BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

ADMINISTRATIVE ORDER BY CONSENT (AOC)

(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.         Lone Pine Gas, Inc. (“Lone Pine”) operates from the Margaret Spaulding Location (Location No. 324634) in Jackson County, Colorado (the “Location”).  The Location includes the Margaret Spaulding Centralized Tank Battery (Facility No. 427281); three wells including the Margaret Spaulding # 4 (API # 05-057-06031), Margaret Spaulding # 4-B (API # 05-057-06047), and Margaret Spaulding # 14 (API # 05-057-06108); and six pits (Facility Nos. 112265 through 112269, and 115241).

2.         On or about September 27, 2010, the COGCC issued Notice of Alleged Violation (“NOAV”) No. 200272892 (“2010 NOAV”) to Lone Pine for the following alleged violations:

a.    Rule 324A.b, which requires operators to take precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources to the extent necessary to protect public health, safety and welfare.

b.    Rule 326.b.(1) which states that a mechanical integrity test shall be performed on each shut-in well within two (2) years of the initial shut in date. 

c.    Rule 902 which requires pits to be constructed and operated to protect public health, safety, and welfare and the environment, including soil, waters of the state, and wildlife, from significant adverse environmental, public health, or welfare impacts from E&P waste; requires two feet of freeboard inside pits; and requires maintaining pits in clean condition.

d.    Rule 906.a. which requires operators to control, contain and clean up spills immediately.

e.    Rule 907c.(1) which requires operators to treat produced water before placement in a pit so as to prevent crude oil and condensate from entering the pit.

Corrective actions required by the 2010 NOAV included: 1) perform mechanical integrity test on #4-B; 2) remove oil from all pits; 3) net pits as necessary; 4) incorporate procedures to avoid hydrocarbons from entering waters of the state; 5) clean or replace pit liners.

3.          On December 20, 2011, COGCC staff inspected the Margaret Spaulding 14 well (API 05-057-06108).  Upon inspection, COGCC staff observed missing tank labels, downstream discharge of crude oil into a stream, a separator that appeared not to be working, and oil in pits at the Margaret Spaulding 14 well (See Inspection Report at Document No. 662300067).  COGCC staff also discovered a spill that occurred December 15, 2011 and had not been reported as required by Rule 906.

4.          On or about December 22, 2011, the COGCC issued NOAV No. 200334881 (“2011 NOAV”) to Lone Pine for the following alleged violations:

a.         Rule 210.d, which requires operators to label all tanks with a capacity of ten barrels or greater with the name of the operator, operator’s emergency information, tank capacity, tank contents, and a National Fire protection Association (NFPA) label.

b.         Rule 324A.b. which requires operators to take precautions to prevent violations to water quality classifications or standards.

c.         Rule 907.c.(1), (described above)

d.         Rule 912.b., which requires approval from the Director of a Sundry Notice, Form 4, before flaring or venting gas from a well except for gas flared or vented during an upset condition, well maintenance, well stimulation flowback, purging operations, or a productivity test.

The NOAV required that Lone Pine correct or abate the alleged rule violations by performing the following corrective actions: 1) cease operations until it can be demonstrated that the produced water can be treated in a way that prevents free product from accumulating in the two pits and in the discharge stream; 2) install signs at the tank battery to comply with Rule 210.b.; 3) label all tanks per Rule 210.d.; and 4) submit sundry notices for venting of gas pursuant to Rule 912.b. Abatement and corrective actions were to be taken on or before December 31, 2011.

5.         On January 17, 2012, Lone Pine submitted a Spill Report (Document No. 2222207).  This report stated that Lone Pine would continue to remove oil from the surfaces and banks of two pits, and after the spring melt, the affected vegetation would be evaluated and corrective action taken as needed.

6.         Lone Pine initiated remediation by excavating hydrocarbon contaminated soil from a pit that is not part of its produced water treatment system pursuant to an approved Form 27 (Document No. 1949125).  Excavated contaminated soil remains on site, pending appropriate treatment or disposal. The approved Form 27 also requires a groundwater sampling and monitoring program.

7.         Lone Pine has agreed to eliminate the use of pits to treat produced water at the Location.

8.         Lone Pine has been cited for alleged violations related to its surface water discharge permit by the Colorado Department of Public Health and Environment, Water Quality Control Division (CDPHE-WQCD). The accepted long-term compliance solution for the CDPHE-WQCD alleged violations includes the elimination of the surface water discharge and pursue underground injection options for produced water.

BASE PENALTY CALCULATION

9.         Rule 523. specifies a base penalty of $500 for each day of violation of Rule 210.d., and $1,000 for each day of violation of Rules 324A.b.; 326.b.(1); 902; 906.a.; 907.c.(1), and 912.b. Rule 523.a.(3) specifies that “the maximum penalty for any single violation shall not exceed $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.  Staff alleges significant adverse impact on public health, safety or welfare or the environment by reason of ongoing operational difficulties in preventing oil or condensate from reaching the pit system, and oil staining of Spring Gulch and Hell Creek for lasting several months after the December 2011 spill episode.

