BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES AND REGULATIONS OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION BY MAGPIE OPERATING, INC., WASHINGTON AND LOGAN COUNTIES, COLORADO

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CAUSE NO. 1V

DOCKET NO. 1403-OV-06 DOCKET NO. 1404-OV-07

ORDER NO. 1V-462

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. The COGCC and Magpie Operating Inc. (“Magpie”) met for a Prehearing Conference (PHC) on February 19, 2014, for negotiations with regards to two separate Notices of Alleged Violations (NOAVs). The two NOAVs concern two separate well locations. The first location (NOAV No. 200389384) is the Warnecke #1 well, in Logan County. The second location is the Little Beaver Unit #30 (NOAV No. 200393001), in Washington County.

2. For the purposes of settlement, the parties agreed to consider the penalties and required corrective actions simultaneously, and memorialize the settlement of both NOAVs, in this single Administrative Order by Consent.

THE LITTLE BEAVER UNIT #30

3. The Little Beaver Unit #30 (“Little Beaver”) (API No. 05-121-06251) was spud on October 16, 1958 in Washington County located at SW¼ SE¼, Section 32, Township 1 South, Range 56 West, 6th P.M by Continental Oil Company. On September 12, 2000, Magpie (Operator No. 52530) became the operator of record for the Little Beaver Unit #30 (Document No. 12106251).

4. On October 14, 2013 and November 7, 2013, respectively, COGCC Staff received complaints from a landowner (Doc. No. 200388345) and tenant farmer (Doc. No. 2003898278) about oily waste spread in their agricultural field.

5. COGCC Staff conducted inspections on October 14, 2013 and December 19, 2013 in response to these complaints. During the December 19, 2013 inspection, Staff collected soil samples and confirmed the samples exceeded Table 910-1 concentrations for total petroleum hydrocarbons (TPH)/organic compounds, arsenic, and pH. The oily waste was estimated to be one-foot deep and covered an area approximately 75 feet x 120 feet (333 cubic yards). In addition, there was a smaller impacted area south of the waste that did not support vegetation.

6. COGCC Staff submitted the October 14, 2013 Unsatisfactory Inspection Report to Magpie. Staff required Magpie to file a Form 42 (Notice of Notification) when the corrective actions required by the field inspection were completed, and indicated a follow-up inspection was necessary.

7. COGCC Staff issued a Violation Field Inspection Report on December 19, 2013 upon finding Magpie had not initiated corrective action.

8. Oily waste was spread without prior approval from the landowner and the COGCC and without submittal of a Form 27, violating Rules 906, 907 and 909. These inspections also revealed that the operator did not notify the COGCC of a spill on a Form 19, violating Rule 906.

9. The tenant farmer told COGCC staff that he first observed oily waste in late May-early June of 2013. The landowner told COGCC staff that the leaks had been occurring for years; the tenant had notified Magpie each time, and Magpie had failed to respond to these notifications.

10. On December 23, 2013, COGCC Staff issued NOAV No. 200393001 for violations at Little Beaver. The NOAV cited violations of the following COGCC Rules of Practice and Procedure, 2 CCR 404-1 (“Rule” or “Rules”):

a. Rule 324A.a (Pollution)

b. Rule 906.a (Spills and Releases)

c. Rule 906.b. (Reportable Spills and Reporting Requirements)

d. Rule 906.c. (Surface Owner Notification and Consultation)

e. Rule 906.d. (Remediation of Spills/Releases)

f. Rule 906.e.2. (Spill/Release Evaluation)

g. Rule 907.a. (Management of E & P Waste, Operator Obligations)

h. Rule 907.b. (Management of E & P Waste, Waste Transportation)

i. Rule 907.e. (Management of E & P Waste, Oily Waste)

j. Rule 909.b. (General Site Investigation and Remediation Requirements)

k. Rule 909.c. (Site Investigation and Remediation Workplan, Form 27)

l. Rule 910 (Concentrations and Sampling for Soil and Ground Water)

