A Denver oil and gas company hit with a $1.9 million penalty and facing the possible loss of its right to operate in Colorado is suing state regulators.
Family-owned K.P. Kauffman Co. Inc. filed a lawsuit Friday in Denver District Court to appeal a decision by the Colorado Oil and Gas Conservation Commission that found the company out of compliance with a plan to clean up spills and fix other alleged violations.
After inspections, the COGCC staff also found that K.P. Kauffman, or KPK, was selling its oil and gas despite having its right to do so revoked in a Feb. 1 decision. The decision suspended KPK’s certificates allowing it to sell the its oil and gas and gave the company until Aug. 1 to comply with state rules and orders or have its license to operate in Colorado yanked.
One week after the order was issued, inspections by COGCC staffers found recorded gas sales at about 20 of KPK’s sites and one location where oil was being transported for sale, said Caitlin Stafford, an assistant attorney general.
A $1.9 million fine that had been suspended was imposed again.
The company appealed the decision in state district court last week after the COGCC denied a motion to reconsider its order. In a statement, KPK called the commission’s decision deeply flawed and disputed that it was out of compliance with the cleanup plan approved in 2021.
The COGCC’s order deprives KPK of its operating revenue, while at the same time it demands the company “complete scores of ongoing remediation projects by mid-summer and pay nearly $2 million in penalties by mid-March,” the company said.
The company is asking the court to send the matter back to the COGCC and is seeking damages for what it calls breach of contract.
The COGCC declined to comment on the lawsuit, saying it doesn’t discuss pending litigation.
The cleanup plan addressed a number of alleged violations by KPK, including spills at well sites and leaking flowlines, small lines that carry oil and gas from wells to equipment. The COGCC declared KPK out of compliance in February after the commission staff said only three of 58 projects had been completed and that the company’s practices threatened public health and safety and the environment.
The case involves widespread, systemic violations that the operator “refuses to correct in a timely or successful manner,” the written order to KPK said.
In a Feb. 27 hearing, John Jacus, an attorney, representing KPK, asked the COGCC to reconsider the order and to delay the sanctions for six months.
The agreement between the COGCC and KPK said the certificates needed to sell oil and gas in the state could be revoked and the agreement ended if the company didn’t “substantially comply.” Jacus said the company was in substantial compliance and that preventing KPK from selling its oil and gas deprives it of the money it needs to do the work the state has ordered it to do.
The uncertainty created by the COGCC order is also hindering the potential sale of some of KPK’s wells, Jacus said. KPK has roughly 1,200 wells in the Denver-Julesburg basin of northeastern Colorado. The majority of the wells are low-producing.
“Perhaps most importantly, the order increases the risk of harm to public health, safety, welfare, the environment and wildlife resources by effectively requiring the immediate shut-in of all of its facilities,” Jacus said.
KPK doesn’t have the capacity or infrastructure to store its oil and gas production on site. Jacus said. Without the flow of revenue from oil and gas production, the company won’t be able to perform necessary maintenance and monitoring, he added.
“I don’t appreciate that KPK is here today threatening the state of Colorado by threatening noncompliance,” commission member John Messner said. “KPK has a path to compliance. KPK alone is responsible for that compliance, and they need to implement the steps necessary to come into compliance.”
Messner and the other four commission members voted against reconsidering the order and delaying the sanctions. Commission member Brett Ackerman called KPK’s continuing to sell its oil and gas a “blatant disregard” of the COGCC order.
‘’Out of the gate, knowingly continuing to violate the order is consistent with the historic approach of this operator,” Ackerman said, “and to me a compelling argument that the same approach will continue as long as KPK continues to operate.”
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