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HomeMy WebLinkAboutMemo - Mail Packet - 08/06/2024 - Memorandum from Cassie Archuleta re: Oil and Gas – Agreement to Shut-In Wells Page 1 of 2 Environmental Services 222 Laporte Ave Fort Collins, CO 80522 970.221.6600 970.224.6177 - fax fcgov.com MEMORANDUM DATE: August 1, 2024 TO: Mayor and Councilmembers THRU: Kelly DiMartino, City Manager Tyler Marr, Deputy City Manager Jacob Castillo, Chief Sustainability Officer FROM: Cassie Archuleta, Lead Air Quality Specialist SUBJECT: Oil and Gas – Agreement to Shut-In Wells BOTTOM LINE The City of Fort Collins has entered into an agreement with Prospect Energy to shut-in all of their oil and gas wells, sell specific property to the City if the City so chooses, and turn over wells to the State’s orphan well program for permanent closure and remediation. This agreement aims to mitigate environmental risks and expedite the reclamation of affected sites. BACKGROUND The City of Fort Collins has an active oil field in the northeast part of the City, first discovered in 1924. In 2023, City Council adopted new land use restrictions, prohibiting further development or re-development in this field due to the close proximity of residences. For remaining pre-existing sites (10 within City limits), and sites near City borders, the City has been working diligently and cooperatively with Larimer County, the Energy and Carbon Management Commission (ECMC) and Colorado Department of Health and Environment (CDPHE) to ensure compliance and accountability for ongoing violations. To this end, the City has reached an agreement with Prospect Energy, which compliments separate agreements and orders with Larimer County and the ECMC. The attached City of Fort Collins agreement with Prospect Energy, executed July 31, 2024, includes: • Shutting in all wells (49 within Larimer County, including 10 within City limits) within seven days under ECMC supervision Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 Page 2 of 2 • Conducting third-party inspections to detect and address leaks within 21 days • Complete remediation of a flowline spill at the Country Club Reserve subdivision within 30 days • Requirement for an effort to remove all surface equipment at the Krause Facility and Fort Collins Tank Battery within 90 days. • Allow the City the option to purchase the parcel abutting City limits which houses facilities including a tank battery for $100,000. The state will retain the liability of permanently closing and remediating all oil and gas facilities including any historic spills discovered. • Requirement for Prospect to fully execute an Order Finding Violation with ECMC, which includes the revocation of their operating license. In return, the City will withdraw a Rule 211 application (related to potential ECMC orders to plug and abandon wells no longer considered used or useful), and support the potential suspension of fines and penalties from state agencies. This agreement is in the best interest of all parties, as the wells in question are old, have aging infrastructure, and pose significant environmental risks. NEXT STEPS The next steps include generating a separate agreement for the property sale, an ECMC hearing to finalize the settlement on their Order Finding Violation (TDB, expected in August), and continued monitoring of Prospect’s compliance with the agreement terms. Once the agreements are in place, efforts will shift to expediting remediation and reclamation of sites. ATTACHMENT: Settlement Agreement, Prospect Energy, LLC and the City of Fort Collins CC: Amy King, Environmental Services Director Carrie Daggett, City Attorney Ted Hewitt, Assistant City Attorney Kirk Longstein, Senior Environmental Planner Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 SETTLEMENT AGREEMENT This Agreement and Release (this “Agreement”) is made and entered into between Prospect Energy, LLC (“Prospect”), WCG Legacy Trust Dated July 11, 2022, and the City of Fort Collins, a Colorado municipal corporation (“the “City”). Prospect and the City are sometimes hereinafter referred to individually as a “Party” and, collectively, as the “Parties.” The “Effective Date” of this Agreement is the last date by which the Parties have executed this Agreement. RECITALS WHEREAS, Prospect is the operator of 49 oil and gas and injection wells (the “Wells”) within Larimer County. Ten of these wells are within the city limits of the City. WHEREAS, over the past several years, Prospect has been alleged to have violated several rules and regulations of the Colorado Air Pollution Control Division (“Division”) at its Krause Facility and Fort Collins Tank Battery resulting in Prospect entering into a Compliance Order on Consent with the Division on February 15, 2024. The Compliance Order on Consent required, among other things: 1. Monitoring for Hydrogen Sulfide (H2S) at the Krause facility and required the facility to shut in if H₂S is detected in higher concentrations, and 2. Payment of $337,050.00 in penalties to the Division. WHEREAS, over the past several years, Prospect has violated certain rules and regulations of the Colorado Energy and Carbon Management Commission (“ECMC”) resulting in Prospect negotiating a Stipulated Order Finding Violation with the ECMC to settle the violations. The Order was signed on July 10, 2024 and now needs to be approved by the ECMC Commission. The negotiated Stipulated Order requires, among other things, either the payment of $1,711,793 in penalties to ECMC, or the revocation of Prospect’s license to operate (Form 1) in the State of Colorado. WHEREAS, the City is considered a “complainant” before the ECMC and therefore has the ability to contest the Stipulated Order Finding Violation. WHEREAS, the City, with Larimer County, has filed a Rule 211 Petition with the ECMC (Docket No. 240400092) to have 19 wells declared “no longer Used or Useful” and ordered to be plugged and reclaimed by Prospect. WHEREAS, Prospect’s wells are in the Fort Collins field and most of the wells are low- producing and of limited economic viability. WHEREAS, Prospect does not have the funding to meet its financial assurance obligations to plug and abandon its wells and oil and gas locations. WHEREAS, Prospect does not have the financial resources to pay the penalties assessed by the Division or ECMC. Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 2 WHEREAS, Prospect does not have the financial resources to plug and reclaim its wells and oil and gas locations, including the Fort Collins battery location. WHEREAS, Prospect has indicated that if it is required to pay all the state fines described above, and the costs associated with the plugging and reclamation of all wells and associated oil and gas locations, it will pursue bankruptcy protection, leading to a lengthy process unlikely to result in completion of these obligations. WHEREAS, the Parties enter into this Agreement voluntarily and for the benefit of the concessions and commitments herein. WHEREAS, the Parties agree that it is in public interest to quickly and safely plug and reclaim all of the Prospect wells and oil and gas locations. AGREEMENT NOW, THEREFORE, in consideration of the above promises and recitals, and such other consideration as may be set forth herein, it is hereby agreed as follows: 1. Obligations of Prospect a. Shutting in all Prospect wells. Within (7) seven days of the Effective Date, and under ECMC supervision, Prospect will shut in all the Wells in compliance with applicable state law. b. Third-party FLIR camera inspections of all shut in wells. Within 21 days of the Effective Date, a third-party inspector, paid for by Prospect and approved by the Larimer County Department of Health and Environment (“County Health Department”), will conduct FLIR camera inspections of all shut in wells and locations. In the event a leak is detected, Prospect will attempt to stop the leak. If the leak cannot be stopped, the leak will be immediately reported to ECMC, the City and the County Health Department. Prospect will give the City and the County Health Department seven days’ notice of the third-party inspections and will permit the City and the County Health Department to attend and participate in the inspections. c. Complete the remediation of the flowline spill on the Country Club Reserve subdivision. Prospect will work expeditiously to complete the remediation of the flowline spill (ECMC Remediation Project # 33171) at its own cost and will endeavor to complete such remediation within 30 days of the Effective Date. Prospect will remain responsible for the clean-up of this project until ECMC either submits a “no further action” decision on its Form 27 Remediation Workplan (Doc. No. 403688354) or the responsibility for the remediation is formally assumed by Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 3 ECMC’s Orphan Well Fund. The Parties agree that Prospect will not be penalized under this Agreement if the remediation is delayed or not completed as a result of the acts, conduct, or omissions of third parties over whom Prospect has no power or control. d. Removal of all equipment from the Krause Facility and Fort Collins Tank Battery. Within 90 days of the Effective Date, Prospect will remove and sell, or otherwise dispose of, all surface equipment at the Krause Facility and Fort Collins Tank Battery. Any surface equipment not removed within 90 days of the Effective Date shall remain on site unless otherwise agreed to, in writing, by the Parties. e. Transfer of Fort Collins Battery Location (Parcel Number 8830210001) to City, at City Option. Within six months of the Effective Date of this Agreement, WCG Legacy Trust and Prospect will, if requested by the City, enter into a separate written agreement with the City to sell the property known as Parcel Number 8830210001, recorded under Reception No. 20230014380, Larimer County, Colorado real property records, including any mineral rights requested by the City, to the City or its assignee at a price of one hundred thousand dollars ($100,000). The written agreement shall allow the City sufficient time to conduct due diligence regarding environmental contamination at the site, along with any other due diligence deemed prudent by the City and will contain such other terms and conditions as the City reasonably determines to be appropriate and shall contain appropriate language releasing WGC Legacy Trust and Prospect from any liability for environmental impacts from oil and gas development following the sale. f. Stipulated Order Finding Violation. Prospect will comply with the Stipulated Order Finding Violation with ECMC requiring revocation of Prospect’s license to operate (Form 1) in the State of Colorado. g. Compliance with Laws. All actions taken by Prospect in performance of or in connection with this Agreement on any property, oil and gas wells, or other equipment or facilities that are associated with the Fort Collins field, must be done in accordance with state and local regulations, and industry standards. 