BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

ADMINISTRATIVE ORDER BY CONSENT

(Pursuant to Rule 522.b.(3) of the Rules and Regulations of the

Colorado Oil and Gas Conservation Commission, 2 CCR 404-1)

FINDINGS

1.    On February 20, 2001, Mountain Pacific General, Inc. spud the Garcia #3-5 Well (API No. 05-071-07234) (the “Well”), which is located 1,980 feet FNL and 812 feet FWL in the SW¼ NW¼ of Section 3, Township 34 South, Range 62 West, 6^th P.M., with 8⁵/₈-inch surface casing run from the ground surface to a depth of 290 feet below ground surface (“fbgs”) and 4½-inch production casing run from ground surface to 1,862 fbgs.  

2.    On July 17, 2006, Energy Oil and Gas, Inc. (“Energy Oil and Gas”) (Operator No. 100199) submitted a Form 10 as a change of operator for the Well.  On April 4, 2008, Energy Oil and Gas completed the Well in the Apishipa, Niobrara, Timpas, and Greenhorn Formations, with perforations from 872 fbgs to 1,726 fbgs.

3.    On November 17, 2009, Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”) Staff discovered that Energy Oil and Gas had been reinjecting gas associated with the oil produced from the Well back into the Apishipa and Timpas Formations, without having first obtained an underground injection control (“UIC”) permit, as is required by Rule 325.  Acting upon this discovery, COGCC Staff contacted Energy Oil and Gas, and explained that they were not permitted to inject gas back into the formation without a UIC permit, and that Energy Oil and Gas should submit any and all documents required to obtain a UIC permit (specifically, Form 31, Underground Injection Formation Permit Application, Form 33, Injection Well Permit Application, Form 26, Source of Produced Water for Disposal, and all associated attachments).  Due to financial difficulties associated with ceasing injection, Energy Oil and Gas was permitted to continue injecting gas into the Well pending the issuance of a UIC permit.

4.    On November 23, 2009, Energy Oil and Gas submitted Forms 31 and 33, as well as a base plat (pursuant to Rule 325.b.) and a wellbore diagram (pursuant to Rule 325.c.(4)).

5.    On November 30, 2009, Energy Oil and Gas submitted a water analysis of the injection formation (pursuant to Rule 324.B.). 

6.    On December 1, 2009, COGCC Staff issued a Notice of Alleged Violation (“NOAV”) #200121307 to Energy Oil and Gas for its operations at the Well.  Said NOAV cited violations for the following rule:

a.    Rule 325.a., which provides, in pertinent part, that no person shall commence the underground disposal of water, or any other fluids, into a Class II well, or any well regulated by the Commission, without having first obtained written authorization for such operations from the Director by filing a Form 31 and Form 33.     

Said NOAV required Energy Oil and Gas to submit Forms 31 and 33 and all required attachments to obtain a UIC permit for the Well, and submit written documentation to explain the reasons for the violation and the procedures that would be implemented to prevent future violations, by December 15, 2009.

7.    On December 3, 2009, Energy Oil and Gas submitted Form 26, and a letter explaining they are reinjecting gas only and that all produced water is disposed of by truck at a commercial disposal facility.  On December 17, 2009, Energy Oil and Gas submitted a surface facility diagram.

8.    On December 17, 2009, COGCC Staff contacted Energy Oil and Gas and informed them that the UIC permit application was incomplete (i.e., copies of certified letters to surface and mineral owners within ¼-mile of the Well, informing the parties of the injection well and instructing them that they have 15 days from the receipt of the letter to request a hearing before the Commission, as is required by Rule 325.i., k. and l., and a signed surface use agreement with the surface owner, specifically stating the Well will be used as a disposal well.)

9.    On December 21, 2009, Energy Oil and Gas submitted a copy of certified mail receipts for letters sent to surface and mineral owners, however, they did not submit a copy of the letter which was sent to the parties, and they have not submitted a written report explaining the reasons for the violation and the procedures that would be implemented to prevent future violations.

