IN THE MATTER OF ALLEGED VIOLATIONS OF THE CAUSE NO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE          CAUSE NO. 1
RULES AND REGULATIONS OF THE COLORADO OIL
AND GAS CONSERVATION COMMISSION BY                     ORDER NO. 1V-160
WESTERN OPERATING COMPANY,                                        AMENDED
KIOWA COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on October 19, 1998 at 8:30 a.m. in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing, as required by law, on why Western Operating Company is in violation of Rule 326.b. and Rule 707.a. of the Oil and Gas Conservation Commission (“COGCC”), and why the COGCC should not invoke the provisions of §34-60-121 C.R.S., as amended, providing for penalties for violations of the Rules and Regulations of the Commission.

FINDINGS

The Commission finds as follows:

1. Western Operating Company (“Western”) 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 of the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On December 23, 1994 COGCC staff sent a request notice to Western for a status update on fifteen (15) shut-in and temporarily abandoned (“SI/TA”) wells in the Brandon Field, Kiowa County, Colorado. The notice included a notation to comply with Rule 324.b. (now Rule 326.b.) by performing a mechanical integrity test (“MIT”) within six (6) months or plug and abandon the wells.

5. On February 1, 1995 COGCC staff received a letter from Mr. Steven D. James with Western. The letter requested an extension of the six (6) months specified in the request notice of December 23, 1994.

6. On February 8, 1995 COGCC staff sent a reply letter to Mr. James. The letter granted Western an extension to August 1, 1996 to bring the fifteen (15) wells into compliance. The letter detailed that compliance could be secured by either putting wells on production, performing a successful MIT on wells, or by plugging and abandoning wells.

7. On February 27, 1996 COGCC staff sent Notices of Alleged Violations (“NOAVs”) to Western for fourteen (14) of the wells listed in the letter of February 8, 1996. The NOAVs cited Rule 324.b., all shut-in wells shall pass a MIT. The abatement action required that the wells either be put on production, pass a MIT, or be plugged and abandoned. Per return receipt the NOAVs were received on February 28, 1996. The following five (5) wells have not been brought into compliance to date:

Well Name Location
Dawson #2 SW¼ SW¼ Sec 3-19S-45W
Dawson #9 NW¼ SW¼ Sec 3-19S-45W
Harrison #1 NE¼ SE¼ Sec 9-19S-45W
Harrison #5 NW¼ NE¼ Sec 9-19S-45W
USA Butler #2 NW¼ NE¼ Sec 10-19S-45W

8. On June 27, 1996 COGCC staff sent NOAVs to Western for seven (7) additional wells. The NOAVs cited Rule 326.b., all shut-in wells shall pass a MIT. The abatement action required that the wells be either put on production, pass a MIT, or be plugged and abandoned. An undated return receipt for the NOAVs was received by the COGCC on July 3, 1996. The following five (5) wells have not been brought into compliance to date:

Well Name Location
NWBU #1-I SW¼ SW¼ Sec 33-18S-45W
NWBU #3 NE¼ NW¼ Sec 4-19S-45W
NWBU #4 SW¼ NW¼ Sec 4-19S-45W
NWBU #6 NE¼ SW¼ Sec 4-19S-45W
NWBU #7 SW¼ SW¼ Sec 4-19S-45W

9. On November 12, 1996 COGCC staff sent a NOAV to Western for one (1) additional well. The NOAV cited Rule 326.b., all shut-in wells shall pass a MIT. The abatement action required that the wells be either put on production, pass a MIT, or be plugged and abandoned. Per return receipt the NOAV was received on November 14, 1996. The well has not been brought into compliance to date:

Well Name Location
McCormick #1 NE¼ SW¼ Sec 26-18S-45W

10. On December 17, 1996 COGCC staff sent NOAVs to Western for two (2) additional wells. The NOAVs cited Rule 326.b.1., all shut-in wells shall pass a MIT. The abatement action required that the wells be either put on production, pass a MIT, or be plugged and abandoned. Per return receipt the NOAVs were received on December 19, 1996. The two (2) wells have not been brought into compliance to date:

Well Name Location
Dawson Unit #1 SW¼ SE¼ Sec 4-19S-45W
Pyles #3 NW¼ NW¼ Sec 10-19S-45W

11. COGCC staff included a letter to Western with the NOAVs of December 17, 1996. The letter listed nineteen (19) SI/TA wells for which NOAVs had been issued for violation of Rule 326.b. The nineteen (19) wells remained in noncompliance with Rule 326.b. The letter required Western to bring one (1) well per month into compliance. To date, the thirteen (13) wells listed in Findings #7, #8, #9, and #10 have not been brought into compliance.

12. On November 7, 1997 COGCC staff sent a letter to Western requiring an additional Seventy Thousand Dollar ($70,000) bond per Rule 707.a. to cover wells listed as SI/TA according to COGCC records.

13. On December 29, 1997 Mr. Steven D. James with Western responded to the COGCC letter of November 7, 1997. The letter did not detail plans for submitting additional bond.

