary assurance utility KPK had proposed $43 million to satisfy its obligation. The majority of that got here from an estimate of about $32,000 to plug every properly.

The ECMC employees and municipalities of Frederick and Dacono, which had intervened within the case, agreed on that determine. The city of Frederick has 108 KPK wells and places, town of Dacono has 64 KPK wells.

The dispute was over how a lot it could price to remediate and reclaim all of KPK’s open remediation initiatives.

KPK estimated it wanted an additional $2.9 million to remediate 109 websites. The ECMC employees referred to as that sum “woefully insufficient” and by its estimate $24.3 million was wanted to cowl 149 websites, as KPK had undercounted the variety of websites.

As a part of its $43 million estimate, KPK was together with $7,800 for reclamation work round every properly web site, however skilled witnesses for Frederick put the price for the websites on the town at a median of $55,000.

The state’s monetary assurance guidelines permit an operator to keep away from the extra prescriptive monetary necessities if it might display that its precise prices for plugging and abandonment are decrease.

KPK opted for this method, however the ECMC discovered the corporate’s numbers have been extra estimates than precise prices for earlier plugging initiatives.

“These are numbers that don’t go the odor check,” Commissioner Michael Cross mentioned. KPK additionally relied on plugging prices by one other operator, Helena Sources, which Cross mentioned was “each lazy and inappropriate.”

Helena Sources additionally filed a letter protesting the usage of its knowledge. “Helena Sources didn’t authorize, and was not conscious of KPK’s obvious use of our … knowledge and data,” the letter mentioned.

Commissioner John Messner mentioned KPK’s assumption that it could not want topsoil in reclaiming lots of its websites “doesn’t go the pink face check nor trade commonplace working procedures concerning reclamation.”

The fee, nevertheless, mentioned it didn’t imagine that the ECMC employees or Frederick had met the burden of proof for his or her estimates both.

“Which is it, grossly overestimated or grossly underestimated?” Commissioner Brett Ackerman requested. “Holes may very well be poked into every little thing,” Cross mentioned.

That left the fee going to the default, which is a normal estimate developed by the ECMC based mostly on the prices it has incurred in its orphan properly plugging program — a median of $30,000 for plugging and $100,000 for reclamation.

The plugging prices range with the depth of the properly. The KPK monetary assurance plan covers 1,089 of the corporate’s 1,200 wells.

“The Vitality and Carbon Administration Fee made the correct choice,” Frederick Mayor Tracie Crites mentioned in a press release. “We hope the choice on this case will result in operators to decide to stronger monetary assurance planning and fewer orphaned wells all through the state of Colorado.”