Over the past decade, Colorado has witnessed both rapid population growth and a major expansion of oil and gas development.
One result is a collision of cultures, aspirations and regulations that increasingly put the energy industry and its supporters at odds with residents and communities around the state. As scientists continue to document the environmental impacts of hydrocarbon production, the pushback against the industry from residents only increases. Colorado has grappled with ways to balance the enormous economic value of oil and gas production, including tax revenues and jobs, with its unwanted impacts on residential communities and the environment. Critics ask how effectively the energy industry is being regulated and inspected, and whether the industry has corrupted the political process with fianncial contributions and expensive PR campaigns.
At the same time, scientists increasingly discredit the old notion of natural gas as a “bridge fuel” that could slow greenhouse gas emissions on our way to a carbon-free energy future. The process of drilling, processing and burning methane to produce electricity has its own suite of impacts, and simply moving from coal to gas is not going to keep the planet from warming.
FRACTURED is a new series by The Colorado Independent that looks at the science, politics and humanity of these trends and examines their impacts on the lives of Coloradans around the state.
Previous stories in this series include Who’s behind ‘decline to sign,’ an examination of the public relations efforts of the oil and gas industry to influence Colorado politics; The making of a fractivist, a look at of how suburban parents have been energized to fight drilling in their neighborhoods; and Post-mortem, a breakdown of the myriad factors that led to the failure of two anti-fracking initiatives to qualify for Colorado’s 2016 ballot. Coming next: Are new rules to address “neighborhood drilling” being followed?
In late spring, the chief regulator of Colorado’s oil and gas industry, the Colorado Oil and Gas Conservation Commission [COGCC], finally brought the hammer down on Texas Tea, LLC.
The small oil and gas operator, which incorporated in Colorado with more than 30 wells around Weld and Adams counties, had been on the state’s enforcement radar for years. The Commission had tagged Texas Tea with repeated violations dating back to 1999, including spills, mechanical failures, abandoned wells and, as time went on, accumulating unpaid fines.
In a terse letter to the owner, Robert Parker, dated June 15, 2016, COGCC Director Matthew Lepore summarily shut down Texas Tea and seized its assets around the state. “Effective immediately, the Commission has terminated Texas Tea’s Operator Number…and revoked Texas Tea’s right to conduct oil and gas operations in Colorado,” Lepore wrote, cautioning Parker with boilerplate language that the Commission “will not tolerate threats or violent behavior” in response to the ruling. The COGCC went on to claim all equipment, saleable product and miscellaneous assets from Texas Tea’s operations.
Eighteen years passed between the first violation notice and the shutdown order. In that time, Texas Tea racked up 54 more violations and accrued fines of more than $320,000, which will likely go unpaid. In the aftermath of the company’s closure, the city of Brighton and other communities have been left with abandoned wells that local officials fear may leak into the community’s groundwater.
Meanwhile, Texas Tea’s financial guarantee, even combined with the potential sale of its assets, almost certainly won’t be enough to cover the cleanup and plugging of its wells, leaving the Commission responsible for cleaning up whatever mess the company left behind.
The oil and gas industry contributes significant public revenues to the state of Colorado each year. But the story of Texas Tea reveals what those in the industry, environmentalists and the Commission itself have long known: Colorado’s regulatory power over oil and gas drilling is fractured, hamstrung by jurisdictional limits, inherently vulnerable to conflicts of interest and shot through with loopholes that allow well operators to skirt the true costs of cleanup. Regulation is also limited by an understaffed inspection regime that still relies on voluntary industry reporting and conflicting mandates. Toxic air emissions, perhaps the most consequential impact of oil and gas activity on human health, are neither inspected nor regulated by the COGCC, but instead fall within the bailiwick of yet another understaffed state agency.
The Commission’s compartmentalized archive containing decades of production, inspection and violation data makes it hard to say just how many other violators still operate in the state despite past-due fines and other repeat offenses. Texas Tea’s story, then, becomes a parable that exposes serious gaps in how Colorado regulates one of its biggest – and dirtiest – industries.
