A gas company seeking to bring hundreds of wells abandoned during the coal bed methane bust back to life is having trouble obtaining landowner approval to access the well sites in northern Wyoming.
Summit Gas Resources was given three months from August to get new surface agreements in place, part of a complex deal made between the firm, the wells’ bankrupt owner Storm Cat Energy and state regulators, who had lost patience with repeated delays.
The Wyoming Oil and Gas Conservation Commission approved a grace period at a meeting Tuesday, after the company’s lawyer said it hadn’t signed any agreements yet.
The newest deal is a complicated one, and the bonding for the state-managed wells is one piece in a broader story about coal bed methane in the state. These particular wells are a portion of the thousands idled in Wyoming after gas prices fell years ago leading to a staggering bust. Larger companies unloaded their coal bed methane wells to small, and sometimes financially weak, companies looking for a deal. Many of those small companies went under and state regulators were forced to account for some 5,000 wells and associated infrastructure left to rust away in the Powder River Basin. Federal land regulators faced similar numbers.
The state commission has plugged fewer than half of its orphaned wells, and part of the value in working with Summit was in keeping as many productive wells as possible off that list.
Storm Cat owed Wyoming more than $10 million in idle well bonding before the sale of its producible wells to Summit in August. Preceding its bankruptcy, the firm had burned federal regulators, local landowners and county governments with unpaid bills.
Wyoming will never see that deficit paid, but the sale to Summit offered Wyoming a chance to increase the amount of bonding on the wells, as well as the chance to see a stream of revenue from producing the estimated 42 billion cubic feet of gas left beneath the surface. The deal came with stipulations: In the short term, Summit had to get access to the wells within three months, pay its own $700,000 bonding debt to the state and offer $1.3 million in additional bonding for the producible wells.
A Summit subsidiary, Powder Battalion Holdings, has done two out of three.
The firm now has until May to gain surface access for at least 25 percent of the state-regulated wells, the commission agreed.
If Summit’s subsidiary, Powder Battalion Holdings, can’t meet the quota, the firm will have to put down $1 million in bonding at that time, bringing the company to about half of what it would owe the state for all the idle wells on private land, about $4.6 million, staff told the commission Tuesday.
Full bonding must be in place nine months later. Until then, the commission is technically the owner of the Storm Cat wells until those that can produce gas are released to Summit’s subsidiary.
The company’s plan is to bring idle wells back piecemeal, applying the idle well bonds to whatever wells are in the wings to go into production, then transferring that money to the next round as each group begins producing.
The deal with Summit involves 460 private land wells that can still produce gas. Another 948 from Storm Cat’s cache are orphaned for Wyoming to plug and reclaim using a fund fed by a tax on operators.
“The state of Wyoming, by approving this process, is in a better position,” the gas company’s lawyer, Tom Throne reminded commissioners who expressed some hesitation.
These wells came before the state commission more than a year ago, when Storm Cat was called to answer for the unpaid bonding as well as failure to report production and failure to do well integrity testing. Campbell County, home to most of the wells, reported unpaid taxes at the time, and landowners said they wanted the state to pull Storm Cat’s bonds, plug the wells and clean the pits on their property.
The company promised it would have bankruptcy wrapped up in a matter of months, and Storm Cat’s last standing executive told the commission that he was trying to get the wells sold not for personal gain, but because it was the right thing to do.
The case dragged on until early this year when the commission staff said it was time to pull the bonds.
Instead, the Commission approved the deal that’s playing out now.
On Tuesday, Commissioner Mark Doelger noted that Summit’s plan still faced a challenge: the current natural gas environment. Prices haven’t risen significantly since coal bed methane fell into decline.
“My concern is that the market isn’t ready,” he said. “I just raise that as a concern.“