According to a class action suit filed last year, a number of landowner plaintiffs have approximately 200 orphaned oil and gas wells on their property. Orphaned wells are unplugged wells that no longer produce but have no owner to plug them and remediate the site.
Orphaned wells can cause a number of problems, including impairing surface owners’ property uses, harming wildlife, creating safety hazards to the public and harming the environment through pollution, including methane leaks and oil seepage.
The Colorado Energy and Carbon Management Commission runs the Orphan Well Program. The OWP identifies abandoned wells, prioritizes them and pays to plug, remediate and reclaim abandoned wells where the operator cannot be located or refuses to comply with its asset retirement obligations.
The OWP is funded partly by oil and gas operators and partly through federal funding.
The defendant in the suit, Painted Pegasus Petroleum, LLC, or P3, last owned and operated the wells on plaintiffs’ land. P3 filed for bankruptcy on Nov. 23, 2021. Previously, the wells were owned by large oil companies until the HRM defendants acquired them between 2013 and 2015.
According to court documents, HRM transferred the wells to P3 in 2018. Plaintiffs allege that these transfers followed a common pattern in the industry: smaller operators like HRM acquire marginal wells from large oil companies, extract any remaining value and then pass the wells further down the chain to even smaller companies, like P3, that dissipate the future plugging costs by declaring bankruptcy or dissolving.
Plaintiffs allege that the transfers from HRM to P3 were fraudulent and that the defendants knowingly conspired to transfer the wells to a company they knew would go bankrupt to avoid paying for the costs of remediating the wells.
The transfer to P3 is the largest single-operator well orphaning in Colorado’s history, according to court documents. After P3 filed for bankruptcy, all the wells it operated were added to the OWP. But P3 only provided $305,000 in bond money to cover its asset retirement obligations — only 1.79% of the actual cost of plugging the wells, estimated to be around $17 million.
Plaintiffs brought seven claims for relief related to the transfer: trespass, violation of the Colorado Uniform Fraudulent Transfer Act, civil conspiracy to commit trespass, civil conspiracy to commit fraudulent transfer, unjust enrichment, aiding and abetting trespass and negligence.
Defendants filed motions to dismiss on April 24, 2024, and May 10, 2024, respectively.
Earlier this week on Jan. 14, U.S. District Judge Charlotte Sweeney denied both motions. In her analysis of the CUFTA claim, Sweeney referenced McEvoy v. Diversified Energy Co. “[Drilling] the well necessarily gives rise to an obligation on the part of the operator or its successor to plug the well, and until the operator or its successor actually plugs the well, the landowner has a contingent and unmatured claim for plugging that qualifies as a ‘claim,’” the opinion states.
According to Richards Carrington Partner Chris Carrington, the reference to McEvoy is a good sign and notable for several reasons.
“The court’s reliance on the McEvoy case out of West Virginia is a positive development for Colorado landowners seeking to hold oil and gas companies responsible for their clean-up obligations,” wrote Carrington to Law Week via email. “The plaintiffs appreciate the court’s well-considered opinion and look forward to advancing the litigation.”
The case was filed in District Court in Adams County, Colorado. The plaintiffs were represented by Richards Carrington, ClientEarth USA and Borison Firm.