A fractured system
The boom in oil and gas production in Colorado over the last decade overwhelmed state inspectors and regulators. A rapid increase in drilling placed industry representatives at odds with citizen groups and communities concerned about both new and existing oil and gas development. In response to widespread fears that companies weren’t acting in the best interests of citizens, four Colorado cities (Ft. Collins, Lafayette, Longmont, and Broomfield) and two counties (Boulder and El Paso) from 2011 through 2013 passed local fracking bans and/or temporary time-outs.
The industry fought back with a massive public relations campaign. At a 2015 meeting of the Interstate Oil and Gas Conservation Commission, public relations expert Mark Truax outlined how the industry had amassed a multi-million dollar war chest, funded largely by Texas-based Anandarko Petroleum Corporation and Noble Energy, Inc. He boasted that the industry was using the money to influence elections at various levels of government and to fund a pro-industry advertising blitz.
As grassroots organizers clamored for more regulation, Gov. John Hickenlooper convened a task force to address the concerns of both the oil and industry and worried Coloradans. In 2014, Colorado passed methane regulations that were hailed as groundbreaking – they were even used as guidelines for the Environmental Protection Agency’s nationwide methane regulations. At the time, Hickenlooper announced that the guidelines would ensure Colorado has the “cleanest and safest oil and gas industry in the country.”
In the year that followed, the COGCC approved new rules to increase its authority over wayward oil and gas operators. Those rules permit the Commission to hire more inspectors, assess higher fines for violators and keep a closer eye on operators around the state. With its new, bulked-up powers, the COGCC carried extra regulatory responsibilities after the the Colorado Supreme Court in May or this year overturned the local fracking bans.
But even with beefed up regulations, critics of the oil and gas industry – and even some industry insiders – describe a disturbing reality: For a company to be handed meaningful sanctions, it has to be shown to be repeat and flagrant violator of state law. On the rare occasions that operators are held accountable, the Commission is frequently still left paying for cleanup. A recent investigation by the Denver Post documented how lax oversight and inadequate regulations on multiple fronts have led to dozens of deaths and injuries of oil field workers.
The COGCC is funded by the very same industry it watchdogs, through taxes paid by oil and gas companies. Industry lobbyists have helped write laws that exempt oil and gas companies from certain federal environmental protections, and a fractured system of monitoring compliance with existing state and federal environmental laws leads to uneven enforcement. Few opportunities exist for public participation in the process.
“The COGCC will never say no to operators,” said Doug Saxton, co-chair of the Battlement Concerned Citizens, in a statement released after the Commission approved a contentious plan to drill in that Garfield County community.
Nick Koster, a “completions engineer” who has worked in 10 states and Canada for a variety of companies running hydraulic fracturing and other operations, told The Independent that Colorado “is one of the more regulated states” in the U.S. and “has a reputation for being well enforced.”
But, he added, while he can’t speak specifically to the Texas Tea caseenergy companies in his experience generally receive that level of enforcement only after “a longstanding pattern of blatant disregard for the rules or intentional negligence.”
Who is Texas Tea?
Robert Parker, the man behind Texas Tea, LLC, is a little like “Seldom Seen Smith” in Edward Abbey’s “The Monkeywrench Gang.”
At least six oil-and-gas related companies associated with either Robert Parker or Michele Parker (their relationship, if any, is unknown, although both names appear on some public document filings) have been registered at the same address on West Colfax Avenue in Lakewood.
On a sunny September day, a visit to the address yielded a UPS Store in a strip mall. Inside, the clerk said that they provide the service of a street address and hold mail for clients, no questions asked. Mail from the U.S. Postal Service can be delivered there, and any entity that will not mail to a post office box can send mail to this physical address. When asked if a visitor could find out more about a client with a specific box number, the clerk replied, “If you have a badge you can.”
When told about Texas Tea’s ephemeral corporate addresses, COGCC permit and technical services manager Jane Stanczyk was nonplussed. “It doesn’t matter to us,” she said. “It might matter to the Secretary of State.” “I bet it doesn’t,” countered Lepore.
