1V-569

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF CM PRODUCTION REGARDING THE DISPOSITION OF ORDER NOS. 1V-412 AND 1V-413 AND WITHDRAWN DOCKET NO. 150500143 AND THE APPLICATIONS OF STAFF REGARDING ALLEGED VIOLATIONS OF THE RULES AND REGULATIONS OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION BY CM PRODUCTION LLC, JACKSON AND WASHINGTON COUNTIES, COLORADO

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CAUSE NO. 1V

DOCKET NOS. 151000676, 160100078, & 160100079

TYPE: ENFORCEMENT

ORDER NO. 1V-569

ORDER FINDING VIOLATION AND DENYING CM’S APPLICATION

The Colorado Oil and Gas Conservation Commission (“Commission”), having reviewed the administrative record and being fully advised on the premises, enters this Order Finding Violation (“OFV”) and Denying CM’s Application pursuant to the Rules and Regulations of the Colorado Oil and Gas Conservation Commission, 2 CCR 404-1(“Rule” or “Rules”), and states as follows:

I. Disputed Issues

A. The disputed issues in Docket No. 151000676 are as follows:

1. Whether CM’s application should be granted, which entails approval of the 2015 AOC and withdrawal of the Demand for Payment, or whether the Application should be denied and the Demand for Payment left in place;

2. Whether CM violated Commission Orders 1V-412 and 1V-413;

3. If CM violated Orders 1V-412 and 1V-413, whether CM has any valid reasons or excuses for failure to comply fully with Orders 1V-412 and 1V-413;

4. Whether CM’s financial condition is a mitigating factor in the violations alleged by Staff and/or the corrective actions requested by Staff;

5. What, if any, corrective actions should be ordered.

B. The disputed issues in Docket No. 160100078 are as follows:

1. Ordinarily, whether CM violated Commission Rule 326.b. for failure to conduct mechanical integrity tests on five wells in Jackson County Colorado would be a disputed issue. However in this case, stipulation paragraphs 24 through 45 show that MIT’s on the five wells at issue were required, but have not been performed.

2. Whether CM has any valid reasons or excuses for failure to conduct the MITs;

3. Whether CM’s financial condition is a mitigating factor in the violations alleged by Staff, the penalty proposed by Staff, and/or the corrective actions requested by Staff;

4. What, if any, penalty should be imposed by the Commission;

5. What, if any, corrective actions should be ordered.

C. The disputed issues in Docket No. 160100079 are as follows:

1. Whether CM violated Commission Rule 707.a. for failure to provide adequate financial assurance for the 23 shut in wells in Jackson and Washington Counties, Colorado;

2. If CM violated Rule 707.a., whether the additional financial assurance sought by staff is calculated correctly;

3. If CM violated Rule 707.a., whether CM has any valid reasons or excuses for failure to post the required additional financial assurance;

4. Whether CM’s financial condition is a mitigating factor in the violations alleged by Staff, the penalty proposed by Staff, and/or the corrective actions requested by Staff;

5. What, if any, penalty should be imposed by the Commission

6. What, if any, corrective actions should be ordered.

II. Background

A. The Margaret Spaulding Location

CM is the current operator of the Margaret Spaulding Location (Location No. 324634) (“Location”), which was formerly operated by Lone Pine Gas, Inc. (“Lone Pine”). (Exs. 1 & 2). The Location is in a sensitive area. (Exs. 12, 18, 19, & 34; Testimony of Alex Fischer).

The Location includes five former produced water pits: Facility No. 112265 (“Pit 1”), Facility No. 112266 (“Pit 2”), Facility No. 112267 (“Pit 3”), Facility No. 112268 (“Pit 4”), and Facility No. 112269 (“Pit 5”), as well as Facility No. 115241 (“Overflow Treater Pit”) (collectively, the “Pits”). (Undisputed Fact 6; Exs. 3, 4, & 12). There is a 6,600 cubic yard soil stockpile containing E&P waste and a land application site (“Landfarm”) (Facility ID 441982) for the treatment of these soils on the Location. (Undisputed Fact 7; Ex. 18; Testimony of Alex Fischer).

