Texas company acquired 100 oil and gas wells in Utah, then disappeared into bankruptcy

Bonanza, Uintah County • The most ominous thing about the North Bonanza oil field is not the hardened crude puddled beside corroded storage tanks, the black stains on the ground around the rusting pump jacks, the weeds growing high against equipment, unsecured sheds with their contents pouring out, buckets of congealed oil in random spots, or even the rodents inhabiting various valve boxes.

It’s the hissing noise.

That’s the sound of gases escaping from cracks in wellheads that haven’t moved oil in at least six years. You can feel the rush of gas against your hand if you hold it next to the wellhead. Drilled in the 1960s, these derelict wells will likely never produce again and should have been plugged years ago, yet they remain a blight on the eastern Utah landscape with no resolution in sight.

“The reason that they’re leaking is partially because they’ve been neglected for so long. There are tens of thousands, probably more far more than that, wells across the country that are basically in a state like these ones,“ said Andrew Klooster, a field advocate with Earthworks who recently visited the field. “They’re at the end of their lifecycle. There’s no profit that’s being made. There’s nothing that’s happening at them. But as long as that hole, the well itself, remains unplugged, there’s a potential for pollution to occur because there’s still pressure and all it takes is a crack in the casing or the wellhead.”

Deploying high-tech optical gas imaging cameras, Klooster recently visited the North Bonanza field, 35 miles south of Vernal, to document emissions from its wells that have been idle for years as the onsite equipment rusts. A Colorado-based nonprofit Earthworks works to raise public awareness of the risks associated with mineral extraction.

North Bonanza is one of several zombie oil and gas fields operating on public lands in Utah where hundreds of wells sit idle when they should — according to state and federal regulations — either be put back into production or “plugged and abandoned,” meaning fully reclaimed. Instead, many are producing nothing but risks to the environment, public safety and taxpayers. Whatever the circumstances, these wells were taken offline because their meager output no longer justified keeping them in production, especially in past years when oil and gas prices were low.

According to federal records provided under the Freedom of Information Act, 642 unplugged wells remained on federal land in Utah this year that haven’t produced “paying quantities” of oil and gas in four or more years. There are another 400 unplugged wells on state and private land, according to the Utah Division of Oil, Gas and Mining, or DOGM.

In many cases, officials say, the idled wells are being responsibly managed by their operators, who may be looking for a buyer, building a pipeline, or waiting for a crew to become available to plug or rework them. Or they are waiting for energy prices to rebound.

Then there is Texas oilman Bill Gilmore, president and the apparently sole employee of Weststar Exploration Co., the putative operator in the North Bonanza field and several other oil and gas plays in Utah’s Uinta Basin. According to court records, the bankrupt WestStar has failed to take care of its 100 wells on both state and federal land, leaving a massive cleanup tab for taxpayers and ongoing threats to the basin’s air quality, wildlife habitat and groundwater.

The Bureau of Land Management was not able to take control of Weststar wells on federal lands or hold the company accountable because of bankruptcy proceedings in Nevada. (While Weststar is neither based in nor operates in the Silver State, the company incorporated there in 2000.)

‘Plug or produce’

Utah BLM officials acknowledged the problem the Weststar debacle represents, while pointing to numerous steps the agency is now taking to get old wells properly plugged and reclaimed, as well as policy changes requiring industry to assume a larger share of the clean costs.

The days of inadequate reclamation bonds are coming to end under new requirements for unproven operators to post sureties that can cover plugging costs for all their wells, according to Matt Janowiak, the minerals program support manager in the Utah state office. These sureties are posted upfront to ensure sites are properly reclaimed even if the operator runs out of money.

“We want to bond appropriate with what we feel to be the risk that the BLM is holding as far as liabilities. As these companies change hands, we’re looking at who the new company is. And if we don’t know them and they don’t have a track record, we’re allowed to bond to what we call the full bonding. That is becoming more and more common in the BLM, Janowiak said. “If we had to hire a contractor to plug .... and reclaim all the wells, that’s the bond amount that we’re going to hold.”

Depending on the number of wells, their depth and their complexity, plugging costs can run into the millions

Previously, operators like Gilmore could get by with just a “statewide” bond, covering all their federal wells in the state for as little as $25,000. With reclamation costs averaging upwards of $100,000 per well, such bonds fall far short of ensuring compliance, particularly for financially marginal operators sitting on idled wells whose daily output won’t exceed more than few barrels were they brought back on line. It makes more sense to just walk away, or in Gilmore’s case, seek bankruptcy protection.

[BLM wants bidders to reclaim unplugged wells as condition for getting oil and gas leases]

Sometimes there are legitimate reasons to keep wells “shut-in,” the term for when a well is taken out of production with the expectation it will be worked again. But in general, the BLM is trying to get the owners of non-productive wells to either plug them or bring them into production, according to Janowiak.