He’s right. The Colorado Secretary of State’s office said that its role in recording business addresses is purely ministerial, meaning it does not verify them for any purposes.
Kathleen Staks, the Assistant Director of Energy for the state’s Department of Natural Resources, said that the state’s hand-off approach extends beyond the lack of verification of company addresses. “The COGCC and the state have very little information about the financial health of these companies,” Staks said.
Parker could not be reached after repeated attempts to call and email every contact he provided in multiple COGCC filings, including the lawyerwho represented him at the last COGCC hearing (but no longer does).
The Independent pieced together the following paper trail. Texas Tea of Colorado, LLC incorporated with the Secretary of State in 1996 under Michelle Parker’s name, and filed a subsequent report with Robert named as manager in 1999. True Grit Oil & Gas Holdings, LLC incorporated in 1998 under Michelle’s name, then changed registered owners to Robert in 1999. Other companies involving one or the other Parker include RPM Indy, LLC; Kenai Oil and Gas, LLC; BH Energy, LLC and R&R Energy Holdings, LLC. In COGCC filings, Texas Tea of Colorado also did business as (DBA) Texas Tea, LLC.
In the 15 years after Texas Tea was slapped with its first formal violation from the COGCC in 1999 for failing to adequately take care of a nonproductive well, the operator was flagged with more than four dozen citations for problems including leaks, spills, and failures to conduct required mechanical integrity tests and pay increased bonds.
Soon after Lepore took over as the head of the COGCC in 2012, he met with Parker on multiple occasions to negotiate solutions to the outstanding violations and unpaid fines. “He was coming back and telling us, ‘I don’t have the money,’” Lepore said.
That forthright communication boded well for Robert Parker, at least for a while. As recently as a September 15, 2014 meeting, COGCC commissioners granted Texas Tea a suspension of $70,000 in fines owed to the Commission – a fraction of the fines already levied – pending full compliance. According to transcripts from the meeting, Commissioner Andrew Spielman noted that the case clearly described the operator’s poor compliance history, and said he didn’t want to be part of giving a waiver to bad operators. COGCC staff argued that the suspended $70,000 was for more recent violations, and that it should be vacated to provide Texas Tea with an incentive to fully remediate and comply with the order.
Although Speilman voted against leniency in this case, he told The Independent, “We do tend to prioritize on-the-ground cleanups rather than imposing fines on an operator likely to go out of business – because in the worst case Colorado would get neither.”
Indeed, the COGCC readily admits that this kind of leniency is part of its strategy. Lepore said his agency gives operators wide latitude and multiple opportunities to remedy violations discovered by COGCC inspectors – including forgiving fines for noncompliance – in order to encourage cleanup.
“Frankly, we’d rather them clean up the mess and come into compliance than give us any money,” Lepore said.
The approach has not always worked, Lepore acknowledged. Texas Tea’s violations eventually accrued total fines of $323,500, which in April 2016 the COGCC ordered Texas Tea to pay in full within 30 days. That did not happen. The failure to pay led to the Commission’s June shutdown order and hundreds of thousands of dollars in unpaid fines and remediation costs – the very scenario that Spielman feared.
Since gaining greater regulatory authority, the COGCC appears to be taking more and stronger action against violators than it has in the past. Still, forceful COGCC disciplinary actions to date show that they are still the exception, not the rule.
The Commission collected less than half of the $3.3 million in fines it assessed in 2015. As of August 2016, the COGCC had collected only 17 percent of this year’s $3.8 million in fines.
Lepore said the numbers aren’t as bleak as they look: The Commission levied a large portion of those fines to pressure operators into compliance, with little to no expectation of payment.
The oil and gas industry is renowned for its shifting and fragmented ecosystem of operators. Giants such as Anandarko and Noble have thousands of wells. Independent operators typically have a few dozen to a few hundred wells. And the smallest companies, known as “stripper well” operators, buy one or two declining wells and milk the last hydrocarbons from them. That means smaller companies are often held responsible for cleanup when wells go dry – and they often find themselves unable to pay.
