American Oil and Gas Reporter - August 2016 - 88

ConventionSection: Eastern Kansas Oil & Gas Association

Kansas Grapples With Plugging Liability
FAIRWAY, KS.-Start with a centuryold producing province containing hundreds-if not thousands-of old wellbores
drilled long before modern drilling and
plugging requirements; mix in increased
public scrutiny of industry activities in
general and of injection well activity in
particular; then top it with the courts
overturning an 8-year-old order on responsibility for plugging abandoned wells,
and it's small wonder many operators
may feel a little overwhelmed, suggests
David Bleakley, rules and regulations
chairman for the Eastern Kansas Oil &
Gas Association.
As they head toward their annual meeting in September, Bleakley says many
EKOGA members are wondering where
the Kansas Corporation Commission will
come down on responsibility for plugging
abandoned wells while at the same time
grappling with KCC enforcement initiatives related to annual U3C injection well
reports and well inventories filed with

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88 THE AMERICAN OIL & GAS REPORTER

operators' annual license renewals.
In January 2015, the Kansas Appeals
Court upheld an October 2013 ruling by
the Shawnee County, Ks., District Court
in John M. Denman Oil Co. v. State Corporation Commission of the State of
Kansas that state law allowed more than
one party to share legal responsibility for
plugging wells, including the original
owner that abandoned the well (AOGR,
March 2015, pg. 121).
That ruling, Bleakley points out, overturned the KCC's 2008 Quest Order that
essentially held that if a company acquired
a new lease, it would not be responsible
for plugging any abandoned wells on
that lease as long as the company did not
attempt to recomplete, work over or otherwise utilize those old wellbores, and
none of the company's subsequent operations on the lease caused the old wellbores
to become an environmental hazard.
In Denman's wake, he says, EKOGA
has been uncertain what shape the KCC's
policy on plugging liability will take and
whether the commission intends to undertake a rule making. "We would like to
see some kind of regulation or something
we can rely on," he says. "We don't want
to go through another Quest-type deal
where the courts overturn an order we
thought was pretty solid and we have to
go back to square one."
Ryan Hoffman, director of the KCC's
Oil & Gas Conservation Division, says
the commission "hasn't taken a formal
policy" on Denman because "there hasn't
been a matter brought before it."
That said, he acknowledges, "The
Denman case is the law until somebody
successfully challenges it or it somehow
is decided differently."
As to when that might be, he replies,
"I anticipate by this fall that we would
have the go-ahead from the commissioners
to start looking into opening a rule making."
Determining Responsibility
In the meantime, Bleakley and Hoffman
agree, it has been the Conservation Division's perhaps unstated policy to honor
the Quest Order for properties acquired
in the interim between its adoption in
July 2008 and the Denman ruling in
2015. "Not only were people relying on
the Quest decision, but we were telling

them they could do that," Hoffman reflects.
"Staff were reluctant to go back on their
word."
He quickly adds, however, "That isn't
anything that has been adopted formally
by the commission."
Going forward, Bleakley admits some
trepidation about the potential for a preQuest sort of regulation under which operators could be held responsible for
plugging old wellbores they never drilled
or were transferred responsibility for.
"People are thinking they may push back
on that a little, especially since there is a
plugging fund, and outside of the state's
federal mineral royalties, we are the sole
provider to that fund."
He recalls that in 1996, the state legislature created two plugging funds: the
Abandoned Well Plugging and Site Remediation Fund to deal with pre-1996
wellbores and the Well Plugging Assurance
Fund to deal with post-1996 wells. The
Abandoned Well Fund was to receive
$1.6 million a year in equal amounts
from the state general fund, the state's
water plan fund, half of the federal mineral
royalties received by the state, and from
the Conservation Fee Fund, which is an
assessment on crude oil and natural gas
produced in the state.
But state lawmakers several years ago
ceased providing general fund monies to
the Abandoned Well Fund, and last year
during its sunset review, Hoffman says,
legislators removed the water fund contribution while doubling the Conservation
Fee Fund contribution to $800,000 annually.
On top of that, Bleakley notes, lawmakers in the past have swept money
from the Abandoned Well and Conservation Fee funds to make up for shortfalls
elsewhere. Put it together, he says, "They
are taking money out of the plugging
fund and we are the only ones supporting
it. Now they may want us to go back and
plug these old wells on our leases that
we thought would be OK if we didn't
tamper with them. Don't we really pay
to have those wells plugged as it is?"
Nevertheless, Hoffman says, the court
has issued its interpretation of K.S.A. §
55-179, the state's abandoned-well plugging statute. Any rule making "would
have to stay within the parameters of
that court ruling, or the statute would
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