Commissioners scolded the owner of a coal-bed methane company Tuesday for failing to uphold his part of a bargain with regulators regarding hundreds of idle wells in the Powder River Basin.
The Wyoming Oil and Gas Conservation Commission had ordered Summit Gas Resources to obtain surface agreements for at least 25 percent of 461 currently idle wells that it wants to bring back online in northern Wyoming.
If it could not do so, the company agreed to post $1 million in bonding, post bonds on at least 25 percent of the wells or throw in the towel and start plugging wells.
Summit’s subsidiary, Powder Battalion Holdings, did not get landowners to sign off on access, but it didn’t post money either. The day of its deadline, May 31, the company filed a request for more time, the second extension for the company, but only the latest delay in the history of these wells.
“My patience for extending this wears thin,” said Commissioner Bridget Hill, director of the Wyoming Office of State Lands and Investments, in the Tuesday hearing.
The commission, which was missing its chairman, Gov. Matt Mead, and Commissioner Mark Doelger Tuesday, granted the additional time. Hill added a caveat that the company’s behavior was a concern.
“Be aware that violating a commission order just because you didn’t like the options, doesn’t sit well with me,” she said.
Summit’s CEO Pete Schoonmaker said the company didn’t intend to violate the commissioners’ orders. A deal fell through and money is short.
“I was confident enough that I felt we were going to have an agreement in place that there was not a need for additional bonding,” he said.
The company has invested in transmission and electricity to get the field back in order. It posted $1.3 million in bonds with the commission when it took the wells from Storm Cat as well as paid a $700,000 bonding debt to the state for its own wells.
“The basket is only so big,” he said.
The coal-bed methane industry became a cautionary tale for Wyoming regulators. Thousands of shallow methane wells were drilled in the Powder River Basin when producers realized the phenomenal volume of gas available in coal beds. Gas prices skyrocketed, driving a boom in coal-bed methane development. But when the price busted so did the industry. Larger firms like Anadarko Petroleum and Pennaco Energy unloaded wells on smaller firms, some of which crashed in the dwindling industry.
The result, after 2010, was a littering of nearly 7,000 unreclaimed, under bonded wells on state, private and federal land in Wyoming.
The commission started an orphaned well program, funded by a tax on operators, that continues the work of plugging wells – though not those on federal land. New bonding rules added a layer of scrutiny to the buyers of idle wells, and a Wyoming Supreme Court decision in 2015 held a large oil and gas firm responsible for reclamation after it sold wells to a smaller company that then went bankrupt.
But the headache of the coal-bed methane boom and bust lingers.
Enter Storm Cat Energy.
In early 2016, the firm was called before the commission for unpaid taxes going back to 2007, neglected property and a failure to post $10.8 million in idle well bonds. Storm Cat came to the commission with its dilemma. The company had gone under and was attempting, during bankruptcy proceedings, to sell its wells to Summit Gas Resources.
Storm Cat’s last remaining CEO said he was trying to get these wells passed to someone who could produce them.
“The only benefit we have to selling or assigning the assets over to Summit Gas is simply being able to sleep at night and not being a bad citizen by just kind of walking away from our remediation responsibilities,” said Chris Naro, of Storm Cat Energy, in 2016.
After nearly a year of delays, Storm Cat, Summit and the commission made a deal in August.
It was tenuous, a compromise scrolled on legal pads during a commission meeting lunch break. The wells would be divided in two: those that could produce and those that couldn’t.
Summit would take 460 wells that can still produce. The commission would add the nearly 1,000 Storm Cat wells on private land that likely couldn’t produce to its orphan well list.
The commission would not get the $10.8 million it was owed in bonding, but it would receive a $100,000 blanket bond and $1.2 million in idle well bonding from Summit.
If Summit could pull off the impossible it would mean a return to production for wells that tap the estimated 42 billion cubic feet of gas beneath the surface. A geologist called in to the commission testifying on behalf of Storm Cat and Summit reported that the gas would likely never be produced if these wells were plugged and reclaimed. It just wouldn’t be worth the investment to start over, he said.
Summit doesn’t face an easy or cheap task.
Schoonmaker reported Tuesday that the company had invested in a transmission line and been working with Powder River Energy Corporation – a power cooperative — to restore electricity.
It had tried and failed to get access to wells on the Padlock Ranch ahead of the deadline, he said.
The ranch wants J.M. Huber, a company with legacy responsibilities on these wells, part of any agreement.
In its filing with the commission, Summit’s subsidiary Powder Battalion Holdings, said it believed it had reached an agreement including Huber in late May. It was told that that agreement wouldn’t work on May 25, five days before its deadline.
Commissioner Ken Hendricks, formerly of Anadarko Petroleum, said Tuesday that Schoonmaker’s investment showed a commitment to these wells. He and Commissioner Erin Campbell — the state geologist — joined the commission in January, well into the Storm Cat well saga. Both supported the time extension. Campbell expressed some reservations.
“I worry a little if this is enough time, but I cross my fingers for you,” she said.
Hill noted that this would likely be the last time she personally agreed to more time.
“Come August, I’m going to need this resolved,” she said. “I understand what you’re under here.”
The conditions of the previous agreement still stand. Summit/Powder Battalion will have to get surface agreements in place, post additional bonding or start condemnation proceedings by Aug. 14. If the company fails, the commission’s staff is authorized to take over and shut down the Storm Cat wells for good.