2. Obligations of City a. Allowing Prospect to Salvage Equipment. The City not object to Prospect retaining the ability to remove and salvage equipment, so long as Prospect fully removes said equipment and does so without undue damage to the remaining real property. Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 4 b. Request the $337,050.00 in penalties owed by Prospect Energy to Division (Compliance Order on Consent) are waived. The City will request that the Division waive penalties owed by Prospect to the Division in exchange for Prospect’s performance of its obligations in the Agreement. The City believes this is in the public interest in order to facilitate faster plugging and reclamation of Prospect’s wells and locations. c. Stipulated Order Finding Violation. In exchange for Prospect’s compliance with this Agreement, the City will not oppose the Stipulated Order Finding Violation with the ECMC that suspends up to $1.7 million in fines levied for violations related to flaring and other regulatory non-compliance. These fines include penalties for violations such as improper flaring practices and non-compliance with other state regulations. The stipulated order also intends to remove Prospect Energy’s operator license and incorporate the 49 wells into the ECMC orphan well program, thereby transferring all liability for remediation and cleanup costs to the ECMC. The City believes this is in the public interest to help Prospect avoid bankruptcy, which will allow faster plugging and reclamation of Prospect’s wells and locations. d. City will pursue withdrawal of Rule 211 petition. Within (7) seven days after the Effective Date, the City will pursue the withdrawal of its Rule 211 petition filed in conjunction with the County, with each side paying its own costs and attorneys’ fees. 3. Attorneys’ Fees and Costs Each of the Parties agrees to bear its own costs and attorneys’ fees, if any, incurred in and relating to the subject matter of this Agreement. 4. Appropriation. To the extent this Agreement or any provision in it constitutes a multiple fiscal year debt or financial obligation of the City, it shall be subject to annual appropriation by City Council as required in Article V, Section 8(b) of the City Charter, City Code Section 8-186, and Article X, Section 20 of the Colorado Constitution. The City shall have no obligation to continue this Agreement in any fiscal year for which no supporting appropriation has been made. Non- appropriation by the City shall not be construed as a breach of this Agreement. 5. CGIA. No term or condition of this Agreement shall be construed or interpreted as a waiver, express or implied, of any of the notices, requirements, immunities, rights, benefits, protections, limitations of liability, and other provisions of the Colorado Governmental Immunity Act, C.R.S. § 24-10-101 et seq. and under any other applicable law. Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 5 6. Default, Remedies. Each and every term and condition hereof shall be deemed to be a material element of this Agreement. In the event either Party should fail to or refuse to perform according to the terms of this Agreement, that Party may be declared in default upon one day’s written notice via email to the Party’s attorney. In the event a Party has been declared in default, that defaulting party shall be allowed a period of two business days from the date of notice within which to cure said default. In the event the default remains uncorrected, the Party declaring default may elect to (a) treat the Agreement as continuing and require specific performance; or (b) avail themselves of any other remedy at law or equity. 7. Indemnity. Prospect shall indemnify, defend, and hold harmless the City and its officers and employees, to the maximum extent permitted under the law, against and from any and all actions, suits, claims, demands, or liability of any character whatsoever claimed by Prospect or third parties against the City arising out of or related to this Agreement. 8. Voluntarily Entered The Parties represent and warrant that this Agreement is executed voluntarily by the Parties with full knowledge of the consequences of the obligations contained herein, and not under any fraud, duress, or undue influence. The Parties also represent and warrant that they have carefully and thoroughly reviewed this Agreement in its entirety. 9. Construction of Agreement The Parties have participated fully in the review and revision of this Agreement, have been given the opportunity to retain and consult counsel, and fully understand the content and effect of this document. Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply to any Party in interpreting this Agreement. 10. Confidentiality The Parties acknowledge that this agreement, once finalized and signed by both parties, is subject to the Colorado Open Records Act and may be shared with the public. Parties agree to notify each other within 24 hours of the agreement being shared with the public. 11. Further Assistance The Parties shall hereafter execute all documents and take all actions that are reasonably necessary to effectuate the provisions of the Agreement without additional consideration. Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 6 12. Entire Agreement This Agreement memorializes and constitutes the entire agreement and understanding between the Parties and supersedes and replaces all prior negotiations, prior or contemporaneous representations, proposed agreements, and agreements between the Parties, whether written or unwritten with respect to the subject matter contained herein. The Parties acknowledge that no person or entity, nor an agent or attorney of any person or entity, has made any promises, representations, or warranties whatsoever, express or implied, which are not expressly contained in the Agreement. 13. No Reliance This Agreement is executed by the Parties without reliance upon any statement or representation by any other Party, or their attorneys or representatives, other than those set forth in this Agreement, and each Party has made an investigation of all the facts pertaining to this Agreement as it deems necessary for the purpose of entering into this Agreement. The Parties expressly waive any and all rights they may have under any statute or common law principle that would limit the effect of the releases contained in this Agreement based upon their knowledge at the time this Agreement is executed. 14. Binding Effect This Agreement shall be binding upon and inure to the benefit of each Party and upon each Party’s heirs, successors, and assigns. 15. Severability Should any of the provisions of this Agreement be rendered invalid by a court or government agency of competent jurisdiction, it is agreed that this shall not in any way or manner affect the enforceability of the other provisions of this Agreement which shall remain in full force and effect. 16. Choice of Law The Agreement is made and entered into in the State of Colorado and shall in all respects be interpreted, enforced, and governed under the laws of the State of Colorado. Any action to enforce this Agreement shall be brought in Larimer County District Court and neither Party shall move to transfer the matter to a different venue. 17. No Waiver No action or lack of action on the part of any Party hereto at any time to execute any rights or remedies conferred upon such Party under this Agreement shall be, or shall be asserted to be, a waiver of any of such Party’s rights or remedies hereunder. 18. Costs and Fees Related to Enforcement of the Agreement Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 7 In any action to enforce the terms of this Agreement, the prevailing Party shall be entitled to recover their costs and reasonable attorneys’ fees. 19.Time for Performance The Parties understand and agree that time is of the essence with respect to each and every act required by this Agreement. 20.Amendment or Modification This Agreement may be amended or modified only by a written agreement signed by all Parties. 21.Incorporation of Recitals The Parties hereby incorporate into the Agreement the above Recitals as if they were set forth fully herein. 22.Authority to Sign and To Make Representations Each of the signatories to this Agreement represents and warrants that he or she has full and complete legal capacity and authority to execute this Agreement, to make the representations and warranties set forth in this Agreement, and to settle the Disputes pursuant to the terms and conditions of this Agreement. 23.Counterparts The Parties agree that the Agreement may be executed in counterparts and by facsimile or PDF, with facsimile or PDF signatures deemed original signatures for all purposes. [Signature page follows] Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762 IN WITNESS WHEREOF, the Settlement Agreement has been executed on the date set forth below. I have read the foregoing Settlement Agreement and I understand its contents. Having read the entire document and understanding its terms and conditions, I agree to abide by it and to be bound by it. Dated: July ___ , 2024 Dated: July i Snr , 2024 Dated: July :25z11 , 2024 City of Fort Collins Name: Title: Approved as to Form Name: Title: Prospect Energy, LLC • �-'-Name: Ward Giltner Title: President, Prospect Energy, LLC WCG Legacy Trust Dated July 11, 2022 �---VJPd--:-�-lT ame: William W. Giltner II Title: Trustee WCG Legacy Trust Dated July 11, 2022 N.Gc�@Y� Title: Trustee 8 Kelly DiMartino Carrie Daggett City Attorney City Manager Docusign Envelope ID: 6DD9ACB7-B59B-4841-947F-C83BE84EEE48 7/31/2024 Docusign Envelope ID: 230C5B12-A99B-473C-A102-62D891E8C762