The Wyoming Supreme Court has ruled in favor of an Arvada-area rancher who had sought $1.1 million from Pennaco Energy in an attempt to clean up 10 abandoned coal-bed methane wells on his property.
Justice Michael Davis, writing for the court earlier this month, said Pennaco’s sale of the wells to a now-bankrupt operator did not relieve the company of its reclamation obligations on Brett Sorenson’s ranch. The company was bound by the terms of the surface use agreement it signed, which required the coal-bed methane operator to remove its equipment and restore the land to its original state.
“Pennaco says its obligations passed like a quarterback passes the football to a receiver — once the ball is passed, the receiver has it, and the quarterback does not,” Davis wrote. “We view Pennaco’s attempts to relieve itself of the obligations it bargained to perform more as a game of hot potato.”
The decision affirmed an earlier ruling from a Sheridan District Court jury, which found Pennaco was liable for $76,032 in unpaid annual surface use payments, $888,732 for the cost of reclaiming the company’s operations and $96,217 for the cost of replacing an artesian spring damaged during drilling.
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The ruling was based, in part, on a similar decision from the court in December. In that instance, the justices sided with two Powder River Basin landowners, who claimed Pennaco should be responsible for reclaiming wells abandoned on their property.
Jill Morrison, an organizer at the Powder River Basin Resource Council, called the recent ruling “a great victory for landowners who have oil and gas companies that try and sell off their liabilities to avoid responsibility for their impacts.”
A Pennaco spokeswoman said the company was disappointed in the decision and considering its next course of action.
Landowners in northeastern Wyoming have long struggled with the question of how to deal with thousands of coal-bed methane wells abandoned after the industry’s collapse in 2010.
Many larger firms sold to smaller companies, which later went bankrupt, leaving no one responsible for the wells’ cleanup. Wyoming regulators have committed to plugging more than 3,800 wells. Another 4,000 idle coal-bed wells are located on federal land, but the U.S. Bureau of Land Management has made no formal plans for reclaiming them.
Pennaco, a Marathon Oil subsidiary, was part of the wider trend. The company sold its coal-bed wells to a subsidiary of High Plains Gas in 2010. The Sheridan-based firm ceased operations in 2014, with its owner claiming the company did not have the money to even file for bankruptcy protection.
The company had argued it was not bound by the terms of its surface use agreement, saying the rules of property law applied and that provisions included in the contract traveled with the owner of the wells. But the justices disagreed. They noted the company’s contract with Sorenson lacked the typical contractual language that would have assigned its responsibilities to a future buyer of its properties. Pennaco, they said, could have negotiated for such provisions in the contract.
“There is no such clause, and we are not at liberty to rewrite the agreement,” the court said.
Follow energy reporter Benjamin Storrow on Twitter @bstorrow.