1. 2013 COGCC and CDPHE Orders

CM negotiated agreements with Lone Pine, COGCC and the Colorado Department of Public Health & Environment (“CDPHE”) prior to purchasing the Location from Lone Pine. (Testimony of Matt Lepore, Kelly Morgan, Alex Fischer and John Teff). John Teff, business manager of CM, visited the Location prior to the execution of these agreements and CM’s purchase of the Location. (Testimony of John Teff). Representatives of COGCC and CDPHE had also informed Mr. Teff of the Location’s environmental compliance issues and the required remediation. (Testimony of Matt Lepore, Kelly Morgan, and Alex Fischer).

On May 6, 2013, the Commission entered Order 1V-412, which approved an Administrative Order by Consent between Lone Pine and Staff. The Order required the following corrective actions:

a. 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.

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

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

d. Groundwater sampling shall be continued according to an approved Form 27. (Ex. 7 at “Order” ¶¶2-5).

Under Order 1V-412, the $150,000 penalty was suspended until July 1, 2014, at which time “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.” (Ex. 7 at “Order” ¶7).

On May 6, 2013, the Director, Lone Pine, and CM voluntarily agreed to a stipulated order, which was approved and finalized by the Commission as Order 1V-413. (Ex. 8). CM agreed to assume Lone Pine’s responsibilities under Order 1V-412 if the anticipated sale of Lone Pine’s assets to CM closed. Order 1V-413 provides that:

CM has never operated the Lone Pine Assets and has not caused the existing contamination at the Location . . . CM has made a business decision to enter into this Stipulated Order and, if necessary, perform the corrective actions required by, and pay the penalty imposed under, the Lone Pine AOC as provided herein. (Ex. 8, at ¶6).

On June 24, 2013, Lone Pine sold its assets to CM, making CM Production jointly and severally responsible for the corrective actions and the payment of the penalty. (Undisputed Fact 9; Ex. 8).

On June 24, 2013, CDPHE and CM agreed to Compliance Order on Consent No. IC-130624-1 (“CDPHE Compliance Order”), which established a schedule for CM to eliminate the produced water discharge at the Location. (Ex. 9).

On June 26, 2013, a Final Consent Order between the Colorado Department of Public Health and the Environment (“CDPHE”) and Lone Pine was judicially approved (“CDPHE and Lone Pine Consent Order”). (Ex. 10). This CDPHE and Lone Pine Consent Order requires Lone Pine to pay $120,000 in furtherance of Beneficial Environmental Projects (“BEPs”). Id. at ¶¶ 11 & 13. The CDPHE Consent Order references compliance with COGCC Order 1V-412 as a BEP, in particular the decommissioning of the five pits. Id. at ¶14.b. CDPHE expected that CM would undertake the pit decommissioning and communicated this expectation to CM. (Testimony of Kelly Morgan). Additional work on pit decommissioning is necessary to satisfy the requirements of the CDPHE and Lone Pine Consent Order. (Ex. 61; Testimony of Kelly Morgan).

2. Remediation Progress 2013-2015

On July 12, 2013, Staff conditionally approved a Form 27, Site Investigation and Remediation Work Plan, for the Location regarding the remediation of the 6,600 cubic yard soil stockpile (“First Form 27”). (Ex. 12). The First Form 27 stated that the soil stockpile would be remediated to Table 910-1 standards. Id. The soils were treated in July and August of 2013. (Ex. 18).

On October 29, 2013, CM submitted an application for a UIC permit. (Undisputed Fact 10). COGCC Staff did not affect or otherwise delay CM’s filing of the application for a UIC permit. (Testimony of Stuart Ellsworth).

On October 31, 2013, CM ceased discharging any fluids into the pits and the field was shut-in. (Undisputed Fact 11; Ex. 15).

On February 28, 2014, the COGCC approved CM’s UIC permit for the Entrada 1-28 Well. (Undisputed Fact 12). The four-month approval time for CM’s permit was less than half of the COGCC’s average approval time for similar permits. (Testimony of Stuart Ellsworth). The complex nature of CM’s UIC permit application only became apparent to COGCC Staff after the application was submitted. (Testimony of Stuart Ellsworth).

On May 5, 2014, Staff conditionally approved a second Form 27, Site Investigation and Remediation Work Plan, for the Location (“Second Form 27”). (Ex. 18). The Second Form 27 stated that CM would dispose of the water in the pits in the Entrada 1-28 Class II UIC Well and till or disk the Landfarm on a weekly or biweekly basis. Id.

