On Wednesday, Colorado’s oil and gas regulator ordered an unprecedented crackdown on K.P. Kauffman, a company with a long history of spills, leaks and other violations.
The Colorado Oil and Gas Conservation Commission (COGCC) voted unanimously to suspend the company’s ability to sell or transport its product, or operate its wells for six months — halting oil and gas drilling. K.P. Kauffman’s more than 1,200 wells, concentrated in the Denver-Julesberg Basin on the state’s Eastern Plains, will be closed down. Instead, it will have to bring them into compliance with COGCC rules. At the end of six months, if the company is not complying, commissioners will revoke its license to operate in the state of Colorado — meaning it could no longer do any business in the state.
Hanging over the hearings leading up to the decision was the possibility that the company could respond by filing for bankruptcy and saddling the state with the cleanup. This is the bind that regulators face: Come down too hard, and create thousands of orphan wells that must be paid for by the state, or allow what they see as violations to continue.
The decision to halt drilling is a significant ruling in Colorado, the country’s fifth-largest crude oil producer and seventh-largest producer of natural gas, according to the U.S. Energy Information Administration. The K.P. Kauffman ruling comes as the state is overhauling its relationship to oil and gas. Recent years have seen a wave of regulatory changes, from bans on venting and flaring natural gas to requirements that oil and gas operations be located at least 2,000 feet from homes and schools.
The commissioners imposed nearly $2 million in previously deferred fines, which it must pay in 30 days, and nullified a plan to bring the company into compliance with state law. The commission had been closely watching the company’s progress, or lack of it, with the plan, which the agency and K.P. Kauffman had agreed upon back in 2021. Until now, commissioners had opted to work with the company and fend off more serious penalties, but on Wednesday, the five-member body refused to hold off on again.
Commissioner Brett Ackerman described the company as performing “just enough compliance to make a rote argument that it should be allowed to continue to operate.”
In an emailed statement, K.P. Kauffman said that it disagreed with the commission’s ruling, which it described as “loaded with unintended consequences,” and added that it had presented “ample” evidence that it was making progress on fulfilling the plan’s requirements.
“The decision to suspend certificates of clearance means KPK no longer can sell the oil and gas we produce, which means it will be impossible for us to fund our continuing operations and extensive site remediation activities,” the statement said. “If K.P. Kauffman no longer can fund the remediation work, the responsibility for cleaning up sites … passes to the state; the technical work becomes a task for the COGCC and its over-burdened staff, and the financial responsibility shifts from (K.P. Kauffman) to Colorado taxpayers.”
The company’s attorney, John Jacus of Denver-based Davis, Graham & Stubbs, said in his closing statement that K.P. Kauffman has invested all its available funds into the compliance plan and that fines and penalties could result in insolvency and possible bankruptcy. That would leave the state responsible for the company’s more than 1,200 wells.
Those wells would cost approximately $110 million to plug and fully clean up, according to High Country News’ calculations using agency estimates of plugging costs. Approximately 85% of K.P. Kauffman’s wells qualify as “low-producing” wells, which are at higher risk of losing their economic viability and ending up “orphaned” or abandoned by their operators. Cleaning up orphan wells is expensive, and studies suggest that the oil and gas industry has set aside just a tiny fraction of the overall cost of tending to all the country’s unplugged wells. There could be as many as 3.4 million abandoned wells nationally, according to a 2021 Environmental Protection Agency report.
The crackdown on K.P. Kauffman was a long time coming. The state has been locked in a yearslong enforcement struggle with the company. In 2019, state regulators noted a pattern of leaks, spills and other violations at its wells, including a leaking flowline near a high school and spills on farmland. In 2021, the company and the agency agreed to the compliance plan, which was supposed to address these violations. Since then, however, COGCC staff say K.P. Kauffman has consistently failed to meet the requirements of that plan.
In June 2022, the commission decided to not discipline the company. Instead, it gave the operator six months to comply with the plan. At that time, Assistant Attorney General Caitlin Stafford said that K.P. Kauffman had completed work at just two out of 58 remediation projects.
“Today, that number stands at three,” Stafford said at a hearing in late January. “This is not improvement, this is not progress.”
During the hearing, a contractor employed by K.P. Kauffman said that work could be completed at 23 sites by the end of 2023. In its statement, K.P. Kauffman said that work “may be halted as a result of COGCC’s decision.”
At Wednesday’s hearing, the commissioners said that the company has been given more leniency than other operators and still takes longer to clean up spills and other violations.
“This operator is a threat to public health, safety, welfare, wildlife and the environment,” said Commissioner John Messner.
“This operator is a threat to public health, safety, welfare, wildlife and the environment.”
Agency staff has repeatedly urged the commission to penalize the company. At a hearing on Oct. 19, 2022, COGCC Environmental Manager Greg Deranleau said that the team responsible for operators in the Denver-Julesberg Basin was “frustrated” by the lack of progress: K.P. Kauffman, he said, consumes about 80% of its time.
Jacus, K.P. Kauffman’s attorney, objected to the staff’s criticisms and noted that the company has spent about $7.2 million on compliance projects since November 2021. He also asked that the commission consider the “real-world consequences” of imposing harsh penalties on the company. The company is considering an appeal of the ruling to the Denver District Court.
Nick Bowlin is a correspondent at High Country News. Email him at nickbowlin@hcn.org or submit a letter to the editor. See our letters to the editor policy.
Republish our articles for free, online or in print, under a Creative Commons license.
