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Colorado still figuring out how to hold oil and gas companies accountable for clean-up

A state hearing to collect financial assurance from "troublesome" operator led to confusion over new rules
The town of Frederick on Colorado's Front Range has hundreds of low-producing or inactive wells.
Posted at 8:54 PM, Aug 18, 2023

FREDERICK, Colo. — The town of Frederick is a fast-growing community on Colorado's Front Range. But that growth is running into obstacles: old oil and gas wells.

That’s why Frederick Mayor Tracie Crites is looking for ways to hold oil and gas companies accountable for cleaning up after themselves.

“Developers are coming in and saying, ‘We hear you, Frederick. We know you want amenities and opportunities here. We just can't afford to plug and abandon these low-producing wells,’” Crites said. “This isn't just a town of Frederick issue. It is a state issue.”

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This week, Frederick, and its neighbor, the city of Dacono, spoke up in a new process run by the state called financial assurance hearings. The Colorado Energy and Carbon Management Commission (ECMC) — the state’s top regulatory agency for the oil and gas industry — created the new rules last year.

“The whole intent of the financial assurance rulemaking was to make sure that industry is taking care of itself, and that the liability doesn't fall on taxpayers,” said Kait Schwartz, who represents the industry as president of the American Petroleum Institute’s Colorado chapter. “I'm really hopeful that it becomes kind of a blueprint for the rest of the country."

But the ECMC hearing this week showed Colorado has a lot to figure out first.

Commissioners were meant to decide how much to collect in bonds from the company K.P. Kauffman. The commission estimates average plugging and clean-up costs at more than $100,000 per well. But in this week’s hearings, K.P. Kauffman said it can do it for less than $40,000.

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Confusion and disagreements arose between the commissioners and their staff, the company and the local governments over how to interpret and apply the new rules.

K.P. Kauffman has at least 1,000 “low-producing” wells in Colorado. That means the wells produce less than two barrels of gas per day and will need to be plugged in the coming years. Frederick is home to more than 100 of those K.P. Kauffman wells. The town argued in the hearings that the company should be held accountable for the costs of capping and remediating those well sites.

"It's a small, small, minute amount to an oil and gas company, but it's everything to the town of Frederick,” Crites said. “We do not have hundreds of thousands of dollars to remediate spills, to plug in abandoned wells and to set our community up for safety and economic development in the future.”

The state commission has accused K.P. Kauffman of repeated violations, including spills, releases and failure to remediate contaminated sites. But the company has yet to pay almost $2 million in fines.

The state also ordered K.P. Kauffman to clean up more than 70 well locations by August 1 or stop operating. Instead, the company is suing to block the state’s order.

Last month, a judge agreed to stay the state’s order until the company’s lawsuit is heard. That’s left towns like Frederick waiting for clean-up.

"We've had about 17 spills over the years with K.P. Kauffman, in particular. Some of those sites have not been remediated, and they haven't been held accountable for those spills,” Crites said.

One of those sites is the Grant Tank Battery — just 800 feet from an elementary school. Earlier this year, Colorado fined K.P. Kauffman for alleged contamination of soil and groundwater there. The company has not yet paid the fine or finished remediating the area.

“Their pattern of avoiding paying these regulatory fines for these accidents for these spills, it's troublesome,” said Alexis Schwartz, an organizer with the Colorado Sierra Club.

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Low-producing and inactive wells like K.P. Kauffman’s are also big polluters, Schwartz said.

“While these oil and gas wells are allowed to continue operating, they emit a higher proportion of methane emissions,” she said. “It's estimated that these low-producing wells contribute about 50% of the U.S.’s methane emissions from oil and gas wells.”

But after this week’s hearing, it’s apparent Colorado's commission will need more time to figure out its new rules. The commission decided to pause this hearing and come back to it in two months.

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