An oil and gas developer shut down last February by a state commission has filed a lawsuit claiming the latter's demand for $113 million in financial assurances for well remediation is unfair and illegal.

K.P. Kaufmann Co., a family-owned business that employs more than 150 people, is suing over a ruling by Colorado's since-renamed Energy and Carbon Management Commission  regarding how much money oil and gas operators have to provide under new financial assurance rules.

The commission changed its name from the Colorado Oil & Gas Conservation Commission in July.

Oil and gas operators are required to post bonds in amounts that prove the company can pay to plug and remediate wells when the wells are played out or should the company go bankrupt.

The requirements to post reclamation bonds are not new, but, as part of the state’s drive to cut greenhouse gas emissions and to address the problem of “orphan” wells that are not properly plugged, the amounts the state now requires are much higher.

In 2019 Gov. Jared Polis signed Senate Bill 19-181 into law, which directed the commission to revise its rules regarding financial assurances and requiring operators to file a plan with the commission beginning Nov. 1, 2022.

In its complaint, K.P. Kaufmann Co., which has been developing oil and gas wells since 1984, said that in a series of hearings starting Nov. 1, 2022 and ending in a final decision in October 2023, the commission ordered the company to provide $133 million in financial assurances in order to continue to operate in Colorado.

K.P. Kaufmann is required to post 10% of that amount as a cash or surety bond amounting to more than $13 million within 90 days of the final decision, according to the complaint.

The company asserted in the court filing that it cannot come up with that much cash or a surety bond before the Feb. 24 deadline and said the new rules would require it to shut down its Colorado operations.

The company claims the commission knows the company cannot secure the assurance and that the order will drive it into bankruptcy.

The commission violated its own rules and state laws and stacked the deck against the company by violating state administrative procedures regulations, the complaint adds.

The lawsuit also claims the commission changed its interpretation of existing rules on the fly during hearings and denied the company time to respond to new information submitted by the Town of Frederick and the City of Dacono, which joined the action only in October 2023.

The complaint says that, at each hearing, the commission's staff told commissioners that the company agreed to increases in the bonding amounts requested by the staff and recommended accepting the agreements.

But, the complaint says, the commission ignored its own staff's recommendations and kept changing the requirements.

At the beginning of the process in November 2022, K.P. Kaufmann submitted a plan saying it would cost the company $10.3 million to plug and remediate all of its 1,100-odd wells in Colorado, according to the complaint.

Over the course of the hearings the amount demanded by the commission kept going up, despite its own staff recommendations.

From $10.3 million in 2022, the amount jumped to $42.9 million after the company reworked its plan in early October 2023, then jumped again to $67.2 million later in October.

The company had agreed to these amounts after working with staffers in each case.

Yet, according to the complaint, after a series of five hearings in October, the commission closed the record and “moved directly to each commissioner’s pre-written findings.”

This, said oil and gas attorney Jack Luellen of the Buchalter Law Firm, smacks of animus by the commission towards the company.

“This is one of those cases where the old axiom of bad facts sometimes makes bad law," he told The Denver Gazette. "One of the things that I think is at play here is the commission's thought, whether articulated or not, that Kaufmann is, for lack of a better term, a bad actor, and that in one way or another that has informed their position on some things in several ways.”

Luellen was alluding to a lawsuit filed by the company against the commission on March 2, 2023, protesting an order shutting down the company’s operations because of a dispute over contamination at a number of its wells, and, the commission said, the company’s “historic, persistent, and consistent lack of compliance.”

After 13 enforcement hearings in 2021, on Nov. 5, 2021, the commission issued a notice for a “pattern of violations” for seven wells and sites out of the company’s 1,223 wells, of which some 800 are active, in Weld County.

At the time, the commission reinstated $1,935,030 of a $2,014,530 fine it had suspended, citing the company’s failure to comply with an agreement to remediate pollution at some of its sites.

The company argued in that lawsuit that it was working as fast as it could to remediate the contamination and that the commission’s order was unfair.

The fines in that case are the second largest in Colorado history, second only to an $18.5 million penalty against Anadarko Petroleum after a 2017 explosion at a home in Firestone that killed two people.

An attempt to contact a company official for comment was unsuccessful. A commission spokesperson declined comment, citing ongoing litigation.