107 oil and gas wells owned by a company based in a Highlands Ranch home are about to land on Colorado’s orphan list

The tale of 107 aging oil and gas wells — passed from company to company like peas in a shell game — is poised to end in Colorado’s orphan well program as state regulators move to fine and shut down their current owner.

The state Energy and Carbon Management Commission staff is asking the commission to move against Highlands Ranch-based KT Resources, which could involve revoking the company’s right to do business in the state and seizing its $317,000 in bonds.

The wells would be added to ECMC’s orphan well list, which has grown to about 960 wells in 2024 from 215 in 2020. The number of wells abandoned by their owners or  orphaned swelled to more than 1,700 from 454 during the same period.

The story of KT Resources, which owns 107 wells, isn’t an isolated incident, but rather part of a larger pattern of big operators offloading played-out oil and gas wells to smaller, often shell companies that lack the resources to run and properly plug the wells.

“This is a classic example of a problem in Colorado and across the country,” said Rob Schuwerk, executive director of the North American office of the environmental think tank Carbon Tracker. “Essentially allowing transfers of wells with a lack of adequate financial assurance.”

Carbon Tracker estimates that there are more than 20,000 low-producing oil and gas wells in Colorado in the hands of operators who do not have the financial resources to properly plug them and remediate the sites.

The shell game “is part of a sophisticated playbook used by industry to transfer liability to the state,” said Kate Merlin, an attorney for WildEarth Guardians, an environmental group that has tracked oil and gas transfers.

In 2022, the ECMC adopted new financial assurance rules requiring operators to post adequate funds to guarantee that their wells will be plugged and abandoned. In addition, the commission is levying a $115 fee for each well in the state to raise $5 million a year to plug orphan wells.

“The new rules reflect the strongest financial assurance requirements in the country,” Kristin Kemp, a commission spokeswoman, said in an email, and it will lead to “historic bonding levels.” It also requires wells be transferred with sufficient funds for plugging.

Wells flow from Koch, to 31 Operating to KT Resources

The commission calculates that during the next 20 years — some small operators get to pay their share in installments — the rules will raise $653 million to plug and clean up wells.

The commission is being overly optimistic in how much it will collect, Schuwerk said, and even if it collects all that money, it would still be a fraction of what will be needed. In addition, there are still loopholes in the transfer rules.

Even if the transfer rules are now tighter, in the period before the new rules went into effect thousands of wells were transferred, Merlin said. “It is like trying to close the barn door after the horses are gone and the wolves are inside.”

One of those transfers before the new rules went into force was between 31 Operating and KT Resources.

The wells were originally owned by Wichita, Kansas-based Koch Exploration, which was part of Koch Industries, the privately held conglomerate with an estimated $125 billion in annual revenue in 2024.

Most of the wells were drilled in the late 1990s and early 2000s, though some dated back to the 1970s. Schuwerk said some has been drilled by Oklahoma City-based Chesapeake Exploration.

In May 2016, 31 Operating incorporated in Delaware and it registered in Louisiana, Wyoming, Texas, North Dakota and, in February 2017, in Colorado. The company’s registered address was a Rockwall, Texas, strip mall whose tenants included a mailbox rental center, a coin dealer and a smoothie shop. 

In the fall of 2017, 31 Operating acquired Koch Exploration’s Colorado assets, 274 properties including, a tank battery and 151 gas wells that dotted shrubland and forest in the northwestern corner of Colorado, according to state records.

At their peak around 2011 and 2012, the wells produced the equivalent of a little more than 400,000 barrels of oil and gas a day, or BOE. Production began to decline around 2015. All the wells stopped producing after oil and natural gas prices plunged in 2020. 

31 Operating ran afoul of regulators in both Colorado and North Dakota. In June 2020, North Dakota seized 31 of the company’s 39 wells in the state and used $4.4 million in state and federal funds to plug them.

In 2022, 31 Operating filed to transfer 107 wells and 126 other properties in Rio Blanco County to KT Resources, even as the commission staff sought fines and an order that 31 Operating comply with violation notices dating back as far as 2018.