Lepore said that as far as he knows, the COGCC has shut down only three other companies besides Texas Tea since its establishment in 1951. The first time, he said, was in 2012.
The company was called Ranchers Exploration Partners, LLC, whose principal operators, Lepore said, drilled wells around the state, repeatedly violated COGCC rules, shut down their operations and then set up new companies under different names.
“We didn’t really have the mechanism to pierce the corporate veil,” Lepore said. Energy companies routinely set up new companies and subsidiaries, then sell and resell holdings to each other like a game of corporate whack-a-mole. It wasn’t until the third time the same men came back trying to operate that the COGCC finally took action.
The COGCC ultimately refused to issue any more permits to the individuals involved in Ranchers Exploration, no matter what they called their company, and issued a cease and desist order on April 27, 2012, a few months before Lepore became director.
In March of this year, the COGCC shut down an operator called Benchmark Energy, LLC. According to Lepore, Benchmark’s owner, Jerry Nash, bought underperforming wells on the internet, sight unseen, in 2011. By early 2016 he had accumulated more than $1.2 million in fines, mostly related to spills and contaminated soil that came to the COGCC’s attention in 2014 and 2015. Lepore admits that it has historically taken the COGCC years to shut down insubordinate operators, but said Benchmark was a particularly flagrant case.
“Benchmark was a little faster because they were just completely incapable from the beginning of responding to the impacts [they created],” he said.
Nash gave The Independent a more nuanced version of events. He said he bought the wells in an online auction, which included copious amounts of information regarding the wells’ production records and details of technical specs – “more information than you could read in a week” – and that there was no indication of environmental problems or violations. “I bought that thinking it was in compliance,” Nash said. Now, he admits, “I probably didn’t do enough due diligence” prior to purchase.
Still, Nash said, “I busted my butt for four years” working to clean up the sites and bring them into compliance and production. He said he consulted with COGCC inspectors and engineers to take care of old problems he had inherited, such as 30-year-old tank batteries, as well as new ones such as leaks that Nash said were sometimes caused by vandals stealing equipment and shutting valves.
After “making headway on the cleanup, for sure,” Nash said that he started receiving fines and notices of violation for small things like weeds on his property and a required sign that a cow had knocked over. Suddenly, Nash said, “they wanted it all cleaned up in a week,” and as a small operator, he just couldn’t move fast enough. “They totally destroyed me,” Nash said. “Now who do you think has to clean it up? They do.”
The final example of COGCC invoking its strictest enforcement option was with a company called CM Production, LLC. Lepore said that CM took over the wells of an operator called Lone Pine Gas, Inc. after that company’s owner, Gilmer Mickey, died in a plane crash in 2011. Mickey’s widow, unable to deal with the old wells and the environmental cleanup they required, wanted to sell the company to a willing buyer. Along came John Teff, a young oil and gas man who was so confident in his ability to reinvigorate Lone Pine’s struggling wells that he even took on the hundreds of thousands of dollars of outstanding environmental remediation they needed.
According to Lepore, Teff came to the COGCC table and promised to take care of the cleanup out of revenues from CM’s production. “Guess what happened?” Lepore asked. “He didn’t get the field online.” The COGCC revoked his permit. “He thought, as long as he kept producing a tablespoon of oil every year, we’d just keep looking the other way. That’s not how it works anymore.”
CM Production’s owner Teff refutes Matthew Lepore’s characterization of the story. “If that’s what Matt told you, he’s just wrong,” Teff told The Independent. “He can’t seem to get his story straight.” Teff said that he evaluated the condition of the wells and felt it was economically feasible to perform the cleanup they needed – with the help of the COGCC. “That was my failed assumption,” said Teff. He blames some of the environmental problems he inherited on the COGCC itself, which suggested that Lone Pine excavate a lined pit. Mickey’s widow, he said, tried to comply with the recommendation, but the liner ended up breaking and threatening the water quality of nearby creeks.
“Small operators bear the burden of this, because they try to fix these problems, but it was polluted by the bigger operators,” Teff said. As a smaller operator, he feels he was unreasonably targeted by the COGCC, which he said turned out to be less helpful and more impatient than he expected. “Matt Lepore has taken it upon himself to go after small operators to try to break us to prove some kind of point,” he said. “They have ultimate authority to do what they want to break you.”
