BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES AND REGULATIONS OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION BY SOVEREIGN OPERATING COMPANY LLC, BACA COUNTY, COLORADO |
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CAUSE NO. 1V DOCKET NO. 150500342
TYPE: ENFORCEMENT ORDER NO. 1V-505 |
ADMINISTRATIVE ORDER BY CONSENT
(Pursuant to Rule 522.e.(1) of the Rules and Regulations of the
Colorado Oil and Gas Conservation Commission, 2 CCR 404-1)
FINDINGS
1. COGCC Rules of Practice and Procedure, 2 CCR 404-1, Rule 707.a (Inactive Wells) requires operators of “inactive wells” to post additional financial assurance. An “inactive well” is defined in the 100-Series to include “any shut-in well from which no production has been sold for a period of twelve (12) consecutive months; [or] any well which has been temporarily abandoned for a period of six (6) consecutive months.”
2. Sovereign Operating Company LLC (“Sovereign”) (Operator No. 10383) is the operator of the following wells, located in Baca County, Colorado: Dunivan 1-11 (API # 05-009-06644), Gibson 1-19 (API # 05-009-06647), Sharp Gibson 1-24 (API # 05-009-06652), Robbins 1-16 (API # 05-009-06651), Cottrell-Rutherford 2-17 (API # 05-009-06599), Thompson-Jeffrey 1-13 (API # 05-009-06600), Cogburn-WECO A 1 (API # 05-009-06398), State-St John 1-36 (API # 05-009-05308), Cogburn 1 (API # 05-009-06159), Burhenn 1-12 (API # 05-009-06645), Moore 'C' 1 (API # 05-009-06140), Murray C 2 (API # 05-009-06586), Fulbright 1-20 (API # 05-009-06653), GIBSON 1-25 (API # 05-009-06646), Murray 'C' 1 (API # 05-009-06135), Wright 1-7 (API # 05-009-06650), State 267-S 1 (API # 05-009-06173), Bar-B-4 Ranch 1-15 (API # 05-009-06648), Hefley 'A' 1 (API # 05-009-06162), Murray B 1 (API # 05-009-06131), Smith 'H' 1 (API # 05-009-06142 ), Robbins Ranch 'C' 1 (API # 05-009-06268), Commerce Ranch Inc. 'B' 1 (API # 05-009-06215), Loflin-Federal 1-21 (API # 05-009-06035), Hartmetz 1-9 (API # 05-009-06158), Hefley 2 (API # 05-009-06189), State 267-S 2 (API # 05-009-06175), Loflin 1-8 (API # 05-009-06322), Trahern 'A' 1 (API # 05-009-06174), Tolbert 1 (API # 05-009-06231), Trahern 1 (API # 05-009-06146), Burchfield 1-33 (API # 05-009-06147), and the State of Colorado 1-16 (API # 05-009-06176) (the “Wells”). The Wells are all greater than 3,000 ft. in depth.
3. On September 16, 2014, Commission Staff issued a Warning Letter (Document No. 2540846) alleging that Sovereign was in violation of Rule 707.a for certain "Inactive Wells” in Baca County, Colorado.
4. Following receipt of the warning letter, Sovereign representatives and Staff discussed a plan to return Sovereign to compliance with Rule 707.a. Despite diligent effort by both parties, Sovereign was unable to propose a plan that was acceptable to Staff.
5. Plans proposed by Sovereign were designed to cause Sovereign to come into compliance with Rule 707.a., but Staff concluded that the time sought was more than it could accept and was uncertain as to the sufficiency of the financial security offered. Staff is satisfied that management of Sovereign did not knowingly violate Rule 707.a. Since the Warning Letter, Sovereign has taken initial steps in the field and with its financial assurances to move toward compliance. Sovereign at all times was cooperative with the Staff, including meeting with them in December, 2014. Sovereign timely acted upon the suggestion of the Staff that it file an Application with the COGCC for a variance from Rule 707.a. Since the filing of the Application, Sovereign has at all times cooperated with the Staff in an effort to resolve the compliance issue.
6. On December 31, 2014, Sovereign filed an Application requesting a variance from Rule 707.a and submitted a compliance plan. The Application was docketed for hearing on March 2-3, 2015.
7. On February 19, 2014, the Application was continued to the April 13-14, 2015, hearing so Sovereign could publish notice of the hearing, as required by Rule 507.
8. On April 3, 2015, Staff filed an Objection to the Application.
9. On April 13, 2015, the Application was denied.
10. On April 13, 2015, Staff issued a Notice of Alleged Violation (“NOAV”) (No. 200429283) to Sovereign for violations of Rule 707.a.