10.  On January 26, 2010, Energy Oil and Gas submitted a copy of the executed surface use agreement with the surface owner.  On June 4, 2010, Energy Oil and Gas submitted a Form 4, Sundry Notice, requesting a 90-day extension to complete the UIC permit application, and provided information on setting a packer in the wellbore of the Well.

11.  Rule 523. specifies a base fine of One Thousand dollars ($1,000) for each day of violation of Rule 325.a.  Rule 523.a.(3) specifies that “the maximum penalty for any single violation shall not exceed Ten Thousand dollars ($10,000) regardless of the number of days of such violation,” unless the violation results in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment. 

12.  Energy Oil and Gas violated Rule 325.a. because they injected gas into a Class II well, without obtaining written authorization for such operations from the Director.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000), which is the maximum penalty provided by law given the violation did not result in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.

13.  For the violation of Rule 325.a., the parties have agreed to a total adjusted fine of Five Thousand dollars ($5,000), which takes into consideration the fact that Energy Oil and Gas has filed the required documentation to have the Garcia #3-5 Well permitted as an underground injection well.  Further, Energy Oil and Gas agrees to file any and all delinquent production reports on wells in which it operates.

14.  If this matter is not resolved by this Administrative Order by Consent (“AOC”), COGCC Staff specifically reserve the right to bring this matter for hearing by the Commission.  Nothing within this proposed AOC should be construed as the COGCC Staff waiving their right to prosecute any violation set forth in this AOC or to present evidence which alters the days of violation set forth in this AOC.

15.  Payment of the fine pursuant to this AOC does not relieve the operator from its obligations to complete corrective actions set forth in the NOAV, as may be amended or modified by COGCC Staff.

16.  Energy Oil and Gas should execute this AOC no later than fourteen (14) days after the date it is executed by COGCC Staff for recommendation to the Commission for expedited approval.  Fines may increase if this matter is not recommended for expedited approval.    

17.  Energy Oil and Gas, or their successors or assigns, should be required to remain responsible for complying with this AOC, in the event of any subsequent sale of property.

18.  Energy Oil and Gas agree to the findings of this AOC only for the purpose of expeditiously resolving the matter without a contested hearing.  Notwithstanding the above, Energy Oil and Gas do not admit to any of the factual or legal determinations made by the Commission herein, and fully reserves its right to contest same in any future action or proceeding other than a proceeding to enforce this AOC.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Energy Oil and Gas shall be found in violation of Rules 325.a. for oil and gas operations at the Garcia #3-5 Well, which is located in the SW¼ NW¼ of Section 3, Township 34 South, Range 62 West, 6^th P.M., for those acts alleged in this AOC.

IT IS FURTHER ORDERED, that Energy Oil and Gas shall be assessed a total fine of Five Thousand dollars ($5,000) for the Rule violation set forth above, which shall be payable within thirty (30) days of the date the order is approved by the Commission.

IT IS FURTHER ORDERED, that this Administrative Order by Consent does not relieve the operator from undertaking and completing abatement or corrective actions that may be required by the Notice of Alleged Violation described in Finding No. 6, above, or any amendments or modifications thereto specified by Staff.

IT IS FURTHER ORDERED, that the operator shall execute this Administrative Order by Consent no later than fourteen (14) days after the date it is executed by the COGCC Staff for recommendation of expedited approval by the Commission.  

IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

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.

RECOMMENDED this                  day of____________, 2010.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                                                                                      By                                                                            ____ 

                                                                                    Robert Willis, Enforcement Officer

Dated at Suite 801

1120 Lincoln St.

Denver, Colorado 80203

December 7, 2010

                        AGREED TO AND ACCEPTED this _________day of_______________, 2010.

                                   ENERGY OIL AND GAS, INC.

                                    By __________________________________________

                                                Signature of Authorized Company Representative

                                    ____________________________________________                                                                                    Print Signatory Name

                                            ____________________________________________

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