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Kinder Morgan hit with $220,000 fines for violations ‘Pattern of rulebreaking’ drew attention

DENVER – Kinder Morgan will pay up to $220,000 in fines for a pattern of environmental violations at carbon dioxide wells it drilled last year between Cortez and Dove Creek.

The problems ranged from paperwork violations to spills and improper storage of drilling waste.

Kinder Morgan failed to notify the state in writing at least two days before building a drilling waste pit, and its well sites disturbed more land than the permit allowed.

The company also stored drill cuttings on a liner, which overflowed with rainwater and flowed onto the soil.

“Nothing left the (well) pad. They were just essentially sloppy with leaving them on the pad,” said Peter Gowen, an enforcement officer for the Colorado Oil and Gas Conservation Commission.

In ordinary gas or oil wells, drill cuttings can be tainted with hydrocarbons. But because these were carbon dioxide wells, the main concern was chlorides, which make the soil salty and unhealthy for plants, Gowen said.

Kinder Morgan pleaded its case in a letter to the COGCC. Company officials said they notified the COGCC by phone before they built the waste pit, and they determined the rainwater spill to be much smaller than the five barrels it would take to trigger a report to regulators.

On Tuesday, Kinder Morgan and the COGCC agreed the company should pay a $220,000 fine – at least $140,000 in cash and up to $80,000 by doing some sort of project for the public benefit.

“Kinder Morgan takes this situation seriously and has implemented a ‘closed-loop system’ for all drilling activities,” according to a statement from the company sent by spokeswoman Emily Mir.

All current and future wells will be drilled with a closed-loop system, which stores waste from underground in steel tanks. Also, the company has hired five new people to focus on compliance with regulations, and it has hired third-party environmental firms to do weekly inspections of drilling sites, according to the statement.

Kinder Morgan has not identified a public service project yet, Gowen said. Other companies that have used the same approach have spent money on habitat improvement, like streamside restoration.

The company faced a maximum possible fine of $246,000, but COGCC Director Matt Leopre approved a 10.5 percent discount because the company took quick action to fix the problems.

Dan Bangs owns the land where one of the wells was drilled.

He and his three kids enjoy watching the drillers work from a distance, and he said Kinder Morgan has always been a good partner.

“They hadn’t really done anything wrong, as far as I could see,” Bangs said. “I don’t know what happened on the other sites, but on ours, I don’t know why they’re getting fined.”

Although none of the problems was major, there was a pattern of rulebreaking, Gowen said.

“They have cleaned up all the sites. They’re now currently in compliance. But the problems we saw were the violations they had were systematic. We needed to get their attention,” Gowen said.

The goal of the COGCC’s enforcement program is to get companies to change their ways, Gowen said. Fines are a means, not an end.

Several Democratic legislators who are critical of the COGCC attempted to pass a bill this year to increase the maximum daily fine to $15,000 and implement minimum fines for the worst violations. But they withdrew the bill after it was weakened by lobbying by Gov. John Hickenlooper, who wanted the COGCC to retain the power to lessen fines.

This is the first time Kinder Morgan has been in trouble with state inspectors since 2007, when it was charged with rule violations for drilling two wells before their permits were approved, according to COGCC records.

Kinder Morgan is the leading carbon dioxide producer in the country, thanks to its wells in Southwest Colorado.

The CO2 is sent by pipeline to Texas, where it is used to pressurize oil fields.

The firm, based in Houston, is primarily a pipeline and energy distribution company. It’s the third-largest midstream energy company in North America, with a combined value of $115 billion.

In the first three months of 2013, Kinder Morgan posted $585 million in profit.