11. By agreement of the parties, Sovereign waived service of the NOAV and Notice and Application for Hearing on April 27, 2015.
|
Rule Violation |
Penalty Act and Class/Impact |
Base Penalty |
Start Date |
Penalty End Date |
Gross Penalty |
Duration Adjusted Violation |
|
707.a. |
New Class 2/Minor |
$2,500 |
6/6/2014 |
5/18/2015 |
$867,500 |
$59,800 |
13. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy (“EPP”), Hearings Staff calculated a penalty of $867,500 for this violation. This penalty amount results largely from the duration of the violation and staff does not believe it appropriately reflect the nature of the violation. Consequently, staff applied the Violation Duration Matrix from the EPP, which results in a penalty amount of $59,800. Staff believes this penalty is appropriate for the nature of the violation. The penalty calculation is based on the following:
a. The Rule violation began prior to the effective date of HB 14-1356. The penalty for these violations have been calculated pursuant to the revised version of § 34-60-121, C.R.S., with reference to the revised Rules 522 and 523 for guidance. A penalty was not sought under the penalty structure in place prior to the effective date of HB 14-1356;
b. The violation was on-going as of June 6, 2014, the effective date of HB 14-1356, so June 6, 2014, was used as the penalty start date. For purposes of calculating a penalty end date in this AOC the hearing date (May 18, 2015) was used. This results in a total of 346 days of violation;
c. No aggravating factors apply;
d. Mitigating factor #2 (Sovereign promptly and prudently responded to the violation) applies;
e. No pattern of violation exists; and
f. No gross negligence or knowing and willful misconduct exists.
AGREEMENT
NOW, THEREFORE, based on the Findings and pursuant to Rule 522.e.(1)A. and the Commission’s Enforcement and Penalty Policy, the Director proposes and Sovereign agrees to settle the NOAV on the following terms and conditions:
1. Sovereign represents to the Commission that it has returned the following wells to production: Colorado 1-16, Loflin 1-8, Loflin-Federal 1-21 and Trahern A 1.
2. On or before May 8, 2015, Sovereign will file Form 7’s (Monthly Report of Operations) for each well identified in ¶ 1.
3. On or before May 8, 2015, Sovereign will file Form 27's (Site Investigation And Remediation Workplan) for the following wells: Gibson 1-25, Cogburn 1, State St John 1-36, Loflin Federal 1-21, Thompson-Jeffrey 1-13, Bar-B-4 Ranch 1-15, Robbins 1-16, State 267-S 1 and Moore C 1.
4. On or before May 15, 2015, Sovereign will post $60,000 in additional financial assurance. On or before August 7, 2015, Sovereign will post an additional $60,000 in financial assurance. Such payments will not offset the additional financial assurance Sovereign may be required to post pursuant to ¶¶ 5 (a) & (b) below, if any. Such payments may, however, be applied to satisfy Sovereign’s financial assurance obligations associated with the final 11 wells under ¶ 5 (c) below.
5. Sovereign will either plug and abandon, place on production or post additional financial assurance, at the cost of $20,000 per well, covering each of the Wells, on the following schedule:
a. 11 of the 33 wells by August 7, 2015;
b. Another 11 wells by December 1, 2015; and,
c. The final 11 wells by April 1, 2016.
6. Sovereign will submit a report, indicating compliance with the deadlines outlined in ¶ 5 above, within ten business days of each respective deadline. The report will summarize the actions taken to satisfy the requirements of ¶ 5 above but will not relieve Sovereign of its ongoing obligation to comply with other COGCC reporting requirements including, but not limited to, Rules 309 and 311.
7. Sovereign stipulates and agrees that it has violated Commission Rule 707.a. by failing to provide the financial assurance required under the rule (the “Violation”). The Commission imposes and Sovereign stipulates to a penalty of $59,800 for the Violation (“Penalty Amount”), calculated on a daily basis between June 6, 2014 and May 18, 2015, as described above.
8. In the event Sovereign breaches this AOC and does not otherwise fully satisfy its financial assurance obligations pursuant to Rule 707.a, Sovereign acknowledges that a new violation of Rule 707.a will commence on the 11th business day after Sovereign’s failure to comply with ¶ 10 and continue until Sovereign complies with Rule 707.a.
9. The Commission stipulates and agrees to suspend the Penalty Amount if Sovereign fully performs under this AOC. If Sovereign fully performs under this AOC, the Commission waives its right to collect the Penalty Amount. Upon full performance under this AOC, Staff will post an acknowledgement of same in the hearing files of this matter.
10. If Sovereign defaults under this AOC:
a. The Penalty Amount shall be due and payable, and received by the Commission, no later than 10 business days following issuance of a written demand for payment by the Director, which will be served pursuant to Rule 521 at Sovereign’s address of record, on file with the COGCC pursuant to Rule 302; and,
b. The remaining additional financial assurance required under Commission Rule 707. shall be due and payable, and received by the Commission, no later than 10 business days following issuance of a written demand for payment by the Director, which will be served pursuant to Rule 521 at Sovereign’s address of record, on file with the COGCC pursuant to Rule 302.
