Oil companies used 'fraud scheme' to avoid cleanup responsibility for abandoned wells, lawsuit alleges

In a first for Colorado, a lawsuit filed last week in Adams County argues oil companies defrauded families by escaping their liabilities and leaving landowners to deal with orphan wells.
Cindy McCormick Adams County lawsuit oil and gas
Posted at 4:17 PM, Mar 01, 2024
and last updated 2024-03-01 21:01:14-05

ADAMS COUNTY, Colo. — In a first for Colorado, a lawsuit filed last week in Adams County argues oil companies defrauded families by escaping their liabilities and leaving landowners to deal with orphan wells.

Cindy and Ronald McCormick built their forever home in the sprawling plains far east of Denver. They love the sweeping mountain views during the day and star-filled skies at night. But the land came with an eyesore: an old oil and gas well surrounded by large tanks, a rusting shed and a pit in the ground.

They’ve lived near oil and gas operations before and never had any problems.

“But in this new situation, it's completely different,” Cindy McCormick said.

The owner, Painted Pegasus, told the McCormicks that the well was no longer operating, and the company would soon get rid of the equipment.

“They were going to plug it and clean everything up,” she said. But years later, “it’s still here and they’ve disappeared.”

McCormick house in distance with abandoned oil and gas well equipment
This rusting shed is part of the oil and gas well operation abandoned on the McCormick property. Their home, seen in the background, overlooks the dilapidated structures.

The orphaned well on their land is one of roughly 1,800 in Colorado, including nearly 200 left behind by the now-defunct Painted Pegasus.

The company went bankrupt, leaving the cleanup costs to taxpayers as part of a “massive fraud,” according to a lawsuit filed last week on behalf of the McCormicks and other landowners stuck with orphaned wells.

“The scheme is an attempt to pass the buck,” said Christopher Carrington, one of the attorneys bringing the lawsuit against Painted Pegasus, HRM Resources and some of those companies’ executives: L. Roger Hutson, Terry Pape and John Hoffman. Denver7 contacted the companies and individuals but did not receive any response.

“The lawsuit raises serious questions about industry-wide practices in general that deserve an answer,” said Carrington, who works with the law firm Richards Carrington and is collaborating on the case with the Borison Firm and environmental legal nonprofit ClientEarth.

The town of Frederick on Colorado's Front Range has hundreds of low-producing or inactive wells.

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Carrington said their main question is: Have oil companies conspired to avoid millions of dollars in cleanup costs by fraudulently transferring ownership of obsolete wells?

“Oil and gas operators are well aware of their obligation at the end of the well's life to plug the well and remediate the land,” Carrington said. However, the lawsuit contends that instead, several companies knowingly held onto their profits and jettisoned their liabilities.

The well on the McCormick’s property is one of hundreds transferred by Chevron to HRM Resources near the end of its profitability. Then, HRM transferred the depleted wells to Painted Pegasus, which went on to file for bankruptcy and abandon the wells.

Lawsuit HRM Resources Painted Pegasus
This graph included in the lawsuit complaint shows the dropping profitability of the wells as they were transferred from Chevron to HRM Resources and finally Painted Pegasus.

“Who gets stuck with the bill are the taxpayers,” Carrington said.

The lawsuit appears to be the first in Colorado to attempt to hold oil and gas companies and their executives accountable for cleanup costs based on the state's Uniform Fraudulent Transfer Act. That law typically “protects creditors when debtors transfer away assets or liabilities in an effort to hinder, delay, or defraud the creditor’s ability to collect on a claim.”

In this case, Carrington hopes to apply the law in a new way: defining the oil and gas companies’ transfer of the wells as a scheme to defraud landowners by leaving them with abandoned wells and preventing them from collecting claims for trespass and nuisance on their property.

Adams County currently has the most orphan wells of anywhere in Colorado with more than 300, including the ones ditched by Painted Pegasus. It will cost taxpayers millions of dollars to clean up the orphan wells.

Abandoned oil well
This oil and gas well on the McCormick's property hasn't been operated in years. They expected the company to clean it up. But it's become one of hundreds of orphan wells abandoned in Adams County.

Carrington said the abandoned wells also create environmental and health hazards.

“These oil and gas wells, when they're not plugged, methane and other chemicals escape from them,” he said. “That obviously creates a dangerous situation. If you look at Firestone, these gases escaped into a basement, there's an explosion, and two people were killed.”

Carrington said the families involved in the lawsuit, which they hope will be expanded into a class action, “aren't anti-oil and gas. We're pro corporate accountability.”

“We're asking that these corporations, when they bring their oil and gas wells onto the property, once they're done with them, they remove them. It's just that simple,” he said.

“I think any Coloradan can appreciate when we go hiking or camping, we go exploring, everyone knows the ‘Leave No Trace’ principle," Carrington said. “That's essentially what we're asking them to do.”

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