Luca bankruptcy reveals bonding issues

Nov 13, 2013

Bankrupt methane farming company Luca Technologies is planning to walk away from its wells on federal lands in Wyoming without plugging them. The company and its subsidiaries have between four and five hundred wells on federal lands, and COO Brian Cree says it's unlikely there will be enough money to clean them up.

“Those wells will just be turned back over to the federal government, and the federal government will be in a position to use their resources to plug and abandon those wells," Cree says.

But Luca's federal bond was only $25,000, and it can cost that much to plug a single well.

Bureau of Land Management Buffalo Field Manager Duane Spencer says he hasn't heard directly from Luca or its subsidiaries about plans to abandon the wells, but he says if they do, BLM won't rely solely on bonding to cover the costs. Spencer says the BLM has a process that it goes through with leaseholders before using taxpayer dollars to plug the wells. But he acknowledges that in cases where there is no other leaseholder, the federal government will have to pay. 

Advocacy groups have been pressuring the BLM for years to increase the required bond amounts so taxpayers aren’t left on the hook when companies walk away, but while the BLM made some minor changes to its bonding rules in June, the amounts have stayed steady for decades.

Meanwhile, the state is considering a proposal from Luca to plug the nine hundred or so wells on state and private lands in Wyoming. The state requires larger bonds than the federal government, but still, the company is almost $2 million short.

Last month, Luca proposed a complex deal that CEO Brian Cree says would allow it to meet its obligations. The deal involves a Luca subsidiary signing over assets to the well-plugging company Windcreek Services in exchange for the state releasing bond money to that company. 

The state hasn’t made a decision about whether to accept the proposal, but the Oil and Gas Conservation Commission has set December 10th as the deadline to decide.