State oil and gas regulators swatted down a bid by violation-plagued K.P. Kauffman to buy another six months of operations even as the company was violating an order to stop selling its oil and natural gas.
The Colorado Oil and Gas Conservation Commission earlier this month reimposed a $1.9 million fine on the company, known as KPK, suspended its ability to sell product and required it to clean up 78 production sites.
If the remediation isn’t done in six months, and the fine is not paid, the company, which owns about 1,200 low-producing oil and gas wells, could lose its right to do business in Colorado.
The commission took that action after KPK had failed to make substantial progress on a plan negotiated with the commission to clean up spills and releases from wells, pits and tanks.
But Denver-based KPK said in filings it needs more time to come up with a plan to shut in wells, has to continue to sell oil and gas to finance remediation and that its wells could end up wards of the state’s orphan well program.
“I don’t appreciate that KPK is here today threatening the state of Colorado by threatening noncompliance,” Commissioner John Messner said. “KPK has a path to compliance and KPK alone is responsible for that compliance.”
The plan had been in place for more than a year, a period marked by an adversarial relationship between the company and the COGCC staff and “foot-dragging.”
KPK filed a motion for reconsideration, which was before the commission Monday, calling the scope and severity of the sanctions “unprecedented in commission history.”
The company said it “lacks the ability to comply with the order because it now lacks the operating revenue necessary to shut in its many wells and flow lines.”
Without revenue KPK will be unable to conduct the work that is necessary, John Jacus, the company’s attorney, told the commissioners. “We will soon lose our business viability.”
The ruling, Jacus said, would cause irreparable harm to the company.
“I have to ask myself, is there irreparable harm due to the fact that KPK is unable to follow the rules? Other operators can follow our rules and don’t go out of business. There is no irreparable harm there,” Commissioner Karin McGowan said. “They have figured out a way to follow our rules.”
Jacus said that 10 KPK employees have resigned, a potential buyer for the company’s 68,000-acre Spindle Field in northeast Colorado has pulled out of the deal and that KPK now has “strained relationships with vendors.”
“Allowing us to sell our oil and gas to fund the necessary work, that is the relief we are requesting,” he said.
But it turns out that KPK, even after the commission’s February order, has continued to sell its oil and gas, according to Caitlin Stafford, the assistant attorney general representing commission staff.
The commission staff had found 27 instances of KPK selling natural gas or oil since the order went into effect, Stafford said.
Jacus said that the sales were done to keep pressure building up in lines or prevent tanks from overflowing.
“KPK continued, immediately after the commission order, to operate outside of compliance by surreptitiously selling products without communicating with staff,” Commissioner Brett Ackerman said. “Given this blatant disregard I just would simply not feel prudent if I were to assume that KPK is on the road to some sort of compliance.”
In June, the staff asked the commission to take action against KPK for failing to execute the negotiated cleanup plan. KPK asked for additional time and was given another six months.
In January the company asked for another six months and Monday it again sought six more months saying that a precipitous shutdown posed health and safety risks.
Stafford said that the COGCC staff has the resources to take over the KPK assets if necessary. “Additional time will only exacerbate the risks,” she said. “Staff has the expertise to manage acute and ongoing risks.”
KPK indicated and the commissioners said they expect that their action could end up the target of a lawsuit.
“Ultimately, I think this is something that will likely have to be decided in the courts, whether it’s now or in six months,” Commissioner Michael Cross said. “I’m tempted to say let’s have it before the court sooner rather than later because I am confident in our ruling, confident in our findings.”
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