- Associated Press - Saturday, July 19, 2014

GRAND JUNCTION, Colo. (AP) - A company’s failure to take responsibility for a single Montrose County well has state oil and gas regulators again considering what they can do about people they believe are showing little regard for the rules for operating in Colorado.

Mike King, executive director of the state Department of Natural Resources and a member of the Colorado Oil and Gas Conservation Commission, said the incident “begs for an evaluation of a change in statute.”

He would like to see the law provide authority to take individuals showing no commitment to doing what’s expected “out of the game going forward.” And he said he will have that discussion with others in the administration of Gov. John Hickenlooper as it develops its agenda for next year’s legislative session.

However, the owner of the company says he had no intention of walking away from responsibility for the well and leaving it for the state to handle, and that it was a result of a bankruptcy process outside his control.

“I’m not some shyster who was out there trying to take advantage of things,” Gary Redwine, who owned Dallas-based Redwine Resources, said in a recent telephone interview.

At issue is a well outside of Nucla that was drilled in 2008 by the company. At the COGCC’s meeting in June in Rifle, Assistant Attorney General Mari Deminksi said the company filed for bankruptcy, the well was never plugged and reclamation never occurred on the site. Redwine exited bankruptcy in 2011 still owning the well.

Last year the COGCC cited the company for six alleged violations related to problems such as failing to test the well’s mechanical integrity and having an unreclaimed pit with netting hanging into it even though the netting is intended to keep out wildlife.

The COGCC last month fined the company $60,000, or the maximum $10,000 allowable for each violation, but recognized that collecting the money is unlikely. It also authorized foreclosing on a $30,000 bond on the well as it proceeds with plugging it, and drawing on the state’s environmental response fund for additional funds for the work as needed.

Redwine wasn’t at the COGCC’s June meeting. When asked by oil and gas Commissioner John Benton what the likelihood was of the company paying the fine, Deminski said she spoke to Redwine and he said the company is dissolved, and the well “should be in the orphan program” run by the COGCC for dealing with abandoned wells.

King called such a statement unacceptable.

“This clearly undermines the credibility of this commission and the reputation of the industry,” he said.

Said fellow oil and gas Commissioner DeAnn Craig, “That really bothers me, because they knew that there was a problem and they’re totally trying to avoid any responsibility for this.”

The COGCC has grappled previously with the issue of people it considers to be bad actors. While it can take actions such as not issuing new drilling permits to a company with a pattern of violations, Assistant Attorney General Jake Matter noted that people work through corporate entities to prevent personal liability and “absent extraordinary circumstances” are free to create new entities.

However, he said as a practical matter the COGCC at least can be vigilant when it comes to principals who shift from a problem company to a new one.

COGCC director Matt Lepore said one approach the agency has taken is to tell principals behind companies owing penalties that they can’t manage or own oil and gas companies in the state until the penalties are paid.

The COGCC agreed last month to pursue that action against Redwine Resources principals once it provides them with proper notice.

One concern for the COGCC is that the bankruptcy resulted in formation of a new company, but left the problem well to the defunct Redwine, and thus to the state to deal with.

Redwine said that was the action of the bank and bankruptcy court, which resulted in the new company being able to pick and choose what properties it wanted.

“It’s the rules of the bankruptcy court and they took everything (Redwine Resources) had,” he said. “I had no control over anything.”

He said he’s bitter that the bank didn’t let him try to work things out. He said he lost $40 million in the collapse of his company, which fell victim to the sharp decline in natural gas prices with the onset of the Great Recession.

He said if Colorado wants to bar him from operating in the state, “It’s up to the state rules. I’m not up there trying to do anything right now. If I’m forever banned from that, that’s fine with me. I can’t do anything about rules if they make rules like that.”

For oil and gas Commissioner Rich Alward of Grand Junction, the incident also points to continuing concerns about bonds not covering actual costs of plugging wells.

“It’s really something we need to evaluate, how to have that assurance cover the cost without having it be too onerous for the smaller companies,” he said.

He said there’s a proposal in Pennsylvania to create trusts linked to wells, so payments accumulate over the life of a well and the state is protected without an onerous upfront financial commitment for companies.

The financial assurance would remain with the well, not the operator, which would be especially helpful in cases where wells are sold to smaller companies with fewer financial resources.

“That could be something that we could look at,” Alward told his fellow commissioners.

___

Information from: The Daily Sentinel, https://www.gjsentinel.com

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