A 25-year-old Anadarko Petroleum oil and gas well and flowline caused a deadly explosion last April in Firestone, after it had been shut down for a year.
Investigators at the time found that a 1-inch flowline that carried gas from the well was severed at some point as the development of homes in Firestone moved closer to the well. But the flowline had not been disconnected from the wellhead and capped.
When Anadarko Petroleum, the state’s largest oil and gas company, restarted the well in January 2017, after it had been shut off for all of 2016, the small pipeline from the old well leaked gas into the house. It ignited and killed homeowner Mark Martinez, and his brother-in-law Joseph Irwin, both age 42 died. Martinez’ wife Erin was seriously injured.
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Why did Anadarko turn on this old well, known as the Coors Well? And why does the company operate a portfolio that includes old, active, but underperforming wells?
Through a dozen interviews with people inside and outside the industry, reviewing the contracts attached to the well, and analyzing state data, CPR News found a common practice designed to let oil and gas companies maintain ownership of old holdings. The Coors Well was among Anadarko’s lowest producing oil and gas wells, indeed one of the lowest producing in the state. So why turn it back on?
The Coors Well
The history of the deadly well is a history of acquisitions. Gerrity Oil & Gas Corporation first drilled the Coors V #6-14Ji well 25 years ago. Eventually it was acquired by Patina Oil and Gas Corporation, which was later bought by Noble Energy in 2005.
Noble’s timing was impeccable. Shortly after getting the well in 2005 it became a star performer, and according to state records it produced large quantities of oil and gas. But soon the Coors well suffered the same fate of all oil and gas wells. As the years went by, production steadily fell until Anadarko acquired it in 2014, and the Coors well was seemingly not worth turning on anymore.
A couple of years later, the Martinez home in Firestone was built less than 200 feet from the well.
That year, 2015, the last full year of production for the well, it accounted for 0.001 percent of Anadarko’s annual Colorado oil production, and 0.005 percent of the company’s natural gas production. State records show it produced nothing, or was shut down, for all of 2016.
“There are several reasons an operator may shut-in a given well. Those reasons can be operational, economic, or environmental. When you think of the number of wells a producer may operate, they are managing the collective field, rather than just individual wells,” said Colorado Oil and Gas Association President Dan Haley. “It’s common to think that an operator is going to produce a well at 100 percent until they capture all the available resource, but that’s often not the case. Reservoir pressure, environmental regulations, commodity prices, and many other factors impact well management decisions.”
The Lease Hold Process
Not every active well in Colorado produces economically viable amounts of oil and gas. Many are older wells, drilled years ago, that are just a shadow of their former productive selves. Industry insiders say drillers will keep them limping along to hold the mineral rights lease attached to the well.
These older leases, often signed decades ago, tend to favor the driller with significantly lower royalty payments to the owner. This practice is commonly referred to as “leasehold” in the industry.
CPR obtained a copy of the mineral rights contract tied to the deadly Firestone well, signed back in 1992, between Gerrity and Coors Energy Company, the owner of the mineral rights. Coors Energy Company shares an address with beer giant Molson Coors, and appears to still be the current mineral rights owner. Molson Coors did not return our calls for comment or confirmation.
According to the mineral rights contract, if production isn’t maintained for a certain period of time, the owner, now Anadarko, would be breaking the lease agreement and the company would likely have to negotiate a new one if it ever wanted to drill a modern well in this location.
Industry experts like Lance Astrella, an attorney who worked in the oil and gas business and now represents only land and mineral rights holders, said companies generally want to hold the old leases by keeping production going, even if the production is minimal.
“And one of the reasons they want to do that is because if a new lease is entered into new bonuses have to be paid,” Astrella said.
He explained if that lease had to be renegotiated today, there would be a bonus payment of thousands of dollars a mineral acre. In addition, the royalty rate might be 20 percent, instead of 12.5 percent, which was common in mineral contracts written decades ago.
“So it makes a lot of sense, economically, for the oil companies to hold onto old marginal wells,” Astrella said.
CPR put these questions to Anadarko multiple times, in multiple ways and to multiple representatives of the company. The response was the same: “We are unable to provide answers at this time, because they relate to either pending litigation or the ongoing NTSB investigation,” wrote John Christiansen, Vice President Corporate Communications at Anadarko Petroleum Corporation.
The National Transportation Safety Board continues to investigate the Firestone explosion and its findings aren’t expected until this summer, or later. Until then, state regulators and the company are apparently prohibited from speaking publicly about the specifics of the well.
Old Wells, New Problems
Today, Colorado has some of the strictest oil and gas regulations in the country. A modern well must conform to a rigorous set of restrictions meant to protect the environment, the public and the workers.
The standards were much different when Gerrity first drilled the Coors well. Thousands of wells were constructed before the new regulations were put in place. A wave of rules were approved approximately 10 years ago. Some regulations, like those meant to address small flowlines linked to the Firestone tragedy, are brand new.
Then there’s just the old age of some of these wells.
“A lot of times, just because of the deterioration of the flowlines and the wells themselves, they can leak and cause health problems and certainly environmental problems,” said Astrella. He says Colorado regulators don’t have enough inspectors to properly monitor these aged wells.
The state says they actually do well with the 30 field inspectors they have.
“I wouldn’t think of it as a safety concern,” said Julie Murphy, director of the Colorado Oil and Gas Conservation Commission. “COGCC’s goals are to ensure that the wells drilled under any regime are adequate and safe.”
It’s not clear how many old low-productivity oil and gas wells are kept active merely to hold old contracts in Colorado. Anadarko shut down 3,000 old, active wells after the Firestone explosion, and despite that, the company still had one of the most productive years in Colorado ever — suggesting there are at least thousands of wells that produce very little, yet are kept active to increase profits on some future development.
