A defunct company that once hoped to drill more than 100 oil wells south of Palisade and east of Whitewater was fined nearly $853,000 by the Colorado Oil and Gas Conservation Commission Wednesday in connection with rule violations at local well sites.
The agency likely will never see that money, after Fram Operating went through Chapter 7 bankruptcy proceedings that involved liquidating its assets. The commission’s action Wednesday says that if the fine isn’t paid in 35 days and the company doesn’t come into compliance, the COGCC director shall foreclose Fram’s financial assurance in connection with the sites in violation, to help cover what well-plugging, site reclamation and other work might be required.
In 2018, the Bureau of Land Management approved a plan under which Fram hoped to drill 108 wells from 12 pads 15 miles southeast of Grand Junction. The BLM had estimated the project could result in production of 8.7 million barrels of oil over 20 years. However, the company filed for Chapter 7 bankruptcy the following year.
Fram had done some drilling over the years. It remains the operator of record for about 29 wells in Mesa County, enforcement officer Scott Schultz told the commission Wednesday.
The COGCC said Fram failed to conduct required mechanical integrity tests on wells. Those tests can identify leaking wells. Fram also failed to file required monthly operations reports.
The COGCC order authorizes the agency’s director to declare Fram’s wells to be orphaned wells, assuming the fine isn’t paid and compliance with rules doesn’t occur. It lists a total of $345,000 in well-plugging bonds and other financial assurance the agency can foreclose on. The director also is authorized if needed to claim any equipment and sellable product on the Fram sites.
When Fram filed for bankruptcy, the filing listed the COGCC as an unsecured creditor with a $3.85 million claim for well plugging and abandonment costs, and listed the Bureau of Land Management as having a claim for $1.54 million for such costs.
Schultz said the bankruptcy case closed with no distribution of assets to creditors.
“Unfortunately there’s no assets to distribute in this case,” he said.
The BLM also imposes financial assurance requirements on companies. The COGCC order authorizes using money from the state Oil and Gas Conservation and Environmental Response Fund to deal with potential environmental impacts at nonfederal wells and locations formerly operated by Fram.
The COGCC action this week comes as it is beginning proceedings today to consider and adopt new rules strengthening companies’ financial assurance requirements for wells and oil and gas sites. The recently passed federal infrastructure law includes $4.7 billion for orphaned well site plugging, remediation and restoration work. Some of that will fund work on federal land but much of it will be distributed to states for work on private and other nonfederal land.