11. Following a factual investigation and legal review of the violations alleged in the NOAV, the Hearings Staff now asserts Magpie has committed the following violations:

a. One violation of Rule 324A.a. for not taking precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources and not preventing the unauthorized discharge or disposal of oil, gas, or E& P waste.

b. One violation of Rule 906.a. for not immediately controlling and containing upon discovery a spill or release of E & P waste, including produced fluids, to protect the environment, public health, safety and welfare and wildlife resources; and for not investigating and cleaning up the spill or release as soon as practicable.

c. One violation of Rule 906.b. for not submitting a COGCC Spill/Release Report, Form 19 to notify the COGCC of a reportable spill and for not reporting it verbally.

d. One violation of Rule 906.c. for not notifying the affected surface owner or the surface owner’s appointed tenant of a reportable spill as soon as practicable.

e. One violation of Rule 906.d. for failing to submit a Site Investigation and Remediation Workplan, Form 27 when there is threatened significant adverse environmental impacts on any air, water, soil or other environmental resource from a spill or release, or when necessary to ensure compliance with the concentration levels in Table 910-1, with consideration to Water Quality Control Commission (“WQCC”) ground water standards and classifications.

f. One violation of 906.e.2. for failing to determine the cause of a spill or release, and to the extent practicable, implementing measures to prevent them due to similar causes in the future.

g. One violation of Rule 907.a. for failing to ensure that E & P waste is properly stored, handled, transported, treated, recycled or disposed to prevent threatened or actual significant adverse environmental impacts to air, water, soil or biological resources or to the extent necessary to ensure compliance with the concentration levels in Table 910-1, with consideration to WQCC ground water standards and classifications.

h. One violation of Rule 907.b., which requires operators, when transporting E & P waste off-site within Colorado for treatment or disposal, to transport it to facilities authorized by the Director or waste disposal facilities approved to receive E & P waste by the Colorado Department of Public Health and Environment.

i. One violation of Rule 907.e., which provides that oily waste may be disposed of in one of three ways: disposal at a commercial solid waste disposal facility, land treatment following the requirements of Rule 907.e.2., or land treatment at a properly permitted centralized E & P waste management facility.

j. One violation of Rule 909.b. for failing to perform remediation in a manner to mitigate, remove or reduce contamination that exceeds the concentrations in Table 910-1.

k. One violation of Rule 909.c. for failing to prepare and submit for prior Director approval a Site Investigation and Remediation Workplan, Form 27 for remediation activities.

l. One violation of Rule 910 for exceeding the concentration levels for contaminants of concern in not complying with the standards established by Table 910-1.

12. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy, Hearings staff has calculated a penalty of $120,000.00 for these violations at Little Beaver. Staff does not recommend any adjustments based on aggravating or mitigating factors.

THE WARNECKE #1 WELL

13. On June 22, 2011, Magpie became the operator of record for the Warnecke #1 well (“Warnecke”) (API No. 05-075-05621) in Logan County located at SE ¼, SE ¼, Section 30, Township 8 North, Range 53 West, 6^th P.M.

14. On March 4, 2013, Magpie submitted a Site Investigation and Remediation Workplan (Form 27), which the Commission conditionally approved and assigned Magpie Remediation Project #7677 (Document #2232483). Magpie proposed an anticipated completion date of June 4, 2013, for proper skim pit closure.

15. COGCC Staff originally documented violations in an August 29, 2012 inspection report (document #663300499). Staff conducted follow-up inspections on September 11, 2013 (document #6644001245) and November 6, 2013 (document #670600030). In both follow-up inspections, Staff documented that Magpie had failed to properly close the skim pit, failed to properly manage its E&P waste, and failed to complete other required corrective actions.