To this characterization, Lepore countered: “We have one set of rules that applies to everyone who wants to do business in the state. What motivation would I have to go after small operators, or anyone else?”
Teff said he has no way of paying the $700,000 in fines the Commission has assessed.
The cost of forgiveness
In two of these three examples, as with the case of Texas Tea, the COGCC was left holding the bag for the cleanup. Prior to drilling, all three companies put up bonds to cover the plugging of their wells. But in the cases of Ranchers and CM Production, like with Texas Tea, the bonds were insufficient to pay for the actual cleanup.
Bonding, in effect, works much like the security deposits landlords require of most tenants. The typical deposit isn’t necessarily enough to fix everything if a renter decides to trash the place, but it’s more than enough to cover a hole in the sheetrock wall or a lost key. After a renter moves out, they only receive their deposit back after the landlord ensures that the renter behaved within bounds and left the place as clean as they found it. If the tenant caused more damage than the security deposit covers, then it’s either off to court or the landlord eats the loss.
Using this analogy, state oil and gas bonding rates are similar to a landlord asking a $100 damage deposit from a pledge from John Belushi’s fraternity in Animal House to use as security to rent a dozen LoDo lofts.
If that seems a little harsh, consider Colorado’s bonding formula. State law requires operators that receive drilling permits to provide a financial guarantee to state officials to guard against their desertion of wells. Depending on well depth, bonding costs either $10,000 or $20,000 per well. But operators quickly benefit from buying in bulk: Operators can “blanket bond” multiple wells for much, much less. A blanket bond of $60,000 covers well operators for up to 99 wells, and $100,000 covers operators for more than 100 wells. Considering that wells typically cost $10,000 to $20,000 to plug, with site remediation on top of that, the potential shortfall becomes pretty obvious.
Texas Tea posted a blanket bond of $60,000 for its 29 wells. It later paid an additional bond, requested by the COGCC due to excess inactive wells, of $10,000. But the $71,850 total bond (it appreciated slightly over the years) still falls at least $50,000 short of the costs to plug and abandon the four wells the COGCC has identified, and more if remediation costs are added. The balance will come directly from the COGCC, Lepore said.
Beyond the money it will spend cleaning up after troublesome operators like Texas Tea, the COGCC also must keep in mind the more than 35,000 wells in the state that have been “abandoned” after either running dry or being plugged. The state considers plugged wells to pose no environmental or safety risks. But even plugged wells can, and do, leak, though it’s hard to tell how often because nobody is specifically looking for leaks. But when orphan well leaks do get reported, it’s up to the state to pay for cleanup.
Every year, the state must remediate what are known as “orphan wells,” or wells that need cleanup but no longer have a known operator of record. Sometimes operators were forcibly removed from the state or no longer have the means to plug and abandon them, but often these wells are simply so old that nobody knows who is in charge anymore.
The COGCC designates almost a half a million dollars every year to the plugging and remediation of these orphan wells. In 2015, the COGCC spent $495,000 plugging, reclaiming and otherwise cleaning up after 24 of these projects that required attention. Of that, less than $58,000 came from bond money provided by operators. The COGCC continues to identify new orphan wells as they come to their attention.
Falling through the fracks
In Lepore’s COGCC office on Lincoln Street south of the Statehouse, a map pinpointing the location of Colorado’s 53,724 active wells hangs on one wall. A photo of a Colorado mountain panorama graces another. This is the nerve center of the state’s main regulatory agency for the oil and gas industry, a body whose mission is “the prevention and mitigation of adverse environmental impacts” related to Colorado’s oil and gas natural resources.
COGCC inspectors focus on the mechanical integrity of pipes and facilities, upkeep of grounds around wellheads and other facilities, land reclamation and the documentation of which wells are producing, and how much.
Lepore said that, thanks to the increased authority and budget coming out of the 2014 task force changes, the Commission has more than doubled its enforcement staff.