On May 23, 2014, Staff conditionally approved a third Form 27, Site Investigation and Remediation Work Plan, for the Location (“Third Form 27”). (Ex. 19). The conditions of approval included that Pits 4 and 5 “shall be closed by November 1, 2014,” Pits 1-3 “shall be closed by July 1, 2015,” and “all pits shall be closed in accordance with the 900-Series Rules.” Id. A May 23, 2014 letter attached to the Third Form 27 states that “[i]t is expected that [Pits 4 and 5] will be closed by November 1, 2014,” and CM will assess the soils, compare the lab results to Table 910-1, and remediate the pits to Table 910-1 standards. Id.

On June 5, 2014, CM requested a time extension for compliance dates specified in Order 1V-412 and suggested specific deadlines. (Ex. 20).

On June 25, 2014, the Director extended the deadlines of Order 1V-412 as requested by CM:

a. The deadline for treating or disposing of the soil stockpile was extended to July 1, 2015.

b. The deadline for decommissioning Pits 4 and 5 to Table 910-1 standards pursuant to an approved Form 27 was extended to November 1, 2014 and to July 1, 2015 for Pits 1-3. (Ex. 21).

On October 23, 2014, CM submitted soil sample results from Pit 5 showing exceedances of Table 910-1 standards. (Ex. 28). CM did not submit samples for Pits 1-4 or the Overflow Treater Pit. (Testimony of Alex Fischer).

On November 7, 2014, Staff observed that Pits 4 and 5 were “practicably dry” but contained residual hydrocarbons. (Ex. 30). Based on Staff’s observations at the inspection, no active remediation of the Pits had occurred. (Testimony of Alex Fischer).

On November 12, 2014, CM submitted a timeline of work performed to Staff that showed no active remediation of the pits or sampling had occurred during the 2014 field season. (Ex. 31).

During the 2014 Field Season, CM failed to: retreat the soil stockpile; provide results of composite samples to the COGCC; provide weekly updates to the COGCC; actively remediate or sample the Pits; or remove and dispose of fluids using the Entrada 1-28 well. (Testimony of Alex Fischer).

On November 21, 2014, Staff issued Notice of Alleged Violation (“NOAV”) 200417500 to CM for violating Orders 1V-412 and 1V-413 by failing to decommission Pits 4 and 5 to Table 910-1 standards by the extended deadline of November 1, 2014. (Ex. 32).

By the fall of 2014, CM had run electrical lines to the Location. CM did not complete the electrical connections necessary to operate the UIC Well. (Testimony of John Teff).

On March 9, 2015, Staff conditionally approved a Supplemental Form 27 with the express reservation that the Form 27 did not extend the compliance deadlines in Order 1V-412 or the CDPHE Consent Order (“Fourth Form 27”). (Ex. 34). The conditions of approval on the Fourth Form 27 required CM to “actively remediate Pit Facilities at this location;” remove any accumulation of fluid in the treatment areas, including the pits, upon detection; and provide a workplan describing the frequency of farming the proposed landfarm (tilling, disking, nutrient loading, surfactants, etc.). Id.

3. The Unapproved 2015 AOC

On April 1, 2015, Staff filed a Notice and Application for Hearing in Docket No. 150500143 to resolve the violation alleged in NOAV 200417500. (Ex. 36). On April 24, 2015, CM and Staff signed an Administrative Order by Consent (“2015 AOC”). (Ex. 37).

The 2015 AOC required monthly written progress reports on remediation activities beginning May 1, 2015 and semi-annual written progress reports on groundwater monitoring beginning May 1, 2015. (Ex. 37). CM did not submit the monthly remediation progress reports and did not submit the semi-annual groundwater monitoring report until September 4, 2015. (Undisputed Facts 20 & 21; Ex. 59; Testimony of Alex Fischer).

On May 15, 2015, CDPHE first notified Peter Gowen, COGCC Enforcement Supervisor, of the agency’s concerns with the 2015 AOC. (Testimony of Kelly Morgan). These concerns were the following:

In 2013 CDPHE's WQCD entered into a judicial Consent Order with Lone Pine Gas, Inc that included a corrective action for completion of pond decommissioning, an action which was linked to the terms and deadlines in COGCC's AOC No. 1V-412. However, we were not consulted on the terms of COGCC's current proposed AOC No. 1V-497 and we are concerned about the extended deadline to complete decommissioning of the ponds by September 2018. (Ex. 41).