16. On November, 14, 2013, COGCC Staff issued NOAV No. 200389384 for violations at Warnecke. The NOAV included alleged violations of the following COGCC Rules of Practice and Procedure, 2 CCR 404-1 (“Rule” or “Rules”):

a. Rule 210 (Signs and Markers)

b. Rule 603.j [now Rule 603.f.] (Statewide equipment, weeds, waste, and trash requirements)

c. Rule 804 (Visual Impact Mitigation)

d. Rule 905 (Closure of Pits, and Buried or Partially Buried Produced Water Vessels)

e. Rule 906 (Spills and Releases)

f. Rule 907.b.2. (Management of E & P Waste, Waste Generator Requirements, Table 910-1)

g. Rule 1002.f.2. (Site Preparation and Stabilization, Stormwater Management)

h. Rule 1003.f (Interim Reclamation, Weed Control)

17. Following a factual investigation and legal review of the violations alleged in the NOAV, the Hearings Staff now asserts Magpie has committed the following violations:

a. One two-day violation of Rule 210 for having an out-of-date emergency contact phone number on the wellhead and battery sign, as well as incorrect labeling of tanks and vessels. By the time of the PHC, Magpie had performed the required corrective action.

b. One one-day violation of Rule 603.j for failing to remove the skim pit frame and netting. By the time of the PHC, Magpie had performed the required corrective action.

c. One two-day violation of Rule 804 for having unpainted tanks which are visible from Colorado State Highway 14. By the date of the PHC, Magpie had performed the required corrective action.

d. One nine-day violation of Rule 905 for failure to properly complete a skim pit closure. By the date of the PHC, Magpie had contracted with consultants to accomplish the proper closure of the pit.

e. One eight-day violation of Rule 906 for failing to control spills/releases of E & P waste and for having inadequate containment berms around tanks, separators, and skim tank.

f. One eight-day violation of 907.b.2 for failing to provide E & P Waste tracking documents upon request. By the time of the PHC, Magpie had contracted with consultants to accomplish the proper accounting for the waste.

g. One one-day violation of Rule 1002.f.2 for allowing eroded soil from the produced water pit to migrate into the adjacent field.

h. One one-day violation of Rule 1003.f. for failing to control weeds and adhere to the Colorado Noxious Weeds Act. By the time of the PHC, Magpie had performed the required corrective action.

18. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy, Hearings staff has calculated a penalty of $30,000.00 for these violations at Warnecke. Staff does not recommend any adjustments based on aggravating or mitigating factors.

AGREEMENT

NOW, THEREFORE, based on the Findings and pursuant to Rule 522.b.3. and the Commission’s Enforcement and Penalty Policy, the Director proposes and Magpie agrees to settle the NOAVs on the following terms and conditions:

I. Magpie is found in violation of Rules 324A.a., 906.a., 906.b., 906.c., 906.d., 906.e.2., 907.a., 907.b., 907.e., 909.b., 909.c., and 910. for the violations at Little Beaver.

II. Magpie is found in violation of Rules 210, 603.j., 804, 905, 906, 907.b.2., 1002.f.2, and 1003.f for the violations at Warnecke.

III. Magpie is assessed a penalty of $150,000 for the rule violations listed above in Paragraphs I and II, in light of the corrective actions Magpie performed by the date of the PHC, and for the expeditious settlement of these NOAVs without a contested hearing.

IV. The COGCC Staff has considered Magpie’s submission of information regarding its ability to pay this penalty. It is in the best interest of all parties for Magpie to maintain its ability to conduct necessary environmental remediation. Staff agrees to a structured settlement that includes a compliance schedule for performing the remediation, as well as paying this penalty.

V. Magpie will be assessed a penalty of $150,000 with a conditional suspension of $30,000. Magpie will pay a total penalty of $120,000 if it meets all the conditions of suspension:

A. Magpie will pay $10,000 to the COGCC within 30 days from the date the Commission mails the Order approving the AOC, and the Invoice.

B. Thereafter, Magpie will pay $10,000 monthly to the COGCC, such that the COGCC will receive the penalty payment by the 15^th of each month, for the next eleven consecutive months.

