Special Report: Anadarko's Next Play? Stave off the Regulators and Litigants

Colorado Well Explosion

An April 17 explosion in a Firestone, Colorado home, which resulted in two fatalities, and critically injured a third person, with preliminary results pointing to an Anadarko well, has spurred an investigation by Colorado regulators and a shareholder lawsuit. Firestone is located 30 miles north of Denver, and within the Denver-Julesburg (D-J) Basin, a major operation center for Anadarko and other E&Ps. Uncertainty surrounding the outcome of the investigation is linked to a nearly 14% drop in the Anadarko's stock price and calls into question Anadarko's future takeaway capacity. Anadarko will continue to be the subject of increased regulatory scrutiny in Colorado as well as related litigation, and other states may order preventive measures such as immediate inspections or even peremptory shutdowns of similarly situated wells.



Earlier this week, the Frederick-Firestone Fire Department, which had investigated the blast with the assistance of the Colorado Bureau of Investigation and the Colorado Oil and Gas Conservation Commission (COGCC), announced that the cause of the explosion was unrefined, non-odorized gas that entered the home from a cut, abandoned gas flow line attached to an oil and gas well that had been disconnected from the wellhead and capped. This previously inactive well, which was restarted by Anadarko in January, was located 178 feet from the home.


On May 2, the COGCC issued a "Notice to Operators" that requires all gas operators in Colorado to take certain preventive and corrective actions, including inspecting all flowlines within 1,000 feet of an occupied building and capping any inactive flowlines by May 30. State regulators have not alleged that Anadarko has violated any applicable statute or regulation with regard to the explosion. On April 28, it was reported that certain pressure tests that detect whether underground oil and gas pipelines are leaking may not have been conducted on the well. But it is unclear whether those standards applied to the well, as the COGCC rules do not require pressure tests on smaller pipelines operating at pressures lower than 15 pounds per square inch. In adjacent Adams County, the County Commission last week requested that all oil and gas operators to immediately inspect their vertical wells located within 250 feet of occupied buildings in the county. 

Legal Liability

While this state investigation is in progress, Anadarko is likely conducting its own, parallel investigation to determine its liability and future risk, and to inform its future actions. In this regard, on May 2, Anadarko announced that it would voluntarily shut down 3,000 of its vertical wells in northeast Colorado to conduct inspections. At a minimum, it appears that Anadarko might be civilly liable for the deaths and injuries resulting from the April 17 explosion, although Anadarko has not disclaimed responsibility. 


In addition, an Anadarko shareholder recently filed suit against Anadarko and its Chief Executive Officer and Chief Financial Officer in the U.S. District Court for the Southern District of Texas in Houston, alleging, chiefly, that Anadarko and its CEO and CFO made materially false and misleading statements regarding its maintenance and safety procedures. The plaintiff also alleges that Anadarko's safety and maintenance procedures were inadequate, and that the wells were therefore at an increased risk of explosion. 


The plaintiff seeks damages related to the decrease in Anadarko's share price, which, allegedly, was caused by Anadarko's false and misleading statements. The plaintiff seeks to have the suit approved as a class action, to include all other similarly situated shareholders. The court has directed that the initial scheduling conference will be held on August 25, 2017. In the meantime, the parties must meet to discuss the case and to prepare a joint case management/discovery plan to be filed with the court by August 11. 

Operational Effects

In addition, the well explosion will likely affect Anadarko's gas pipeline operations. According to our data, as of Q2 2017 the company has firm commitments for transportation capacity relevant to Colorado's D-J Basin on two interstate transmission pipelines - Colorado Interstate Gas Company and Cheyenne Plains Gas Pipeline - both 100% Kinder Morgan-owned assets. Contractual commitments of 450,000 Dth/d and 194,940 Dth/d, respectively, on these assets make Anadarko the largest or second largest shipper for those pipelines' contracted capacity.

Anadarko Firm Transportation Contracts in Colorado