“There are certain times when we’re a little bit constrained as to how hard we can push a company,” he said. “If they’re showing due diligence in securing a pipeline right of way, we may accept that well being shut in for an extended period of time, years in some cases. If there’s no due diligence and they’re just sitting on that well and using it on their books as an asset, but making no diligent efforts to bring that well under production, we’ll push them. It’s plug or produce.”

No one home

Accounting for about a tenth of Utah’s unplugged wells, Weststar is an outlier, but it is hardly alone. Many other poorly resourced operators have acquired marginal wells, then failed to keep them online.

A few miles east of Bluff, for instance, just outside the boundaries of Bears Ears National Monument, an obscure company called Diversified Energy LLC is the designated operator of four unplugged oil wells, none of which has regularly produced since 2014.

At one well, tangles of barbed wire fence had fallen over near a rusting pump jack that was erected in the 1980s. At another, jugs of sun-bleached engine oil were abandoned years ago. Equipment had leaked onto the ground in numerous places, leaving petroleum stains on the dirt.

The site’s placard incorrectly indicates Cullum Oil and Gas Inc. as the operator. According to DOGM records, that company sold the leases back in 2011 to a firm called Oil and Gas Well Acquisitions Inc., which later changed its name to Diversified Energy, based in Parker, Colo. Diversified’s Utah business registration has been expired since 2013. According to DOGM production logs, the wells are reopened every couple of years for a month or two, yielding just enough oil to fill a tanker truck. Messages left at the phone numbers associated with the company were not returned.

The list of Utah’s unplugged wells features many companies like Diversified — minimal field presence, few if any employees, no one answering the phone. But Weststar stands out for the sheer magnitude of the mess it is leaving.

Over the years Gilmore has acquired about 100 wells in Utah, half on federal leases overseen by the BLM and the other half on state trust lands overseen by DOGM. All are now shut-in with little prospect of ever producing again, despite claims Gilmore has made to a bankruptcy judge.

He did not respond to numerous emails and voice messages, but in his bankruptcy testimony, he blamed land managers and the poor quality of the Uinta Basin’s workforce for his troubles.

Gilmore earned a degree in mechanical aerospace engineering from Oklahoma State and went to work for Halliburton after graduating in 1973, according to his testimony. He went independent in 1979 and has put oil and gas deals together in nine states. Gilmore Oil & Gas, his first company, went bankrupt in 1997 and he formed Weststar as a Nevada corporation in 2000, later amassing state and federal leases on 90,000 acres in Utah.

Bankruptcy upon bankruptcy

In the North Bonanza field, Gilmore himself drilled several wells as Gilmore Oil & Gas in the early 1990s. They each produced up to 1,000 or more barrels a month in their early life. But as is the case with most oil wells, production tapered sharply after several years. They were not yielding much oil by 1997 when Gilmore transferred them to a Roosevelt-based company called Cochrane Resources.

According to Cochrane principal Ken Allen, Cochrane took over operation of the wells, while ownership remained with Gilmore. In a phone interview, Allen said the wells were “a mess” and leaking when he assumed control in 1997. He operated them long enough to get the wells into compliance and resume production, before handing them back to Gilmore under a new company, Weststar Exploration.

The North Bonanza wells did not yield much after that, 10 to 30 barrels a month each, and they have been shut-in since 2016, according to DOGM’s production database. It doesn’t appear these sites have since gotten much attention, except from rodents and vandals.

The BLM says its inspectors regularly check on these wells and record readings off their pressure gauges. Rising pressure can lead to a failure at the wellhead if it is not built to withstand elevated pressure, while dropping pressure can indicate a downhole failure, like corrosion in the casing allowing hydrocarbons or tainted water to escape into the ground, according to Janowiak.

Despite their dilapidated appearance, the condition of the North Bonanza wells has not reached a point where they pose a risk of severe environmental damage, he said.

“A whisper of methane or something like that probably isn’t going to be considered an imminent risk or public health risk at this point,” Janowiak said. “Yes, it is a greenhouse gas, but it has to be blowing out quite a bit of methane.”

On Weststar’s state leases, DOGM has taken more aggressive action against the company, issuing $400,000 in fines for ongoing violations and revoking its privilege to operate in Utah. The Utah School and Institutional Trust Lands Administration (SITLA) has terminated all of Weststar’s state leases and taken steps to contain pollution releases from most of the company’s 46 wells on those canceled leases, according to court records.

Meanwhile, Gilmore has fought with SITLA in bankruptcy court where he recently tried to convince a judge to allow him to keep operating.

‘Tip of the iceberg’

Under Utah rules, which apply to oil and gas leases on state and private land, wells may be shut-in for a year. After that operators should present a reason for staying offline and a plan for putting them back in production

“From 12 to 60 months, they need to let the division [DOGM] know what the status of the well is and what their plan for the well is and demonstrate that the well is not creating any harm,” said Bart Kettle, who heads DOGM’s oil and gas section. “And after 60 months, it really needs to be a good cause for the well to remain shut-in.”

Weststar’s gas wells on state leases were producing until a few years ago, but DOGM inspectors stepped in after discovering leaks from wellheads and tanks holding condensates. After the company failed to fix the equipment as ordered, DOGM shut the wells down and SITLA began cleaning up the sites.