“We went from basically a hearing officer and an enforcement supervisor,” he said, to having “three enforcement officers, two additional hearing officers on top of that, a managing officer on top of that, and we have more assistant attorney generals,” (a position that Lepore held before joining the COGCC).
He said that the COGCC inspected 30,000 wells last year, and generally can inspect wells at least once every 15 months. “I am very comfortable with the number of enforcement and inspection staff that we have,” he said. “I don’t feel like there are dark things going unseen.”
But sometimes it takes a concerned citizen to register a problem. Stacy Lambright, the mother of two children, ages 12 and 14, noticed unusual activity of workers at a well site located a few hundred feet from a neighborhood park near her home in Thornton. Wondering if the well had anything to do with her kids’ nosebleeds and her husband’s asthma, she went to investigate.
Lambright reported the activity to the COGCC in June 2016, and learned that in December 2015, the well site operator had reported a significant “historic flowline leak” from rusting pipes that had corroded completely from the well that had first been drilled in 2004. “Historic,” in this context, effectively means something that happened so long ago that it’s not clear who is responsible.
Nobody had bothered to alert the neighbors.
In an all-too familiar set of circumstances, the site had been taken over by at least two companies since the initial drilling: Synergy Resources Corporation had been the operator of record when the leak was first reported, but sold it to the K.P. Kauffmann company in April 2016. The spill had leaked benzene, toluene and other toxic chemicals in an area that was in the floodplain of the historic 2013 floods and adjacent to wetlands and more than 400 single family units and parks in Lambright’s neighborhood. COGCC reports show that the water table at the site was just seven feet below the surface, with 36 water wells within a half-mile.
Lambright said that the COGCC did respond quickly to her complaint, and set up a remediation plan with the new owner, the K.P. Kauffman Company, which is ongoing. Still, she wonders why it took a citizen complaint for people living nearby to learn about the “historic” leak, and how many other undetected, corroded pipelines and leaking sites there are throughout the state. She also has a host of unanswered questions about the thoroughness of the analysis of the damage done, and the effectiveness of the cleanup in progress. “I don’t have a lot of faith in the minor regulations put on oil and gas operators,” she said.
Lambright has a message for anybody who lives anywhere near a well or facility: “If you see something, or smell something, or hear something, or your gut tells you something’s wrong, file a complaint.”
That’s good advice, said Mike Freeman, a staff attorney with the Denver office of Earthjustice, a national environmental law advocacy organization. Freeman said flat out that the COGCC “doesn’t have enough enforcement resources to inspect the number of wells that are being drilled and are operating in Colorado.”
Companies are obligated to report spills and leaks to the COGCC within 24 hours of discovery, and many companies do. But critics say there is always a danger that the cost of fixing contamination may deter some companies from reporting. Freeman said the lack of threat of meaningful enforcement “reduces the deterrent value for companies to comply voluntarily” reporting problems.
On top of that, COGCC does not regulate air pollution caused by the industry. That falls to the Colorado Department of Public Health and Environment (CDPHE), which, Freeman said, has enforcement shortcomings on par with those of the COGCC.
What you can’t see can still hurt you
The fossil fuel extraction process produces emissions of volatile organic compounds (VOCs), including cancer-causing chemicals like benzene, as well as compounds that contribute to ground-level ozone, also known as smog. Increased ozone has been tied in several peer-reviewed scientific studies to increased incidents of asthma and respiratory illness. In a recent report by the national Clean Air Task Force, Colorado ranked third among states with the highest number of asthma attacks. Still, state Chief Medical Officer Larry Wolk, headof the CDPHE, is on record saying that he “[doesn’t] see anything to be concerned with at this time” with regards to fracking-related air pollution, beyond breathing in the air directly above an active well.
Toxic air emissions are regulated by the CDPHE, whose enforcement budget, like that of the COGCC, comes primarily from the industry itself. Oil and gas companies have to “pay to pollute,” with a fee of about $150 per ton of hazardous air pollutants they emit. Michael Silverstein, administrator of the state’s Air Quality Control Commission, explained that this amount is set by the state and that emitters pay what is required to conduct proper inspections.
