Abandoned gas wells need a legislative fix
It’s always the exception to the rule — the situation that isn’t covered by law, or the loophole that’s exploited (either willfully or inadvertently) — that leads to new regulations.
That’s the situation state oil and gas regulators are facing after an abandoned well near Nucla served as the latest reminder that a system designed to hold operators accountable for any problems they create is showing cracks.
The state will likely end up footing the bill to plug the well and to complete the necessary reclamation work, resulting in not one, but two black eyes: one for the agency that oversees oil and gas development and one for the industry itself.
“This clearly undermines the credibility of this commission and the reputation of the industry,” said Mike King, the head of the state Department of Natural Resources and a member of the Colorado Oil and Gas Conservation Commission.
The state has levied $60,000 in fines against Redwine Resources, which drilled the well in 2008. Redwine filed for bankruptcy and emerged from bankruptcy court still owning the well in 2011. But owner Gary Redwine has indicated that the company is dissolved and the well should be in the state’s orphan program. COGCC has foreclosed on a $30,000 bond on the well, but indicated it will likely need to tap the state’s environmental response fund for additional money.
King says the situation needs to be addressed by changing the law so regulators can prevent violators from operating in Colorado if they don’t comply with regulations or ignore paying penalties. In essence, King is advocating for some mechanism that would prevent operators from using bankruptcy as a shield to continue doing business in the state after they leave the state holding the bag.
Bankruptcy proceedings muddy the waters. As the Sentinel’s Dennis Webb explained in a story on Saturday’s front page, operators work through corporate entities to prevent personal liability and are free to create new entities. In Redwine’s case, bankruptcy led to the formation of a new company but left the problem well to the defunct Redwine, and thus to the state to deal with.
The oil and gas industry in Colorado is already one of the most heavily regulated in the nation. For the most part, the rules are intended to prevent problems, but once they occur, the state is lacking leverage on the back end of the system to keep bad actors out of the game.
The state doesn’t want to create an onerous system that stymies fossil fuel development, which is a significant source of revenue. We like the idea advocated by oil and gas Commissioner Rich Alward of Grand Junction. He wants trusts linked to wells. Payments would accumulate over the life of the well, so the state is protected without huge upfront costs that would be prohibitive for smaller operators.
King is bringing ideas to the governor’s staff as it develops its agenda for next year’s legislative session. We hope our Western Slope legislative delegation supports a legal remedy for a situation that has important implications in this part of the state.