10.       Lone Pine violated Rules 210.d.; 324A.a; 324A.b.; 326.b.(1); 902; 906.a.; 907.c.(1); and 912.b. as described above.  For purposes of calculating a penalty, Staff begins with the assumption that alleged violations of Rule 210.d and Rule 326.b.(1) do not involve 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. Staff alleges violations of Rule 324A.a; Rule 324A.b.; Rule 902; Rule 906.a.; Rule 907.c.(1); and Rule 912.b involve 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. For settlement purposes, and to avoid the costs of preparing for and adjudicating a contested hearing, the Commission proposes and Lone Pine agrees to the following penalty, subject to all of the terms and conditions of this AOC, including but not limited to the suspension thereof under Paragraph 7 of the Order below:

11.       Lone Pine does not admit to the violations, findings of fact, base penalty calculation or legal determinations contained herein, but agrees not to contest the same in any proceeding to enforce the terms of this AOC.  Lone Pine fully reserves its right to contest the same in any future action or proceeding other than a proceeding to enforce this AOC.

12.       Pursuant to the Memorandum of Agreement ("MOA") dated February 15, 2000 between the COGCC and the CDPHE-WQCD, COGCC staff has consulted with CDPHE-WQCD staff concerning the terms of this AOC as required by the MOA.

ORDER

NOW, THEREFORE, IT IS ORDERED, that:

1.         Lone Pine violated of Rules 210.d.; 324A.a.; 324A.b.; 326.b.(1); 902; 906.a.; 907.c.(1); and 912.b. as described above.

2.         Hydrocarbon contaminated soil excavated from a pit and stockpiled on the Location shall be treated or disposed of by September 1, 2013, pursuant to an approved Form 27.

3.         Use of water treatment pits for produced water or other exploration and production waste from the Location shall cease by November 1, 2013.

4.         The former water treatment pits shall be decommissioned to Table 910-1 standards pursuant to an approved Form 27 by July 1, 2014.

5.         Groundwater sampling shall be continued according to an approved Form 27.

6.         Form 4 - Sundry Notice for venting of gas, pursuant to Rule 912.b., shall be submitted by June 21, 2013.

7.         Lone Pine shall pay a penalty of $150,000, payment of which is suspended until July 1, 2014.  If the corrective actions required pursuant to paragraphs 2 through 6 of this Order have been satisfactorily and timely completed, the penalty shall be vacated.  If the required corrective actions are not satisfactorily and timely completed, the penalty shall be due in full thirty calendar days following written notice from the Director. 

8.         The Commission, pursuant to Commission Rule 709, shall retain Lone Pine’s financial assurance instruments until such time as the Director determines that a successor-in-interest has filed satisfactory replacement financial assurance.

9.         Compliance dates specified in this Order may be extended by the Director only for good cause, as determined at the Director’s discretion, upon request by Lone Pine or its successor. In the event of an extension of the compliance dates, the date through which the suspension of the penalty provided for in Paragraph 7 shall likewise be extended to reflect the new compliance dates.

10.       Payment of the penalty pursuant to this AOC does not relieve Lone Pine or its successor from its obligation to complete corrective actions set forth in the NOAVs.  Lone Pine or its successor remains responsible for complying with this AOC in the event of any subsequent sale of the Location.

11.       Under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review 30 days after the date this order is mailed by the Commission.

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

13.       Compliance with the provisions of this Order shall constitute full satisfaction of all allegations and corrective actions contained in the referenced NOAVs and any violations alleged by the Commission against Lone Pine known to the Commission as of the date of this Order.  Upon compliance with the requirements of this Order, the Commission hereby releases and covenants not take further enforcement action of any kind against Lone Pine as to any regulatory or statutory claims, common law claims or other claims or causes of action arising out of the facts, transactions, or events which were alleged in the NOAV’s, this Order or inspection reports as of the date of this Order.

RECOMMENDED this         day of May, 2013.

OIL AND GAS CONSERVATION COMMISSION

                                                   OF THE STATE OF COLORADO

Peter J. Gowen, Enforcement Officer

AGREED AND ACCEPTED this               day of May, 2013.

                        LONE PINE GAS, INC.

                        By:                                                                             

                        Signature of Authorized Company Representative

                        Print Signatory Name

                                    Title

The Commission heard this matter on May 6, 2013, and approved this Administrative Order by Consent.

ENTERED this                      day of   May    2013, as of the  6^th  day  of May, 2013.

                                                            OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By                                                                              

                                                                        Robert J. Frick, Hearings Manager