_GENERAL DOCUMENTS - C1981017 (286)

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Mr. Robert Hagen -3- March 15, 1994 Office of Surface Mining Second, were the State to obtain title and sell the plant, such sale would probably be at a sheriffs auction. Generally, the returns from a sale of this nature are minimal. Given the severely undervalued nature of the security at present, it is in the best interest of both the State and OSM to maximize the returns of the sale. Therefore, such an action should be viewed as a last resort effort at obtaining reclamation funding. Further, the debtor-in- possession, Mid-Continent Resources, has been actively marketing the site. The response to the marketing has been positive, in that several offers have been tendered. In fact, Resources has indicated that an acceptable offer has been received, and will be tendered to the bankruptcy court for approval. Upon submittal, the Division will review the offer to determine whether it is acceptable or not. If the liquidation plan is approved in its current form, it will allow for collection and return to the State the proceeds of a sale of the bond security. It is estimated that no more than $350,000 of the $3 million liability will be realized from a court-approved sale. The liquidation plan does call for funding of site reclamation. However, only a portion of the actual amount of necessary funds will be supplied through the liquidating plan. If approved, the liquidating plan will give Resources credit for work accomplished by itself and an independent contractor. These credits, along with the proceeds of the bond security sale will be subtracted from the total secured claim of the State. In other words, the liquidating plan currently before the bankruptcy court contemplates completion of the reclamation at Coal Basin; however, only a partial payment in cash to the State will occur and, as a result, the reclamation bond will not be made whole. Because this plan does not make the bond whole, nor does it guarantee complete funding of the reclamation, the Board has directed the Attorney General to vote against the plan. It is widely held, however, that the court may accept the plan without the support of the State. Thus, the actual sale of the security will only minimally impact the reclamation project, and the liquidation plan essentially renders the bond as uncollectible. The net result of these actions is that it will be impossible for either Colorado or the OSM to collect the full amount of cash necessary to fulfill the $3 million obligation of Resources through the bankruptcy court action. Colorado is therefore depending upon the personal liability suit as the ultimate tool to be employed in the pursuit of the reclamation funds. Based upon the forgoing, it is apparent that Colorado has taken all steps which can reasonably be expected to obtain the reclamation funds. Colorado has revoked the operating permit and forfeited the bond. Colorado has made every attempt to collect the bond proceeds while maintaining as much value as possible in that instrument. Given the liquidation plan which has been proposed to Federal bankruptcy court, and to which the State objects, the reclamation bond recovered will never be valued at $3 million. Colorado has initiated a suit in District court in an attempt to secure additional funds for the purpose of accomplishing site reclamation. Further, Colorado and the Office of Surface Mining have entered into negotiations in order to outline a reclamation plan which accomplishes environmental objectives appropriate for this particular site. During this process, both agencies have agreed that the ultimate plan will be more closely aligned with Surface Mining Control and Reclamation Act Title IV standards rather than Title V requirements.