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Wyoming Supreme Court Backs Landowners on Abandoned CBM Wells Case

The Wyoming Supreme Court last Wednesday sided with two landowners suing to force the cleanup of abandoned coalbed methane (CBM) wells, long a source of contention throughout the state.

The landowners want a Marathon Oil Corp. unit, Pennaco Energy, to be held responsible for cleaning up CBM wells that were sold to a company that later went bankrupt. "Because there was no express clause that terminated Pennaco's obligations," the court unanimously ruled that the company is still liable.

The decision upheld an earlier ruling by the Sheridan District Court and has potentially wide ranging implications for the industry.

Industry officials pointed to the potential "chilling effect" of the ruling, saying the precedent goes beyond the oil/gas industry to any business sold to a company that later goes bankrupt. "Companies will need to take a look at their lease agreements and make any appropriate changes so something like this will not occur again," said Bruce Hinchey, president of the Petroleum Association of Wyoming, which had intervened in the case since the original legal action by the landowners in 2012-13.

A Houston-based spokesperson for Marathon Oil Corp. said the company is disappointed in the court ruling, and is "analyzing the decision and considering our next course of action."

The case goes back to 2009-10, when the CBM industry collapsed and close to 7,000 wells were abandoned with the responsibility for the cleanup falling to regulators at the state’s Oil and Gas Conservation Commission (OGCC). The agency subsequently committed to plugging and reclaiming about 3,800 of those CBM wells. In addition, about 4,000 other idle wells sit on federal lands.

In September, the OGCC released proposed rules to double the money oil and natural gas operators would be required to set aside to pay for the abandonment and plugging of old wells (see Daily GPI, Sept. 24).

Since there was no clause in its original contract with landowners releasing it from the reclamation obligations, Pennaco is bound by its original commitment, Justice Keith Kautz wrote in the state Supreme Court’s ruling. Pennaco is responsible for coming up with unpaid rents owed to the two landowners, KD Company LLC and Hollcroft Family Trust, and reclaiming the disturbed lands on their properties.

"The plain language of the surface and water agreements entered into between landowners and Pennaco required Pennaco to perform certain obligations until the CBM operations ceased and the lands were reclaimed," Justice Kautz wrote. The ruling upheld the lower court's award of $135,372 to the landowners.

In a separate case involving Pennaco, the state high court is scheduled to hear on Dec. 16 a Sheridan County court jury's award of $1.1 million to an Arvada rancher for unpaid royalties, damage to a spring, and reclamation costs. Pennaco appealed the lower jury trial's verdict.

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