BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF BLACK RAVEN ENERGY, INC. FOR AN INACTIVE WELL FINANCIAL ASSURANCE VARIANCE FOR THE ADENA FIELD, MORGAN COUNTY, COLORADO

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CAUSE NO. 1 DOCKET NO. 1403-GA-02 ORDER NO. 1-186

REPORT OF THE COMMISSION

The Commission heard this matter on March 17, 2014, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to: (1) approve an agreement with the Director, as provided for by Rule 707., regarding financial assurance for “excess inactive wells”, and (2) approve an agreement with the Director, under Rule 326.b., regarding a plan to plug and abandon, perform a mechanical integrity test, or return to production, a list of 124 shut-in wells.

FINDINGS

The Commission finds as follows:

1.         Black Raven Energy, Inc., a subsidiary of EnerJex Resources, Inc. (“Black Raven” or “Applicant”), as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2.         Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3.         The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act.  

4.         Rule 326.b. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that a mechanical integrity test on each shut-in well within two years of the initial shut-in date. A mechanical integrity test shall be performed on each shut-in well on five year intervals from the date the initial mechanical integrity test was performed. If, at any time, surface equipment is removed or the well becomes incapable of production, a mechanical integrity test must be performed within thirty days.

5.         Rule 707.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that to the extent that an operator's inactive well count exceeds such operator's financial assurance amount divided by ten thousand dollars ($10,000) for inactive wells less than three thousand (3,000) feet in total measured depth or twenty thousand dollars ($20,000) for inactive wells greater than or equal to three thousand (3,000) feet in total measured depth, such additional wells shall be considered “excess inactive wells.” For each excess inactive well, an operator's required financial assurance amount under Rule 706 shall be increased by ten thousand dollars ($10,000) for inactive wells less than three thousand (3,000) feet in total measured depth or twenty thousand dollars ($20,000) for inactive wells greater than or equal to three thousand (3,000) feet in total measured depth. Rule 707.a requirement shall be modified or waived if the Commission approves a plan submitted by the operator for reducing such additional financial assurance requirement, for returning wells to production in a timely manner, or for plugging and abandoning such wells on an acceptable schedule.

6.         On January 7, 2014, Black Raven filed with the Commission a request for a Variance from Rule 326.b. and Rule 707.a. for its inactive wells and requests an Agreement with the Oil and Gas Conservation Commission wherein it will acknowledge the shut-in and temporarily abandoned wells. Black Raven currently has 158 wells within the Adena Field, 20 wells are producing, 14 are active injection wells, 124 are “inactive wells”.  Black Raven currently has $500,000 in financial assurance, which is the equivalent of 25 inactive wells.  Black Raven has 99 “excess inactive wells” and is required to post $1,980,000 in additional financial assurance.  Black Raven requests that the $1,980,000 requirement be modified by the Commission approving its plan for reducing the requirement by returning the inactive wells to production in a timely manner, or by plugging and abandoning such wells on an acceptable schedule.

7.         The parties request that the Commission enter an order approving the Agreement between the Director and Black Raven, as is referenced in Finding No. 6. The Commission hereby finds that the $500,000 for the excess inactive wells is sufficient. In accordance therewith, COGCC Staff should continue to monitor the number of wells being plugged and abandoned, or returned to production, and make recommendations to the Commission regarding the implementation of the schedule referred to in Finding No. 6 above and the adequacy of the financial assurance posted thereon. Further, Black Raven shall provide an annual written report to COGCC Staff detailing operations and the results of any mechanical integrity tests performed pursuant to terms of the Agreement. Furthermore, under the terms of said Agreement, COGCC Staff expressly reserves the right to take enforcement action consistent with violations of the Rules as modified herein.

ORDER

IT IS HEREBY ORDERED:

1.         The Agreement between the Director and Black Raven, and attached hereto as Exhibit A, is hereby approved, and, accordingly, Black Raven’s financial assurance requirement, set forth in Rule 707.a. is hereby modified, and Black Raven shall submit and maintain a $500,000 financial assurance for those excess inactive wells referenced in Finding No. 6 above.

2.         The mechanical testing requirements set forth in Rule 326.b. are hereby modified under the terms of said Agreement and, accordingly,

a. Black Raven is hereby required to plug and abandon, return to production, convert to injection or otherwise complete for the purpose of enhanced oil recovery, 20 wells per calendar year starting in 2014, through 2018.

b. Black Raven will submit and annual report to the COGCC by January 20^th of each year that identifies each well it plugged and abandoned, returned to production, converted to injection, or otherwise completed for the purpose of enhanced oil recovery, and if returned to production, the well’s current status and monthly production since being returned to production.

c. If Black Raven fails to plug and abandon, return to production, convert to injection or otherwise complete for the purpose of enhanced oil recovery, 20 wells per calendar year, Black Raven will be requires to increase its bond by $20,000 multiplied by the difference between 20 and the number of wells it plugged and abandoned, returned to production, converted to injection or otherwise completed for the purpose of enhanced oil recovery. The increased bonding amount will be submitted to the COGCC by February 1^st of each calendar year beginning in February 2015.

d. If Black Raven plugs and abandons, returns to production, converts to injection or otherwise completes for the purpose of enhanced oil recovery more than 20 wells in a calendar year, it may reduce the number of wells required in the following year by the number of wells greater than 20 wells it plugged and abandoned, returned to production, converted to injection or otherwise completed for the purpose of enhanced oil recovery in the preceding year.

e. If at any point during the five year plan, Black Raven has plugged and abandoned, returned to production, converted to injection or otherwise completed for the purpose of enhanced oil recovery fewer than 20 wells in a calendar year and has not increased its bond amount as required under (c) above, by February 15^th, of the next calendar year, the COGCC may institute an enforcement proceeding to compel Black Raven to immediately comply with Rule 707.a. by meeting the full bonding requirements for all inactive wells owned or operated by Black Raven as well as all applicable penalties under COGCC rules related to Black Raven’s violations of Rule 707.

3.         Black Raven’s obligations under Rule 326.b. and Rule 707.a., as modified by this Agreement, shall be subject to weather conditions, equipment availability, delays caused by farming operations and other surface owner issues or restrictions and the relevant compliance periods shall be extended by the number of days BRE's operations were delayed by any such conditions subject to notice and approval by the COGCC staff. If BRE claims that such an extension is necessary, it will notify the COGCC staff, in writing, of the conditions that justify the extension and the date the condition commenced and ceased.        COGCC Staff may, in its discretion, approve the extension requested.

4.         Black Raven shall provide an annual written report to COGCC Staff, on or before January 30 of each year that this Agreement remains in effect, detailing operations and the results of any mechanical integrity tests performed pursuant to terms of the Agreement for the yearly periods ending December 31^st of each year.

5.         Black Raven shall perform Bradenhead testing annually on all inactive wells.

6.         Black Raven shall annually sample 10 domestic water wells pursuant to Rule 609 of the Commission Rules and Regulations.

IT IS FURTHER ORDERED:

1.         The provisions contained in the above order shall become effective immediately.

2.         The Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

3.         Under the State Administrative Procedure Act the Commission considers this Order to be final agency action for purposes of judicial review within 35 days after the date this Order is mailed by the Commission.

4.         An application for reconsideration by the Commission of this Order is not required prior to the filing for judicial review.

ENTERED this 28^th day of March, 2014, as of March 17, 2014.     

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary

For Exhibit A, please see the complete scanned order

in the on-line hearing file.