At the May 18, 2015 hearing, Commissioner Wolk withdrew Docket No. 150500143 from the consent agenda due to timing issues with the Water Quality Control Division. (Ex. 43). Docket No. 150500143 was deferred to the July 20, 2015 hearing. Id.

4. Events after the May 18, 2015 Hearing

On May 18, 2015, Staff learned for the first time that CM was not paying its consultants. (Exs. 43, 44-46; Testimony of Alex Fischer). Prior to the May 18, 2015, hearing Staff was not aware that CM was in financial distress. (Testimony of Matt Lepore).

On May 13, 2015, Staff observed that a landfarm had been constructed on the Location without the submission of a workplan. (Ex. 39; Testimony of Alex Fischer).

During a June 2, 2015 inspection, Staff observed that Pits 2, 3, 4, and 5 had visual hydrocarbons on the bottom of the pits and hydrocarbon staining on the pit walls. (Ex. 48; Testimony of Alex Fischer).

On June 3, 2015, Staff met with CDPHE to discuss the 2015 AOC. (Testimony of Kelly Morgan and Matt Lepore). On June 5, 2015, CDPHE provided Staff with comments on the 2015 AOC, including the request that the deadline in the 2015 AOC be changed from September 1, 2018 to September 1, 2016. (Ex. 49).

On June 11, 2015, Staff met with CDPHE and CM to discuss the remediation at the Location and the 2015 AOC. (Testimony of Kelly Morgan and Matt Lepore).

On June 25, 2015, CM discussed their plans with Staff, which included “trying to dry out landfarm material for treatment, (no active tilling or disking has been done) and continue removing fluids from the pits through aeration and evaporation.” (Ex. 54). In addition, the hydrocarbons had not been removed from the surfaces of Pits 2, 3, 4, and 5 and “no active remedial activities” had been initiated. Id.

On June 26, 2015, the Director issued a Notice and Demand for Payment: Order Nos. 1V-412 and 1V-413 (“Demand for Payment”) due to CM’s failure to decommission Pits 4 and 5 to Table 910-1 standards. The Demand for Payment required payment of the suspended $150,000 penalty by August 10, 2015, an extended deadline from what was provided in Order 1V-412. The Demand for Payment also provided CM with an alternative to payment of the $150,000: if CM posted a $75,000 bond for the decommissioning of the Pits before August 10, 2015, Staff would support an extension of the deadlines to September 1, 2016. (Ex. 55). CM did not respond to the Demand for Payment prior to August 10, 2015. (Testimony of Matt Lepore).

On July 1, 2015, CM failed to meet the extended deadline for the decommissioning of Pits 1-3 to Table 910-1 standards and treatment of the soil stockpile to Table 910-1 standards. (Testimony of Alex Fischer and Matt Lepore).

On July 8, 2015, Staff withdrew its Notice and Application for Hearing dated April 1, 2015 in Docket No. 150500143, noting that the withdrawal did not impact NOAV 200417500, which remained outstanding. (Ex. 56).

Staff was not aware of any of the information that caused it to issue the Director’s Demand for Payment and withdraw the Notice and Application for Hearing before the May 18, 2015 hearing. (Testimony of Matt Lepore).

During inspections on July 16^th, September 4^th, September 30^th, and November 18^th, 2015, Staff observed that, among other issues at the site, no active pit remediation had occurred and that hydrocarbons remained in the pits. (Exs. 57, 58, 60, & 66).

On August 26, 2015, Lone Pine submitted affidavits and invoices to CDPHE regarding costs expended at the Location to qualify the costs towards the BEP under the CDPHE and Lone Pine Consent Order. (Exs. 62 & 63; Testimony of Kelly Morgan). CDPHE and Lone Pine are currently involved in the dispute resolution process regarding the cost information, but CDPHE’s initial evaluation concluded that only $18,500 of the costs expended from 2013 to 2014 could be attributed to the decommissioning of the Pits. (Ex. 61; Testimony of Kelly Morgan).

During the 2015 Field Season, CM failed to: retreat the soil stockpile; submit a workplan for the Landfarm; work the Landfarm on a regular basis; actively remediate or provide samples from the Pits; provide weekly updates to the COGCC; or remove and dispose of fluids using the Entrada 1-28 Well. (Testimony of Alex Fischer).