Gas continues to leak from two wells, triggering the fines that maxed out at $200,000 for each well, according to court records. Meanwhile, Weststar has stiffed SITLA on $158,000 in unpaid royalties and Uintah County on various property taxes.

DOGM tries to take a proactive approach with noncompliant operators, helping them get unprofitable wells plugged or producing, Kettle said. Much of the time, these efforts bear fruit. Other times, operators disappear and their wells become public liabilities known as “orphans.”

“In Utah, we’ve got a really low orphan well count. It’s not an accident. That’s a process of decades of active management,” Kettle said. “Today’s idle well is the highest risk of becoming tomorrow’s orphan well. So if you can do a good job with your idle well management today, then by default, you’re probably going to have fewer orphaned wells in the future.”

State officials are holding out hope a responsible operator can be brought in to to take over the 46 Weststar wells on SITLA leases, ultimately keeping them off the orphan well list.

Currently, there are 47 wells on DOGM’s official orphan well list, 25 on private, 10 on state and 12 on federal land. Lacking a “responsible party,” they are now the responsibility of government agencies to plug. Some of these expenses are funded by a 0.2% levy on oil and gas production, but millions in plugging costs are now being covered through the Infrastructure bill enacted last year.

Klooster contends this official count represents just “the tip of the iceberg” because officials are hesitant to acknowledge how widespread the problem really is. Aside from the listed wells many times more than that are “functionally orphaned,” such as those held by Diversified and Weststar.

“They’re not productive wells. They don’t really have any future in which they’ll be productive, but they haven’t been included in the program yet,” Klooster said. “If there was a full admission of the scale of the problem, there’d be a lot more public outrage. It’s a lot easier to kick the can down the road, and not really reveal to the public just how much of the oil and gas infrastructure in this country is ultimately unproductive and is a potential source of physical spills and a continuous source of air pollution.”

‘I have a plan’

The Weststar bankruptcy sheds some light on the trouble unsecured wells cause for land managers. Gilmore stopped paying royalties on gas production from his nine state leases in 2018, prompting SITLA to cancel the leases in June 2021, according to court documents. That year, SITLA personnel scrambled to clear liquid hydrocarbons and wastewater from the equipment at the remote well sites west of Bonanza.

Kettle was among the state officials who testified at a March 7 bankruptcy proceeding where SITLA objected to Weststar’s attempt to claim the canceled state leases as assets worth $4.5 million. Those leases were in reality massive liabilities that Gilmore was trying to evade through Chapter 11 bankruptcy proceedings, according to SITLA’s filings.

“If the equipment and tanks are allowed to freeze, which they are in imminent danger of doing as winter approaches, they may crack, burst, and leak environmentally hazardous substances on and into the ground and/or air,” SITLA staffer Tyson Todd wrote in a court declaration. “The Debtor has insufficient funds to pay SITLA and DOGM what they are owed in order to reclaim the property, much less pay for the cleanup and collection of the [equipment] from real property that it no longer has a right to access.”

Gilmore had posted $120,000 reclamation bond on his state leases, far short of the $2.4 million needed to properly plug the wells, according to Kettle’s testimony at the hearing in a federal bankruptcy court in Reno.

In response to questions from SITLA’s lawyer, Gilmore laid the blame for his predicament at the feet of regulators and land managers.

“The people you’re representing specifically kept me from operating where I could have income. Makes me sick, actually, since the prices are so high. I would have had them paid off by now if I hadn’t gone through this [boloney],” Gilmore said, according to a court transcript, which used the word “bologna.”

He claimed it was impossible to get locals to work his wells.

“I’ve talked to people about coming to work to be a pumper, whatnot, and they say, ‘Well, we make more money being on unemployment,’ and I said, ‘Well how long is that going to work?��” Gilmore testified. “And they — the workers over there are the worst I’ve ever seen anywhere, and I’ve been literally all over the country — and they don’t want to do something. They’ve all got 40 acres, and they can grow some hay, feed some cows, that kind of thing.”

He claimed to have invested $2 million to improve gas production from these SITLA leases and worked out a $3.5 million deal with a major oil and gas producer.

“I have a plan. And that plan cannot be effectuated until I have an agreement with both SITLA, DOGM, and, additionally, the BLM,” he told the judge. “It would be part my money, part new money, and part loans, and selling, potentially selling off an interest in this project of which I own a hundred percent working interest in most of the wells.”

With the recent run-up in oil and gas prices, he said could find more financing to get his fields producing again, he just needed more time and forbearance.

“I’d just go back to my list of people, you know, smile and dial,” he testified. “I don’t know what I’m going to do. It depends on what happens in the world.”

After the hearing, Judge Natalie Cox concluded those “working interests” were worthless and voided Gilmore’s ownership of the state leases “In Order To Avoid Imminent And Irreparable Environmental Harm.”

Gilmore appealed the ruling.

Reporter Zak Podmore and documentarian Bethany Baker contributed to this report.

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