IN THE MATTER OF ALLEGED VIOLATIONS OF THE
CAUSE NO. 1
RULES AND REGULATIONS OF THE
COLORADO OIL AND GAS CONSERVATION
ORDER NO. 1V-157
COMMISSION BY DJ PRODUCTION SERVICES, INC.,
WELD COUNTY, COLORADO
REPORT OF THE COMMISSION
This cause came on for hearing before the Colorado Oil and Gas Conservation
Commission (the “Commission”), at 8:30 a.m., on August 17, 1998, in Suite 801,
The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving
Notice of Hearing as required by law, on why DJ Production Services, Inc. (“DJ”)
should be found in violation of certain Commission rules and regulations, and
why the Commission should invoke the provisions of §34-60-121 C.R.S., as
amended, to assess penalties for violations of the Rules and Regulations of the
Commission.
FINDINGS
The Commission finds as follows:
1. DJ 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, and that Mr. Jay Pape appeared on behalf of DJ
in accordance with Rule 517.c (3).
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.
4. On June 14, 1996, DJ submitted to Commission staff a Change of Operator, Form
10 requesting that the Commission approve DJ as operator for five wells located
in Weld County, Colorado, more particularly described as the Sargent Farms 2-B
Well located in the SE¼ NE¼ of Section 25, the Cuykendall #3 Well located in the
NW¼ NE¼ of Section 24, the Sargent Farms 1-A Well located in the NW¼ SE¼ of
Section 25, the Sargent Farms 2-A Well located in the SE¼ SE¼ of Section 25 and
the Sargent Farms 1-D Well located in the SE¼ SW¼, Section 25 all in Township 2
North, Range 63 West, Weld County, Colorado. Upon approval of the Form 10s the
Commission staff and DJ discussed well status for these wells and the
Commission’s concern that these wells had not produced since 1990. Accordingly,
Commission staff directed that the wells either be put on production, pass a
mechanical integrity test ("MIT") or be immediately plugged and abandoned. Staff
also informed DJ that the locations were not free from weeds and trash, the
wells had no signs and berms were not constructed around the stock tanks. DJ
assured the Commission staff that these wells would be put on production and the
well sites cleaned up as soon as DJ successfully negotiated a gas contract with
the local gas purchaser.
5. On November 11, 1996 the Commission staff did a routine inspection to update
the status of the wells. No clean up had been done on location, the wells were
not on production and a MIT had not been performed. Staff contacted DJ’s main
office in Fort Morgan concerning the inspections and lack of compliance and
requested a return call. The November 11th call was not returned. On January 13,
1997 the Commission staff inspected the location and checked records looking for
some evidence of production or MIT finding again no work had been completed.
Commission staff called DJ and explained that if a phone call was not returned
the staff would issue Notices of Alleged Violation ("NOAVs"). Jay Pape returned
the call the next day explaining there were various contract problems which
should be resolved within the next couple of days and the wells would be on line
producing within two (2) weeks. Commission staff allowed additional time for DJ
to negotiate a gas contract.
6. On March 14, 1997, the Commission staff again inspected the well sites and
found no work had been done and the wells were still shut-in. On this date
Commission staff issues five (5) NOAVs with an abatement date of June 14, 1997
requiring the wells to pass a MIT, be produced or plugged and abandoned.
7. On June 3, 1997 Commission staff notified DJ by phone that the NOAVs were due
by June 14, 1997 and if not abated, penalties could be assessed. DJ returned
this phone call and requested a meeting on location. Commission staff and DJ met
at location on June 18, 1997 at which time DJ advised that none of the requested
work had been completed, stating there were still problems associated with the
gas sales contracts for the well DJ was trying to work out. DJ requested a two
(2) week extension. The Commission staff approved this request.
8. On August 5, 1997, Commission staff inspected Sargent 2-B Well, Cuykendall #3
Well, Sargent Farms 1-A Well, Sargent Farms 2-A Well, and Sargent Farms 1-D
Well. Aside from DJ’s construction of two (2) well signs and one (1) berm none
of the requested work had been completed, and the wells remained in
non-compliance.
9. On August 8, 1997, Commission staff issued DJ a proposed Administrative Order
by Consent for non-compliance with the five (5) issued NOAVs.