11. This AOC concerns only the Violation and does not limit the Commission’s ability to initiate an enforcement action against Sovereign for a violation of any other Commission Rule, if any.
RECOMMENDED this ____ day of _________, 2015.
OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
By
Jeremy I. Ferrin, Enforcement Officer
AGREED TO AND ACCEPTED this ______day of _________, 2015.
SOVEREIGN OPERATING COMPANY LLC
By
Thomas S. Metzger, Chairman & COO
475 17th St., Ste 1200
Denver, CO 80202
ORDER
HAVING CONSIDERED the Agreement between the Director and Sovereign to resolve the NOAV, the COMMISSION ORDERS:
1. Sovereign represents to the Commission that it has recently returned the following wells to production: Colorado 1-16, Loflin 1-8, Loflin-Federal 1-21 and Trahern A 1.
2. On or before May 8, 2015, Sovereign will file Form 7’s (Monthly Report of Operations) for each well identified in ¶ 1.
3. On or before May 8, 2015, Sovereign will file Form 27's (Site Investigation And Remediation Workplan) for the following wells: Gibson 1-25, Cogburn 1, State St John 1-36, Loflin Federal 1-21, Thompson-Jeffrey 1-13, Bar-B-4 Ranch 1-15, Robbins 1-16, State 267-S 1 and Moore C 1.
4. On or before May 15, 2015, Sovereign will post $60,000 in additional financial assurance. On or before August 7, 2015, Sovereign will post an additional $60,000 in financial assurance. Such payments will not offset the additional financial assurance Sovereign may be required to post pursuant to ¶¶ 5 (a) & (b) below, if any. Such payments may, however, be applied to satisfy Sovereign’s financial assurance obligations associated with the final 11 wells under ¶ 5 (c) below.
5. Sovereign will either plug and abandon, place on production or post additional financial assurance, at the cost of $20,000 per well, on the following schedule:
a. 11 of the 33 wells by August 7, 2015;
b. Another 11 wells by December 1, 2015; and,
c. The final 11 wells by April 1, 2016.
6. Sovereign will submit a report, indicating compliance with the deadlines outlined in ¶ 5 above, within ten business days of each respective deadline. The report will summarize the actions taken to satisfy the requirements of ¶ 5 above but will not relieve Sovereign of its ongoing obligation to comply with other COGCC reporting requirements including, but not limited to, Rules 309 and 311.
7. Sovereign stipulates and agrees that it has violated Commission Rule 707.a. by failing to provide the financial assurance required under the rule (the “Violation”). The Commission imposes and Sovereign stipulates to a penalty of $59,800 for the Violation (“Penalty Amount”), calculated on a daily basis between June 6, 2014 and May 18, 2015, as described above.
8. In the event Sovereign breaches this AOC and does not otherwise fully satisfy its financial assurance obligations pursuant to Rule 707.a, Sovereign acknowledges that a new violation of Rule 707.a will commence on the 11th business day after Sovereign’s failure to comply with ¶ 10 and continue until Sovereign complies with Rule 707.
9. The Commission stipulates and agrees to suspend the Penalty Amount if Sovereign fully performs under this AOC. If Sovereign fully performs under this AOC, the Commission waives its right to collect the Penalty Amount. Upon full performance under this AOC, Staff will post an acknowledgement of same in the hearing files of this matter.
10. If Sovereign defaults under this AOC:
a. The Penalty Amount shall be due and payable, and received by the Commission, no later than 10 business days after a written demand for payment by the Director, which will be served pursuant to Rule 521 at Sovereign’s address of record, on file with the COGCC pursuant to Rule 302; and,
b. The remaining additional financial assurance required under Commission Rule 707. shall be due and payable, and received by the Commission, no later than 10 business days after a written demand for payment by the Director, which will be served pursuant to Rule 521 at Sovereign’s address of record, on file with the COGCC pursuant to Rule 302.
11. This AOC concerns only the Violation and does not limit the Commission’s ability to initiate an enforcement action against Sovereign for a violation of any other Commission Rule, if any.
12. Compliance dates specified in this Order may be extended only for good cause, as determined at the Director’s sole discretion. A request for extension must be made, in writing, at least 20 days prior to the pertinent compliance deadline or as soon as possible if 20 days prior notice is not feasible. Failure to receive an extension prior to the compliance deadline or the failure to meet a compliance deadline may constitute a new violation subject to additional penalties.
13. Entry of this Order constitutes final agency action for purposes of judicial review 30 days after the date this order is mailed by the Commission.
14. The provisions contained in the above Order are effective on the date this matter is heard and approved by the Commission.
15. 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 _____ day of __________, 2015, as of the 18th day of May, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By
Julie Murphy, Secretary