But the CDPHE’s statewide oil and gas enforcement and inspection team consists of only about a dozen people. Emissions data is largely collected and monitored by operators’ self-reporting, and Silverstein said his agency tries to inspect every well about “once every five years.” Asked if he felt this was sufficient, Silverstein demurred. “We have a legislature that says this is an appropriate amount.”
The federal Environmental Protection Agency (EPA) had its own opinion about how well Colorado has been doing on air quality enforcement. After a joint investigation with the CDPHE, the EPA brought a significant enforcement action against Houston-based industry giant Noble Energy last year after Noble was found to be in widespread violation of federal emission control requirements.
A 2015 consent decree settlement between Noble Energy and the EPA and CDPHE states that Noble had underestimated how much its emissions would increase due to rapid growth in Colorado, especially of VOCs from Noble’s storage tanks. According to the U.S. Department of Justice announcement, “VOCs are a key component in the formation of smog or ground-level ozone, a pollutant that irritates the lungs, exacerbates diseases such as asthma and can increase susceptibility to respiratory illnesses.” Or, as Curt Huber, the Colorado director of the American Lung Association put it, “Ozone does to the inside of the lungs what sandpaper does to the skin.”
The investigation and enforcement actions from EPA and CDPHE resulted in a $4.95 million civil penalty as part of the April 2015 settlement with Noble. Of that, $3.475 million went to the federal government and $1.475 million to Colorado. In addition to the penalties, the settlement required Noble to install an estimated $70 million in equipment and air quality monitoring upgrades and to perform other mitigation measures.
Methane hot spot
One enormous problem with this bureaucratic patchwork of inspections and regulators is that several independent scientists have measured substantially more toxic emissions from oil and gas activities than even the EPA and the CDPHE have acknowledged. A new study published in Nature on Oct. 6 by Stefan Schwietzke of the Cooperative Institute for Research on the Environment (CIRES) at the University of Colorado and the National Oceanic and Atmospheric Administration (NOAA) found that fossil fuel development is responsible for between 20 and 25 percent of global methane emissions, which is between 20 to 60 percent higher than other studies had estimated.
In August, Christian Frankenberg of the California Institute of Technology and a team of scientists that included researchers from the University of Colorado and NASA’s Jet Propulsion Laboratory published the source of a mysterious “methane hot spot” in the Four Corners area where Colorado, Utah, New Mexico and Arizona meet. The hot spot stems from more than 250 leaks in oil and gas operations emitting vast quantities of methane, a greenhouse gas 28 times more effective than CO2 at trapping heat in the Earth’s atmosphere over a 100-year timespan.
Closer to home, Gabrielle Pétron, an atmospheric chemist who works at NOAA, published a paper in 2014 that found seven times more of the carcinogen benzene than the EPA had estimated being emitted from oil and gas operations during a two-day, airborne sampling on theFront Ranges. In addition, emissions of “ozone precursor” chemicals were double EPA estimates. “These discrepancies are substantial,” said Pétron after the study was released. “Emission estimates or ‘inventories’ are the primary tool that policy makers and regulators use to evaluate air quality and climate impacts of various sources, including oil and gas sources. If they’re off, it’s important to know.”
Perhaps most importantly, these and other scientists’ studies could only be undertaken because curious researchers secured enough federal funding to do the work. No state or federal regulatory agency measures or catalogues these and other emissions with any systematic regularity.
The good news is that in the cases of both the Four Corners “hot spot” and the Noble settlement, once the biggest leaks were identified by scientists or regulators, companies were willing and able to fix them.
Cleaning up in Brighton
Brighton is one place left cleaning up after Texas Tea.
The county seat for Adams County, about 25 miles north of Denver, had already been dealing with one of Texas Tea’s abandoned wells when the COGCC shut the company down in June. In December 2015, the city split the approximately $26,000 cost of plugging and abandoning one of Texas Tea’s wells with a private company interested in expanding gravel mining where a well was located. The company “couldn’t wait for the COGCC to act,” said Matthew Sura, an attorney who represented Brighton in these matters.