14. On February 26, 1998 COGCC staff sent a NOAV to Western. Per return receipt the NOAV was received on February 28, 1998. The NOAV cited a violation of Rule 707.a. and required that Western submit an additional Thirty-five Thousand Dollar ($35,000) bond to cover the following thirteen (13) SI/TA wells:

Well Name Location
McCormick #1 NE¼ SW¼ Sec 26-18S-45W
NWBU #1-I SW¼ SW¼ Sec 33-18S-45W
Dawson #2 SW¼ SW¼ Sec 3-19S-45W
Dawson #9 NW¼ SW¼ Sec 3-19S-45W
Wear #3 SE¼ SE¼ Sec 3-19S-45W
NWBU #3 NE¼ NW¼ Sec 4-19S-45W
NWBU #4 SW¼ NW¼ Sec 4-19S-45W
NWBU #6 NE¼ SW¼ Sec 4-19S-45W
NWBU #7 SW¼ SW¼ Sec 4-19S-45W
Dawson Unit #1 SW¼ SE¼ Sec 4-19S-45W
Harrison #1 NE¼ SE¼ Sec 9-19S-45W
Harrison #5 NW¼ NE¼ Sec 9-19S-45W
Pyles #3 NW¼ NW¼ Sec 10-19S-45W

15. On July 9, 1998 COGCC staff sent an Administrative Order of Consent (“AOC”) to Western. Per return receipt, the AOC was received by Western on July 10, 1998.

16. On July 13, 1998 Western submitted additional bonding in the amount of Thirty Five Thousand Dollars ($35,000).

17. In accordance with Rule 523.d., COGCC staff considers the following to be aggravating factors for fine determination; 523.d.1., the violation was intentional or reckless; 523.d.2., the violation had threat of significant negative impact on public health, safety, or welfare; 523.d.6., the violation involved recalcitrance or recidivism upon the part of the violator; and 523.d.8., the violation resulted in economic benefit to the violator.

18. Based on testimony and exhibits presented by COGCC Staff and Western, an order of the Commission should be entered finding Western in violation of Rule 326.b., all shut-in wells shall pass a MIT, for thirteen (13) wells and Rule 707.a., for each excess inactive well, an operator’s required financial assurance amount shall be increased. In addition, a fine of Thirteen Thousand Dollars ($13,000) should be assessed.

19. The Commission should require Western to bring the thirteen (13) wells listed into compliance with Rule 326.b. The Commission should require that Western test, produce or plug and abandon four (4) wells by January 1, 1999. Thereafter, Western should plug and abandon one (1) well every sixty (60) days, until all of the wells are either properly plugged and abandoned in accordance with Commission rules and regulations, are placed on production or a successful MIT is performed. If evidence of any injury or threat of injury to public health, safety or welfare exists with respect to any Western well, the Commission and Western should revise the plugging schedule and work to immediately mitigate the injury.

ORDER

NOW, THERFORE IT IS ORDERED that Western Operating Company shall be found in violation of Rule 326.b., all shut-in wells shall pass a MIT, for the following thirteen (13) wells:

Well Name Location
McCormick #1 NE¼ SW¼ Sec 26-18S-45W
NWBU #1-I SW¼ SW¼ Sec 33-18S-45W
Dawson #2 SW¼ SW¼ Sec 3-19S-45W
Dawson #9 NW¼ SW¼ Sec 3-19S-45W
NWBU #3 NE¼ NW¼ Sec 4-19S-45W
NWBU #4 SW¼ NW¼ Sec 4-19S-45W
NWBU #6 NE¼ SW¼ Sec 4-19S-45W
NWBU #7 SW¼ SW¼ Sec 4-19S-45W
Dawson Unit #1 SW¼ SE¼ Sec 4-19S-45W
Harrison #1 NE¼ SE¼ Sec 9-19S-45W
Harrison #5 NW¼ NE¼ Sec 9-19S-45W
USA Butler #2 NW¼ NE¼ Sec 10-19S-45W
Pyles #3 NW¼ NW¼ Sec 10-19S-45W

IT IS FURTHER ORDERED that Western Operating Company shall be found in violation of Rule 707.a., for each excess inactive well, an operator's required financial assurance amount under Rule 706. to be increased by Five Thousand Dollars ($5,000), but that the violation was more technical in nature considering the timing of Western’s bond acquisition. Accordingly, no fine shall be assessed for the violation of Rule 707.a.

IT IS FURTHER ORDERED that Western Operating Company shall be assessed a fine Twenty-six Thousand Dollars ($26,000) for thirteen (13) violations of Rule 326.b. One half of the fine amount ($13,000) shall be due and payable within thirty (30) days of this Order. The balance of the fine amount shall be suspended provided Western complies with the testing and plugging responsibilities contained herein. If Western fails to comply with the terms of the Order, the balance of the fine amount shall become immediately due and payable.

IT IS FURTHER ORDERED that Western Operating Company shall be required to bring the thirteen (13) wells listed into compliance with Rule 326.b. The Commission requires that Western Operating Company test, produce or plug and abandon four (4) wells by January 1, 1999. Thereafter, Western Operating Company shall plug and shall abandon one (1) well every sixty (60) days, until all of the wells are either properly plugged and abandoned in accordance with Commission rules and regulations, are placed on production or a successful MIT is performed. If evidence of any injury or threat of injury to public health, safety or welfare exists with respect to any Western Operating Company well, the Commission and Western Operating Company shall revise the plugging schedule and work to immediately mitigate the injury.

IT IS FURTHER ORDERED that if Western Operating Company does not comply with the terms of this Order, the Commission shall revoke Western Operating Company's Certificates of Clearance, Form 10, to transport hydrocarbons until such time as compliance is secured.

IT IS FURTHER ORDERED that if Western Operating Company does not the terms of this Order, the Commission shall make a claim on the full amount of Western Operating Company's plugging bond and plug the SI/TA wells. If plugging costs exceed the bond amount the Commission shall confiscate available equipment and tubulars for salvage per C.R.S 34-60-124.(6).(c).

IT IS FURTHER ORDERED that the Commission shall not issue any permits to drill to Western Operating Company if Western Operating Company fails to comply with the terms of this Order.

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 19th day of November, 1998 to be in effect as of October 19, 1998

AMENDED this 23rd day of November, 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 November 19, 1998

(1V#160)