On December 16, 2015, CM submitted a workplan for the onsite land treatment of the soil stockpiles, which was first requested in April of 2015. (Ex. 67; Testimony of Alex Fischer). Staff did not approve this workplan because it did not provide sufficient detail and was not based on attainable outcomes. (Ex. 69).

The soils in Pits 1-5 have not met Table 910-1 standards and CM has not completed decommissioning of the Pits pursuant to Order 1V-412. (Testimony of Alex Fischer and John Teff). The soils in the stockpile or the Landfarm have not met Table 910-1 standards and CM has not completed the treating of the soil stockpile pursuant to Order 1V-412. (Testimony of Alex Fischer and John Teff).

CM has not performed any active remediation on the Pits. (Testimony of Alex Fischer). CM relied on the evacuation of the free product on the surface of the water in the Pits and the exposure of the Pits to sun and wind. (Testimony of John Teff). CM provided no evidence of additional chemical treatment of the soil stockpile and Landfarm beyond the initial treatment in 2013. (Testimony of Alex Fischer and John Teff). CM never put the Entrada 1-28 injection well into use after it was permitted in February 2014. (Testimony of John Teff).

5. Procedural History

On September 11, 2015, CM filed its Application for Hearing, requesting the Commission to approve the 2015 AOC and to vacate the Demand for Payment.

On October 9, 2015, Staff filed its Motion to Dismiss CM Production’s Application for Hearing. On November 16, 2015, the Commission denied Staff’s Motion to Dismiss.

On December 3, 2015, Staff filed its Protest of CM Production’s Application for Hearing. On December 9, 2015, Staff filed its Amended Notice and Application for Hearing in Docket No. 151000676 to resolve the alleged violations in NOAV 200417500.

B. Mechanical Integrity Testing Requirements

CM operates the Margaret Spaulding 10-A, 11, 12-A, 15 and 16 wells (the “MIT Wells”). (Undisputed Fact 24; Ex. 79). The MIT Wells are part of the Margaret Spaulding Location. (Ex. 80). All five MIT Wells were shut-in by no later than March 31, 2012. (Undisputed Facts 25-34; Ex. 81).

In an October 6, 2014 warning letter, Staff notified CM that it was required to perform MITs and set a compliance deadline of January 7, 2015. (Undisputed Facts 35 and 36; Ex. 82). CM requested an extension to perform the MITs until September 1, 2015 (Ex. 86), which was not approved by the COGCC. (Undisputed Fact 44; Ex. 108 at p. 101). CM failed to meet its own requested extension and still has not conducted the required MITs. (Undisputed Facts 39-44; Ex. 97).

C. Financial Assurance Requirements

CM operates 23 inactive wells in Jackson and Washington Counties. (Undisputed Facts 46 and 47; Exs. 102-104; Testimony by Martha Ramos). CM has not sold any production for at least twelve consecutive months from any of these 23 wells. (Undisputed Fact 47; Ex. 104, Testimony of Martha Ramos). CM has a plugging bond with the COGCC in the amount of $60,000. (Undisputed Fact 51; Ex. 107).

Staff notified CM of the requirement for additional financial assurance in a July 16, 2015 warning letter and required corrective action by August 17, 2015. (Undisputed Fact 49, Ex. 105). CM never made any effort to submit the required additional financial assurance. (Undisputed Fact 54).

III. The Commission’s Findings and Conclusions

The Commission reviewed the relief requested in CM’s Application, Staff’s alleged violations, and the associated penalties and relief recommended by staff. The Commission’s final determinations are set forth in Exhibit A attached to this Order.

The Commission finds and concludes that CM has not proven that its relief requested in its Application should be granted. The Commission finds and concludes that Staff has proven by a preponderance of the evidence that CM violated Orders 1V-412 and 1V-413, as well as Rules 326.b. and 707.a.

A. The relief requested in CM’s Application is denied.

1. The 2015 AOC is not approved.

The 2015 AOC is null and void because Staff withdrew its support for the proposal before it was approved by the Commission. The purpose of AOCs is to “provisionally resolve” enforcement actions and they are subject to final approval by the Commission. §34-60-121(1), C.R.S.; Rule 522.e.(1). The Act provides that a penalty may only be imposed after a hearing or “by an administrative order by consent entered into by the commission and the operator.” §34-60-121(1)(b), C.R.S. (emphasis added). It also states that no recommended findings, determinations, or orders of any hearing officer are final until adopted by the Commission. §34-60-106(6), C.R.S. The 2015 AOC expressly states it becomes effective as of the date of approval by the Commission. (Ex. 37 at “Order” ¶8).

