The company that hoped to drill more than 100 oil wells south of Palisade and east of Whitewater has filed for Chapter 7 bankruptcy, possibly putting an end to that project and also meaning state and federal agencies could end up being responsible for plugging other local wells it owns.

The filings by Fram Operating and its owner, Fram Americas, both of Colorado Springs, means that the companies go out of business and nonexempt property is liquidated and the proceeds distributed to creditors. Fram Americas is owned by Fram Exploration AS in Norway.

In March 2018, the Bureau of Land Management approved Fram's Whitewater Unit Master Development Plan, under which it 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.

The project was supported in some quarters due to the jobs, tax revenues and other economic benefits that could result, but opposed by activists groups and others due to concerns about potential air, water, traffic and other impacts.

Fram's bankruptcy could mean the end of the project unless it can be sold during the liquidation process. Kenneth Buechler, the attorney representing Fram in the bankruptcy proceedings, said bankruptcy law generally provides that contractual rights existing at the time of bankruptcy become property of the bankruptcy estate, and another asset the trustee in the case potentially could sell. But he said he didn't know if there would be restrictions on any possible sale of the Fram project or items that need to be cured, such as when it comes to the pertinent oil and gas leases.

"This (bankruptcy) isn't surprising to us at all," said Emily Hornback, staff director of the Western Colorado Alliance activist group.

She said opponents of the Whitewater project have been raising questions for years about the financial solvency of Fram. She said it's fortunate Fram's financial situation came to light before work proceeded on the project, so the public isn't left holding the bag on cleanup costs.

But both the Colorado Oil and Gas Conservation Commission and BLM could end up having to handle plugging of wells Fram already owns in Mesa and Delta counties unless those wells are sold to another company. Buechler said the bankruptcy filing resolves millions of dollars worth of potential long-term liability for Fram when it comes to well plugging and other environmental issues, and he noted that it posted required bonds to cover such circumstances.

"I assume that the government authorities will plug the wells since the companies are no longer in business," he said.

The question is whether bonding would suffice to cover plugging and other reclamation-related costs. COGCC records show Fram has posted a total of $310,000 in plugging bonds, an amount higher than the $60,000 blanket bond normally required of a company operating fewer than 100 wells, with the higher amount reflecting a high number of inactive Fram wells.

However, Fram Operating's bankruptcy filing lists the COGCC as an unsecured creditor with a $3.85 million claim for well plugging and abandonment costs, and lists the BLM as having a claim for $1.54 million for such costs. It says there's a similar claim of $550,000 against it by the North Dakota Industrial Commission.

Both the COGCC and BLM are aware of Fram's bankruptcy filing. "We are determining what our next steps are," said BLM spokesman David Boyd.

The BLM also requires bonds to cover cases when companies don't end up plugging wells and reclaiming well sites.

Altogether, Fram Operating lists nearly $6.2 million in liabilities and about $625,000 in assets. Fram Americas shows only about $374,000 in liabilities and assets totaling $42 million, for oil and gas properties, equipment, leases and other holdings.

But Buechler characterized those as alleged assets, adding, "who knows what these things are actually worth." And he said there is a large amount of potential unknown tax liability and unknown liabilities to other parties that will have to be sorted out by the trustee.

Fram Americas' bankruptcy filing lists the Mesa County Treasurer's Office as having a $13,655 claim against the company. Fram Operating's filing shows separate claims of about $36,000, $52,000 and $93,000 due to the federal Office of Natural Resources Revenue, with some of those claims involving debt that has gone into collection proceedings.

Buechler said Fram's demise was precipitated by the death of company official Tim Rickert not quite a year ago. "He was the guy that was running the show," Buechler said.

He said Rickert knew what Fram's assets were worth and how to manage them, and after his death others in the company realized they couldn't keep up with running things.

Mesa County Commissioner John Justman said he hadn't heard of Fram's bankruptcy but the news is disappointing.

"I was looking forward to them being successful at what they were doing, but I hadn't heard anything from them for probably a year, year and a half, I suppose," he said. "I guess personally I was hoping that they would be successful and add to our economy and add to our jobs and so forth."

NOTE: This story includes a revised reference to the size of the bond Fram has posted with the state to cover well plugging, after the COGCC clarified that amount Friday.

Recommended for you