C. For the violations at Little Beaver, Magpie will perform all of the following by April 28, 2014 (unless otherwise indicated below) to the satisfaction of COGCC Staff:

· Submit a Form 19, Spill Report, in accordance with Rule 906.b. by March 3, 2014. Provide documentation including the source of spill, date of spill, volume spilled, and date oily waste was deposited on the field.

· All oily waste will be removed and properly disposed in accordance with Rule 907.e.

· Submit a Form 27 for COGCC prior approval to remove, dispose of oily waste, and restore the site no later than March 21, 2014.

· The Form 27 must include sample location diagram, planned analyses, and the remediation and surface reclamation plan.

· After contaminated soil has been removed, collect confirmation samples to verify compliance with Table 910-1.

· After the Form 27 has been approved, notify the COGCC East Environmental Supervisor John Axelson via email 48 hours prior to initiating work, 48 hours prior to confirmation sampling, and 48 hours prior to backfilling.

· Provide transportation and disposal documentation in accordance with Rule 907.b.

· Magpie will provide training to employees and subcontractor employees regarding COGCC spill reporting requirements, spill remediation, E & P waste management, and good housekeeping practices. Magpie will provide East Environmental Supervisor John Axelson a copy of an outline of the written training program and targeted employees and contractors prior to the training. Magpie will implement this training within 90 days of the date the AOC is approved by the Commission. If the written outline and identification of targeted employees and contractors is not timely received, Magpie agrees to pay an additional $1,000 penalty to the COGCC for every week it remains out of compliance.

· Magpie will provide monthly written updates to the surface owner until final completion of the work. Magpie will copy Staff on all notifications.

· Magpie will minimize any surface disturbance or damage to agricultural land and growing crops surrounding the wells and production facilities. This will include driving only on agreed-upon pathways and staging areas. “Agreed-upon” pathways and staging areas are locations the surface owners want Magpie to establish and use, that have been agreed upon through collaboration with the surface owner.

D.. For the violations at Warnecke #1, Magpie will perform all of the following by April 28, 2014:

· Submit all closure documentation required by the Conditions of Approval (Form 27), Remediation #7677.

· Provide the Commission with E & P waste tracking documents required by Rule 907.b.2., for all waste transported off site.

· Completely remove all pieces of the skim pit frame, netting and other unused equipment and other debris from the location.

· Remove and remediate the oily waste at the former skim pit location and dispose of it properly.

· Improve and repair the secondary containment berms around the production tank, the separator and skim tank in accordance with COGCC Rules 603, 604 and 906 as applicable.

· Stabilize the produced water berms to prevent erosion from stormwater runoff, and address and repair damage caused by eroded soil, including restoration of vegetation.

· Magpie will provide monthly written updates to the surface owner until final completion of the work. Magpie will copy Staff on all notifications.

VI. The suspended portion of the penalty ($30,000), as well as any unpaid portion of the $120,000 penalty, will become due on demand by the Director without further action upon Magpie’s failure to timely perform any one of the actions listed in paragraph V.A-D.

VII. Magpie agrees the Director may suspend its Certifications of Clearance, Form 10 without further action by the Commission, if it falls behind in its paragraph V. A. or B. monthly payments for two consecutive months, or if it fails to satisfactorily and timely complete remediation and reclamation. The Certificate will be suspended until such time as it is current on payments and in full compliance with COGCC Rules, as determined solely by the Director.

VIII. Magpie agrees to the findings of this AOC for the purpose of expeditiously resolving the matter without a contested hearing.

RECOMMENDED this 7^th day of April, 2014.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Peter J. Gowen, Enforcement Officer

AGREED TO AND ACCEPTED this ______day of April, 2014.

MAGPIE OPERATING INC.