Staff withdrew its support for the 2015 AOC because: (1) CM defaulted on the agreement; (2) CDPHE had concerns with the 2015 AOC; and (3) Staff determined that it was not in the public interest to continue its support because of CM’s compliance trends, finances, and lack of progress.

The Commission finds that there is evidence supporting Staff’s decision to withdraw its support for the 2015 AOC. CM has not presented persuasive authority or evidence demonstrating that it should be approved over Staff’s objection. The Commission finds and concludes that the 2015 AOC is null and void and that the approval of the 2015 AOC is not in the public interest.

2. The Demand for Payment is not vacated.

The Demand for Payment was validly issued pursuant to an approved Commission order. Order 1V-412 provides that: “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.” (Ex. 7 at “Order” ¶7). It is undisputed that CM did not timely and satisfactorily decommission Pits 4 and 5. (Ex. 108, p. 58; Testimony of Alex Fischer and John Teff).

The Commission finds and concludes that the Demand for Payment was properly issued because CM failed to satisfactorily and timely perform the corrective action under Orders 1V-412 and 1V-413.

B. CM violated Orders 1V-412 and 1V-413 at the Margaret Spaulding Location by failing to decommission Pits 4 and 5 to Table 910-1 standards by November 1, 2014.

Order 1V-412 required all of the pits to be decommissioned to Table 910-1 standards pursuant to an approved workplan by July 1, 2014. (Ex. 7 at “Order” ¶4). This deadline was extended to November 1, 2014 for Pits 4 and 5, which was the deadline CM itself requested. (Ex. 20 & 21).

It is undisputed that the Pits have not been decommissioned to Table 910-1 standards. (Ex. 108, pp. 27, 30, & 58; Testimony of Alex Fischer and John Teff). CM has provided no evidence showing that the soils in Pits 4 and 5 meet Table 910-1 standards, or even sample results from the Pits since those submitted were only for Pit 5 on October 23, 2014. CM has not performed any active remediation on the Pits. (Testimony of Alex Fischer and John Teff).

The Commission finds and concludes that CM failed to decommission Pits 4 and 5 to Table 910-1 standards pursuant to the approved Form 27 by November 1, 2014. The Commission further finds that CM must pay the $150,000 previously demanded by the Director.

C. CM violated Rule 326.b. (Mechanical Integrity) at Five Wells by failing to perform MITs within two years of the initial shut-in date.

Rule 326.b.(1) states that “[a] mechanical integrity test shall be performed on each shut-in well within two years of the initial shut-in date.” It is undisputed that CM failed to perform MITs at the MIT Wells within two years of their shut-in dates. (Undisputed Facts 39-44; Ex. 97).

CM was notified of this issue in 2013 and Staff provided a warning letter in 2014. (Undisputed Facts 35 and 36; Ex. 82). CM has failed to perform the MITs, even by its requested extended deadline. (Undisputed Facts 39-44; Ex. 86). CM has not provided any evidence that it has attempted or has completed MITs or plugged and abandoned the MIT Wells.

The Commission finds and concludes that CM violated Rule 326.b. at the MIT Wells and Staff’s requested penalty of $327,630 is appropriate under the circumstances. The method for calculating this penalty is described in Exhibit A.

D. CM violated Rule 707.a. (Financial Assurance) by failing to provide additional bonding required for excess inactive wells.

Rule 707.a. requires additional financial assurance for inactive wells where an operator’ inactive well count exceeds its financial assurance based on a calculation provided by Rule 707.a.

CM has a plugging bond with the COGCC in the amount of $60,000. (Undisputed Fact 51; Ex. 107). It is undisputed that CM operates 23 wells which are inactive. (Undisputed Facts 46 and 47; Exs. 102-104). Nineteen of these inactive wells are less than 3,000 feet deep and four are more than 3,000 feet deep. (Undisputed Fact 48).

