CBM Cleanup Fraud? Wyoming Supreme Court rules Pennaco Energy responsible for CBM cleanup and back payments to two landowners, after selling wells to firm that went bankrupt

Wyoming Supreme Court: Pennaco Energy is responsible for CBM cleanup by Benjamin Storrow , December 3, 2015, Casper Star Tribune

Pennaco CBM ruling

The Wyoming Supreme Court ruled Wednesday that Pennaco is liable for back payments to two landowners and reclamation of their properties.

There are almost 7,000 abandoned CBM wells in the state.

The Wyoming Supreme Court ruled Wednesday in favor of two landowners who had sought to hold Pennaco Energy responsible for cleaning up coal-bed methane wells it sold to a firm that ultimately went bankrupt.

The unanimous decision, which upheld earlier rulings by the Sheridan District Court, has potentially broad implications in Wyoming.

Nearly 7,000 coal-bed methane wells were abandoned after the industry collapsed around 2010. The task of cleanup has largely fallen to Wyoming regulators, who have committed to plugging and reclaiming roughly 3,800 wells. Another 4,000 idle wells sit on federal land.

Landowners have long argued companies that sold to now bankrupt firms should be responsible for cleanup. Industry has rejected that claim, saying CBM operators should not be held responsible for the actions of the companies they sell to. [When they sell to low-life companies intending to escape responsibility?]

In a 31-page ruling released Wednesday, the high court sided firmly with the landowners. Pennaco is responsible for making unpaid rents owed to two landowners and for reclaiming their properties, despite the fact the company sold its wells to High Plains Gas for $10 million in 2010. High Plains went out of business last year.

Justice Keith Kautz, writing for the court, said Pennaco did not include a provision in its contract with the landowners that would have released it from its reclamation obligations. The company was therefore bound to uphold its commitments to the landowners, Kautz wrote.

“The plain language of the surface and water agreements entered into between landowners and Pennaco required Pennaco to perform certain obligations until the coalbed methane operations ceased and the lands were reclaimed,” he said.

Pennaco is a subsidiary of Marathon Oil Co. Zachary Weis, a Marathon spokesman, said “we are disappointed with the ruling, and are analyzing the decision and considering our next course of action.”

The two landowners, KD Company LLC and a trust representing the Hollcroft family, were awarded a total of $135,372. [What were their legal fees and court costs? Who pays those?] Neither could be reached for comment.

However, the weight of the decision was underlined by a case the state’s high court will hear later this month. In that instance, a Sheridan County jury found Pennaco was liable to pay an Arvada rancher $1.1 million for unpaid royalties, damage to a spring and reclamation costs. Pennaco appealed and the Supreme Court will hear the case on Dec. 16.

Wednesday’s decision was applauded by the Powder River Basin Resource Council, a Sheridan-based landowners group. “It is good for landowners and mineral owners, knowing that industry can’t shed their responsibilities by turning them over to another company,” said Jill Morrison, an organizer at the nonprofit.

The Petroleum Association of Wyoming had intervened on Pennaco’s behalf in the case. The industry group argued a decision in favor of the landowners would lead to a flood of litigation and have a chilling effect on the industry in Wyoming.

But the court summarily rejected those arguments, saying “whether or not these ‘facts’ will materialize as a result of this Court’s holding is simply speculation. Our duty is to apply the law to the plain language in the contracts.”

Bruce Hinchey, Petroleum Association of Wyoming president, declined comment.

Pennaco had sought to frame the issue as a matter of property law. The contracts are much like a driveway easement, in that they stay with the property when it changes hands. Whoever owned the rights to the property was responsible for the easement, the company argued.

The court dismissed that contention. As an experienced oil and gas operator, Pennaco could have bargained for language in its contract that would have released it from its obligations to the landowners, the court said. “It failed to do so, and this Court will not depart from firmly established rules of law to insulate Pennaco from its lack of care,” Kautz wrote.

The ruling differed slightly in relation to the two parties.

Under the terms of its contract, KD Company was annually entitled to $500 per well. It required the payments continue until all wells, roads and other infrastructure were reclaimed “as nearly as possible to their original conditions.” Pennaco owed the Sheridan County company $63,864 in past due payments, the court said.

The Hollcroft agreement required the company to restore all abandoned wells and roads. The Johnson County family was also entitled to annual payments. The court ruled Pennaco owed the Hollcroft’s $71,508 in unpaid rents under its agreement.

Yet the court said there were similarities in both instances.

“Nothing in these agreements suggests that the parties intended Pennaco to be relieved of these obligations merely by assigning them to a third party,” the justices said. “The obligations to reclaim and to pay until reclamation is complete presume an ability and willingness to perform after production ends.” [Emphasis added]

[Refer also to:

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