Nevertheless, the commission approved the transfer to KT Resources in August 2021. KT Resources was incorporated in 2021 with its registered address, a home on the 16th green of the University of Denver Golf Club at Highlands Ranch.

The registered agent for KT Resources, Karen Adams, is listed in LinkedIn as the owner of energy consultant Roan Energy. Adams did not respond to email and voicemail requests by The Sun for comment.

KT started to bring the wells online in May 2022 and told the commission it would have them all operating by the end of 2023.

In 2024, KT Resources reported total production of 600 BOE to the state with just three of the 107 wells in production. There is also one waste-injection well.

24 notices of violation in two years

In just two years of operating, KT Resources has run up 24 Notices of Apparent Violation including a fractured tank, soil stained by a leaking pump jack, soil erosion and failing to plug an inactive well.

The reports indicate that there was little to no action by the operator to address the problems. An inspector also noted many locations are in or near a high priority black bear habitat.

Under the new financing assurance rules all operators must file a plan with the ECMC. KT Resources’ plan was approved in March 2023. Since 100 of the 107 wells are on federal land, the company only had to put up an initial payment for seven totaling $77,500 or $11,071 per well.

A year later, KT Resources had not made the $77,500 payment and was issued yet another violation notice.

“ECMC inspectors raised concerns about compliance at many of KT’s locations for assorted factors,” Kemp, the commission spokeswoman said. “ECMC decided to pursue enforcement based on a variety of factors” including the failure to put up its financial assurance money.

Environmental groups had sought to freeze all transfers until after the new rules were in place, but the commission rejected the idea.

“How on earth did they not see this coming?” WildEarth Guardians’ Merlin said. “We told them it was going to happen. … We gave them evidence that this is going to be the outcome.”

If the commission does take over KT Resources’ wells, they will go on the state orphan well list, which ranks wells based on their environmental risks.

As for the 100 wells on federal land, Kemp said that the BLM and the commission have an agreement under which the state handles the plugging of wells for the federal government.

Steven Hall, a spokesman for the BLM, said in an email that once a well is idled for at least four years the agency can take steps to determine if it is orphaned. At that point it can collect the bonds for the wells.

The bonds for the Rio Blanco County wells were set based on requirements that dated back to 1950 and were only increased in 2024. The minimum blanket bond was $25,000 for all wells.

Hall said the bond on the KT Resources wells was “higher than the standard minimum,” but declined to specify the exact amount. In December, he said, the company had paid past-due royalties and rentals on the 31 Operating leases and was in good standing.

The KT Resources story, environmentalists say, also raises concerns about whether the financial assurance rule will collect all the money it forecast.

The rules created two options for low-producing operators. One for companies producing between 2 BOE and 15 BOE, called Option 3, and one for operators with shut-in wells, called Option 4.

The commission has set 5 BOE a day as a marker for “relatively unprofitable assets” that pose a heightened risk of becoming orphaned if transferred in large volumes. 

There are 17 operations with approved Option 3 plans and 84, including KT Resources, with approved Option 4 plans. Most of these plans allow incremental payments over 20 years.

“It is a question whether many of these will be around for 20 years,” Carbon Tracker’s Schuwerk said. “KT Resources proves the point.”

Carbon Tracker estimates that based on the more than 20,000 wells at risk the state will need $1.8 billion.

Another concern is that there are ways in which transfers can be made with little financial assurances among smaller companies.

Such trades are “hypothetical,” Kemp said.  “A ‘risky transfer down’ proposed would be highly unlikely to occur given the criteria an operator must meet for the different options. To date, we are not seeing a cascading ‘down’ effect.”

“More than 44,000 from hundreds of operators have been transferred, but they have predominantly been among larger operators,” she said.

“It’s good they endeavored to make some reforms,” Schuwerk said, “but there is way too little money that has been generated, they need to increase the orphan well fund and close any transfer loopholes.”