CM is required to increase its financial assurance by $10,000 for inactive wells less than 3,000 feet in total measured depth or $20,000 for inactive wells greater than or equal to 3,000 feet in total measured depth. Of the 23 inactive wells operated by CM, 4 have a total measured depth of 3,000 feet or more. Under Rule 707.a. the financial assurance required for these 4 deeper wells totals $80,000. Under Rule 707.a. the financial assurance required for the remaining 19 shallower wells totals $190,000, as these remaining 19 wells have a total measured depth of less than 3,000 feet.

The total financial assurance required for all of CM Production’s inactive wells is $270,000. As CM Production currently has a $60,000 plugging bond, the total additional financial assurance required is $210,000.

The calculation of the additional required financial assurance can be summarized with the following formula:

19 Inactive Wells < 3,000 Ft. x $10,000 = $190,000

4 Inactive Wells > 3,000 Ft. x $20,000 = $80,000

Existing Financial Assurance = $60,000

________________________

Required Additional Financial Assurance = $210,000

Pursuant to the calculation provided by Rule 707.a., and based on the number of inactive wells and the depths of those wells, CM is required to submit $210,000 in additional financial assurance. It is undisputed that CM has not submitted this financial assurance. (Undisputed Fact 54).

Staff issued a warning letter to CM and gave CM time to provide the additional financial assurance or negotiate a plan for graduated payments. (Undisputed Fact 49, Ex. 105). CM failed to make any effort to comply with the requirements of Rule 707. (Undisputed Fact 54).

The Commission finds and concludes that CM violated Rule 707.a. and Staff’s requested penalty of $64,510 is appropriate under the circumstances. The method for calculating this penalty is described in Exhibit A.

ORDER

NOW, THEREFORE, the COMMISSION ORDERS:

1. The Commission approves all Hearing Officer Orders entered in Docket Nos. 151000676, 160100078, and 160100079.

2. CM’s Application is denied. The 2015 AOC is not approved and the Director’s Demand for Payment is not vacated.

3. CM is found in violation of Section 34-60-121(1), C.R.S., of the Act for a violation of Orders 1V-412 and 1V-413 as described above.

4. Within 30 days after this Order is mailed by the Commission, CM will either:

a. Pay the $150,000 penalty previously suspended under Orders 1V-412 and 1V-413 and complete active remediation of the Pit Facility ID Nos. 112265, 112266, 112267, 112268, 112269, 115241, Landfarm Facility ID 441982, and the soil stockpile to Table 910-1 standards and any subsequently approved Form 27s by September 1, 2016; or

b. Post financial assurance in the amount of $200,000 pursuant to Rule 702.a. and negotiate a deadline to remediate Pit Facility ID Nos. 112265, 112266, 112267, 112268, 112269, 115241, Landfarm Facility ID 441982, and the soil stockpile to Table 910-1 standards. The $200,000 financial assurance posted under Rule 702.a. is separate and independent of CM’s obligations to post $210,000 of additional financial assurance under Rule 707 as described in Paragraph 6.

5. The corrective action deadlines in Paragraphs 4, 6, and 7 of this Order are new and arise solely from this Order. The corrective action deadlines in Orders 1V-412 and 1V-413 have all passed without further extension. The failure to meet either of the requirements set forth in Paragraph 4 is an independent violation of this Order that may be subject to additional penalties.

6. CM is found in violation of Rule 326.b. at five wells as described above. CM is assessed a penalty of $327,630 for these violations. CM will perform the mechanical integrity tests on the MIT Wells by June 30, 2016. The penalty amount of $327,630 will be reduced by the amount of substantiated, actual costs incurred by CM to perform mechanical integrity tests on the MIT Wells, provided that CM performs an MIT test on all five MIT Wells on or before June 30, 2016. The deadline for the payment of the penalty is June 30, 2016.

7. CM is found in violation of Rule 707.a. as described above. CM is assessed a $64,510 penalty for this violation. CM will post a $210,000 bond within 30 days of the approval of this Order. The $64,510 penalty is suspended pending compliance with this corrective action by the deadline. If the corrective action is not timely performed, the $64,510 will be due within 10 days of notification from the Director and without any further action from the Commission.

8. 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. For all other purposes, this Order is effective as of the date it is approved by the Commission.

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

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ENTERED this ___ day of March, 2016 as of the 7^th day of March, 2016.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Julie Murphy, Secretary

Exhibit A can be found in the scanned version of this order.