Texas Tea also operated 17 other wells in and around Brighton. After being apprised of the enforcement action against Texas Tea in June, city officials were concerned that the abandoned wells might leak and leach into the city’s groundwater, according to Sura. Brighton officials asked the COGCC to step in to address the four remaining Texas Tea wells within the city’s “Public Water System” area.
The COGCC agreed to take on the four-well project, with an estimated cost of $120,000 to plug them. Brighton officials “appreciate that the COGCC prioritized the plugging and abandonment of these Texas Tea wells,” Sura said.
Robbing Peter to pay Paul
The COGCC funds its cleanup programs through its “Oil and Gas Conservation and Environmental Response Fund.” For the fiscal year 2016-17, the fund has an operating budget of $15.5 million. About half of that comes from the severance taxes that Colorado oil and gas operator’s pay, and the other half comes from a combination of penalties, bonds and the statewide levy on oil and gas production, which is currently set at .07 percent. A very small amount comes from a federal grant, which for 2016-17 totaled $100,000.
Low prices have taken a toll on the current and projected future financial health of the COGCC. During the recent industry downturn, the price of oil plummeted from more than $100 a barrel in April 2015 to less than $30 a barrel in early 2016 (it’s now hovering around $50). Oil and gas operators in Colorado responded by sharply curbing their production. That had major implications for the COGCC’s budget.
The math isn’t complicated: Fewer barrels produced means less money from the levy on production. In response to this decline in funds, the COGCC was granted an additional $3 million from the state severance tax fund, which is less susceptible to volatility in prices.
Both severance taxes and levy money are part of the oil and gas industry’s contribution to state, county, and municipal coffers. The COGCC doesn’t glean money from the state general fund.
But that extra $3 million means less money for the “Tier 2” projects that also rely on levy funds, like clean energy development, soil conservation, wildlife conservation, invasive species control and low-income energy assistance.
The levy has been set at .07 percent of an oil and gas operator’s gross revenues since 2007, though the state is authorized to collect up to .17 percent. Asked why the COGCC didn’t just increase the levy, Lepore laughed. “I guess I can’t answer that question.” Pressed for a more specific answer, he said that the call wasn’t up to him. “The Joint Budget Committee made the decision to use the severance tax fund,” he said. “Raising the levy was always an option.”
The industry’s budget woes could get even worse following an April 2016 Colorado Supreme Court decision in favor of industry giant BP. The ruling allowed BP to deduct certain “transportation, manufacturing and processing costs” from its severance taxes. It includes an even more arcane provision to allow the deduction of the “cost of capital,” or money that BP could have made if it had invested it elsewhere.
The bottom line is that the decision will result in an even bigger shortfall in the budget that pays for the COGCC’s enforcement efforts (and many other non-COGCC line items). Smaller severance tax revenue also reduces the amount of money available to defray the associated costs of energy development, such as local road maintenance and cleanup costs from abandoned or failed wells, which often fall on local governments.
Many analysts have already noted that Colorado has among the lowest severance taxes in the country, partly because companies can deduct the cost of their property taxes from the severance tax calculations they typically pay to counties and municipalities where they operate. This new Supreme Court decision will reduce the state’s income even further, leaving even fewer resources for the state to monitor oil and gas operations and to clean up when companies go afoul.
As for Texas Tea? “They owe us a ton of money,” said Lepore. “And we’re going to spend even more money fixing their problems.”
But despite the Commission’s claims on Texas Tea’s assets, recouping any money from the operator seems unlikely. Lepore says that trying to seize and sell the assets is hard to do in practice – there’s no law granting the state of Colorado priority over other potential lienholders, for example – and the COGCC isn’t really in the business of selling scrap. Nor, Lepore says, is it equipped to operate wells on its own.
Instead, he says, the COGCC would rather just temporarily turn off Texas Tea’s remaining wells, get them back into compliance, and try to find yet another willing buyer. If history is to be believed, it will probably be another small operator – maybe even someone from the internet.
Photo by Ted Wood, The Story Group