Signature of Authorized Company Representative

Print Signatory Name

Title

ORDER

HAVING CONSIDERED the Agreement between the Director and Magpie to resolve the NOAV, the COMMISSION ORDERS:

1. Magpie is found in violation of Rules 324A.a., 906.a., 906.b., 906.c., 906.d., 906.e.2., 907.a., 907.b., 907.e., 909.b., 909.c., and 910. for the violations at Little Beaver.

2. Magpie is found in violation of Rules 210, 603.j., 804, 905, 906, 907.b.2., 1002.f.2, and 1003.f for the violations at Warnecke.

3. Magpie will be assessed a penalty of $150,000 for the rule violations listed above in Paragraphs I and II, in light of the corrective actions Magpie performed by the date of the PHC, and for the expeditious settlement of these NOAVs without a contested hearing.

4. Magpie will be assessed a penalty of $150,000 with a conditional suspension of $30,000. Magpie will pay a total penalty of $120,000 if it meets all the conditions of suspension:

A. Magpie will pay $10,000 to the COGCC within 30 days from the date the Commission mails the Order approving the AOC, and the Invoice.

B. Thereafter, Magpie will pay $10,000 monthly to the COGCC, such that the COGCC will receive the penalty payment by the 15th of each month, for the next eleven consecutive months.

C. For the violations at Little Beaver, Magpie will perform all of the following by April 28, 2014 (unless otherwise indicated below) to the satisfaction of COGCC Staff:

· All oily waste will be removed and properly disposed in accordance with Rule 907.e.

· Submit a Form 27 for COGCC prior approval to remove, dispose of oily waste, and restore the site no later than March 21, 2014.

· The Form 27 must include sample location diagram, planned analyses, and the remediation and surface reclamation plan.

· After contaminated soil has been removed, collect confirmation samples to verify compliance with Table 910-1.

· Provide transportation and disposal documentation in accordance with Rule 907.b.

· Magpie will provide monthly written updates to the surface owner until final completion of the work. Magpie will copy Staff on all notifications.

D. For the violations at Warnecke #1, Magpie will perform all of the following by April 28, 2014:

· Submit all closure documentation required by the Conditions of Approval (Form 27), Remediation #7677.

· Provide the Commission with E & P waste tracking documents required by Rule 907.b.2., for all waste transported off site.

· Completely remove all pieces of the skim pit frame, netting and other unused equipment and other debris from the location.

· Remove and remediate the oily waste at the former skim pit location and dispose of it properly.

· Improve and repair the secondary containment berms around the production tank, the separator and skim tank in accordance with COGCC Rules 603, 604 and 906 as applicable.

· Stabilize the produced water berms to prevent erosion from stormwater runoff, and address and repair damage caused by eroded soil, including restoration of vegetation.

· Magpie will provide monthly written updates to the surface owner until final completion of the work. Magpie will copy Staff on all notifications.

5. The suspended portion of the penalty ($30,000), as well as any unpaid portion of the $120,000 penalty, will become due on demand by the Director without further action upon Magpie’s failure to timely perform any one of the actions listed in paragraph 4. A-D.

6. Magpie agrees the Director may suspend its Certifications of Clearance, Form 10 without further action by the Commission, if it falls behind in their paragraph 4. A. or B. monthly payments for two consecutive months, or if it fails to satisfactorily and timely complete remediation and reclamation. The Certificate will be suspended until such time as it is current on payments and in full compliance with COGCC Rules, as determined solely by the Director.

7. Magpie agrees to the findings of this AOC for the purpose of expeditiously resolving the matter without a contested hearing.

8. Magpie, or its successors or assigns, will remain responsible for complying with this AOC, in the event of any subsequent conveyance of the Location. Magpie will remain solely responsible for payment of the penalty amount, in the event of any subsequent conveyance of the Location.

9. Entry of this Order constitutes final agency action for purposes of judicial review as of the date this Order is mailed by the Commission. For all other purposes, this Order is effective as of the date of approval by the Commission.

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

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

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ENTERED this ___ day of , 2014, as of the day of , 2014.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Robert J. Frick, Secretary