10. During the week of August 18, 1997 Commission staff met with Mr. Pape on
behalf of DJ to discuss the proposed AOC. Mr. Pape informed Commission staff
that the Sargent Farms 2-B Well, Sargent Farms 1-A, Sargent Farms 2-A Well, and
the Sargent Farms 1-D Well were now back on production. Mr. Pape also advised
that the Cuykendall #3 Well, while not connected to a gas meter and without a
gas contract, was being vented periodically to the production tank. After
discussing these operations with Mr. Pape the Commission staff determined
Commission rules did not permit venting periodically into a production tank.
Commission staff then granted an additional extension until April 1, 1998, for
DJ to either produce the well, perform an MIT in accordance with Rule 326.b., or
to plug and abandon the Cuykendall #3 Well. Failure to produce, MIT or plug the
Cuykendall #3 Well by this date would cause the AOC to be immediately docketed
for hearing before the Commission.
11. On April 4, 1998, Commission staff contacted DJ at which time DJ advised
that the required work had not been completed. On June 3, 1998, Commission staff
inspected the Cuykendall #3 Well and confirmed that the required work had not
been performed.
12. At hearing, Commission staff provided testimony and presented exhibits to
support Commission’s staff’s allegation that DJ violated Rule 326.b. and in
support of Commission adoption of staff’s proposed order.
13. Mr. Pape provided testimony to explain prior production reports and
presented exhibits to show that the Sargent Farms 2-B Well was on production and
that negotiations were ongoing for a gas contract for the Cuykendall #3 Well.
14. Based on the explanation and information provided by Mr. Pape Commission
staff modified their proposed order to remove violations based on the status of
the Sargent Farms 2-B Well.
15. Commission staff asked the Commission to find DJ in violation of Rule 326.b.
for the Cuykendall #3 Well and require the work to be done by November 1, 1998,
with a fine of Two Thousand Dollars ($2,000). Commission staff acknowledged the
base fine of $1000 and recommended the fine be doubled based on aggravating
factors contained in Rule 523.d., including the fact the violation was
intentional or reckless (523.d (1)), that the violation had the threat of impact
on the environment (523.d (3)) and that the violation resulted in an economic
benefit to DJ (523.d (8)).
16. Based on the testimony presented, an order of the Commission should enter an
order finding DJ in continuing violation of Rule 326.b., failure to perform a
mechanical integrity test within two (2) years of initial shut-in date for the
Cuykendall #3 Well. Further, DJ should be required by November 1, 1998 to
either: 1) perform a successful mechanical integrity test; or 2) properly plug
and abandon; or 3) put the well on production. DJ should be assessed a total
fine of Two Thousand dollars ($2,000) for violation of Rule 326.b. for the well
based on the aggravating factors described above. If DJ does not comply with the
order, Commission staff should be directed to make a claim on the blanket
plugging bond and properly plug and abandon the well. If plugging and
reclamation costs exceed the bond amount Commission staff may confiscate
available equipment and tubulars for salvage per §34-60-124(6)(c), C.R.S.
ORDER
NOW THEREFORE, IT IS ORDERED, that the Commission adopts the findings and order
contained in Commission staff’s proposed findings and order, and hereby finds DJ
Production Services, Inc. in continuing violation of Rule 326.b., failure to
perform a mechanical integrity test within two (2) years of initial shut-in date
for the Cuykendall #3 Well located in the NW¼ NE¼ of Section 24, Township 2
North, Range 63 West, 6th P.M., Weld County, Colorado.
IT IS FURTHER ORDERED, that DJ Production Services, Inc. shall be required by
November 1, 1998 to either: 1) perform a successful mechanical integrity test;
or 2) properly plug and abandon; or 3) put on production the Cuykendall #3.
IT IS FURTHER ORDERED, that DJ Production Services, Inc. shall be assessed a
total fine of Two Thousand dollars ($2,000) payable within thirty (30) days from
the date the order is issued.
IT IS FURTHER ORDERED, that if DJ Production Services, Inc. does not comply with
the order, Commission staff shall be authorized to commence claim on the blanket
plugging bond. If plugging and reclamation costs exceed the bond amount
Commission staff may confiscate available equipment and tubulars for salvage per
§34-60-124.(6).(c). C.R.S.
IT IS FURTHER ORDERED, that the provisions contained in the above order shall
become effective forthwith.
IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after
notice and hearing, to alter, amend or repeal any and/or all of the above
orders.
ENTERED this 1st day of September, 1998, as of August 17, 1998.
OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
By Patricia C. Beaver, Secretary
Dated at Suite 801, 1120 Lincoln Street Denver, Colorado 80203 September 1, 1998
(1V#157)