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Luca Technologies Inc., a company that planned to harvest natural gas by feeding microbes within Wyoming coal seams, has filed for bankruptcy protection in federal court in Colorado.

The company struggled to get federal permits and had trouble with its finances, particularly after natural gas prices hit 10-year lows in 2012, according to company employees, company documents and previous news stories.

“Any time you have something that’s brand new, that’s never been done before, it takes a lot of time and resources and money to get it through and build a regulatory framework that allows that technology to be implemented,” said Matt Micheli, a Luca attorney.

The Golden, Colo.-based company is liquidating its methane farming technology and assets through a Chapter 11 bankruptcy proceeding, Micheli said.

The bankruptcy was filed July 15, according to court documents. Several Wyoming businesses and state agencies are listed in creditors in Luca's court filings.

The company’s investors asked Luca executives to lay off all but three employees, said Micheli, who is one of the three.

In Wyoming, the company and its technology made news in Campbell County, where its pilot project was located, and in Cheyenne, where it successfully lobbied the Wyoming Legislature to pass a bill to establish state regulation of the promising new industry.

“I’ll say one thing: They had a heck of a good idea,” said John M. Kennedy, CEO of Kennedy Oil in Gillette, which is listed as a creditor. “And there’s a lot of people who believe that this is a possibility and it’s kind of the wave of the future.”

According to filings with the Securities and Exchange Commission, Luca’s investors were Kleiner Perkins Caufield & Byers, One Equity Partners, Oxford Bioscience Partners and BASF Venture Capital.

The three employees remaining “are three that our board of investors thought were the ones that could shepherd it through the bankruptcy and liquidation process,” Micheli said.

The highest number of employees at Luca was about 110, but the number was lower by the time of the layoff because there had been previous employee reductions, Micheli said.

In court documents, Luca states its primary assets are intellectual property, including patents and proprietary information, interest in 1,350 natural gas wells and a gathering system in the Powder River Basin. Luca expects the bankruptcy process to conclude in about 90 days.

Regulation wins, losses

The company had tested its technology on more than 400 wells in the Powder River Basin beginning in 2006, and said in SEC filings that it successfully produced methane. As the company moved toward commercialization of its method, it successfully lobbied the Legislature, which in February 2011 approved legislation to establish regulations of its nascent industry.

Months later, the Wyoming Oil and Gas Conservation Commission determined the methane farming process -- which is sometimes called microbial enhancement or biogenic gas generation -- could operate under existing rules and laws. Methane is the principle component of natural gas, according to the SEC filing.

In addition to Luca, Centennial, Colo.-based Ciris Energy is producing methane in Powder River Basin coal through methane farming.

With state regulations clarified, Luca worked with the Bureau of Land Management for approval and permits to extract federal minerals, the SEC filing states.

But by the end of May 2012, Luca CEO Robert Cavnar told the Billings Gazette and other media it planned to sue the federal government. Cavnar had said the company and the BLM agreed to a permitting process and Luca had applied for the application and paid $40,000. But the BLM wanted more money. Cavnar didn’t think the permit would ever get approved. A BLM spokeswoman at the time said the agency suspended the application process because of Luca’s failure to pay the fees.

The Star-Tribune checked federal court records and Luca never did file a suit.

On Wednesday, BLM spokeswoman Beverly Gorny said her agency and Luca were back working together as recently as the spring on a unitization agreement. Unitization lets companies explore, develop and operate an area so that drilling and production may proceed in the most efficient and economical manner, according to the BLM’s website.

“We can’t speak to their financial background,” Gorny said. “We had been working with them at the field office, the district office, the state office and Washington [D.C.] level."

The BLM had separate regulatory paths for mining coal and extracting natural gas, Luca’s technology presented a challenge, Gorny said. She said the federal minerals belong to the public and it’s the BLM’s job to protect them.

“We were trying to find a mechanization that seemed to be a hybrid,” she said.

Luca faced another setback from the price for natural gas, which had hit 10-year lows, The Associated Press reported in May 2012.

Creditors add up

Luca attorneys submitted to the court 32 pages of names of possible creditors, including several state agencies.

Kennedy Oil’s claim against Luca totals $80,000, court documents state.

About five years ago, Luca purchased hundreds of wells west of Gillette from Kennedy Oil, John Kennedy said. They came with about five water reservoirs, which Kennedy described as ponds or small lakes. Some of the reservoirs have had methane in the water, he said.

As part of the sale, Luca was supposed to get a bonding company to guarantee reclamation of the reservoirs, Kennedy said. But bonding was delayed because local ranchers said they were interested in the reservoirs for current or future use, and Luca was working with them. Meantime, the BLM made some reclamation requirements that ranchers balked at, Kennedy said.

“I should have been much, much tougher with them a few years ago with the situation,” Kennedy said. “They kept claiming they were making progress, they were going to have the proper paperwork with the BLM.”

If Kennedy is stuck with reclamation, he believes it may cost $160,000. The $80,000 figure described in court documents was based on an estimate made years ago, he said.

“If I reclaim my reservoirs, there’s my claim against Luca,” he said.

Staff at We’ll Clean it Up cleaned Luca’s Gillette office once a week, on Sundays, said Helen Fuller of We’ll Clean it Up.

“They called us and told us to quit,” she said. “But they owed us for a couple of months.”

She said Luca owes $1,400.

The Wyoming Department of Environmental Quality is listed as a creditor. Luca got numerous bonds on coal-bed methane wells, injection wells and discharge pits to cover reclamation costs in case of bankruptcy, said DEQ spokesman Keith Guille. Guille was unsure of the number of bonds. At this point, no bonds have been forfeited to DEQ, he said.

Officials at the Wyoming departments of Transportation and Revenue, the Wyoming Secretary of State's Office and the Wyoming Oil and Gas Conservation Commission said their records indicated Luca didn’t owe any money, even though they’re listed as creditors.

Ryan Lance, director of the Office of State Lands and Investments, said Luca owes $96,905.04 in total surface impact payments. Of that, it owes $77,524.03 to the state and $19,381.01 to ranchers for the loss of grazing lands.

The company is short about $30,000 in bonding for wells on state land, Lance said.

“I guess my view is I think Luca made great effort to generate potentially substantial revenue for the state for royalties and taxes,” he said. “It is just unfortunate they are in the current predicament they are in. We are going to do our best to make sure the state‘s made whole.”

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Reach state reporter Laura Hancock at 307-266-0581 or at laura.hancock@trib.com. Follow her on Twitter: @laurahancock.

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