1V-593

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 PDC ENERGY INC., WELD COUNTY, COLORADO

)

CAUSE NO. 1V

DOCKET NO. 160600198

TYPE: ENFORCEMENT

ORDER No. 1V-593

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. PDC Energy Inc. (“PDC”) (Operator No. 69175) is the operator of the Becker Ranch 5R-303 Well (API No. 05-123-38968) (“Becker Ranch Well”) and Chesnut 27K-421 Well (API No. 05-123-40077) (“Chesnut Well”) located in Weld County, Colorado.

Becker Well:

2. PDC spud the Becker Well on April 23, 2015, reached total depth on April 29, 2015, released the rig from the pad on May 1, 2015, finished completion operations on October 12, 2015, and reported first production on November 3, 2015. (Doc. Nos. 400865358 and 400934605).

3. PDC did not timely file the Becker Well’s Form 5, Drilling and Completion Report within 60 days of the rig release on May 1, 2015. (Doc. No. 400865358).

4. PDC failed to submit a Form 42, Notice of Hydraulic Fracturing, 48 hours prior to commencing hydraulic fracturing operations at the Well. (Doc. No. 400934605).

5. On March 17, 2016, COGCC Staff issued NOAV No. 400994763 to PDC for violations of the following COGCC Rules of Practice and Procedure, 2 CCR 404-1 (“Rule” or “Rules”) at the Becker Ranch Well:

a. Rule 308A (COGCC Form 5. Drilling Completion Report); and

b. Rule 316C.a. (COGCC Form 42. Field Operations Notice, Notice of Intent to Conduct Hydraulic Fracturing Treatment).

Chesnut Well:

6. PDC spud the Chesnut Well December 7, 2014, reached total depth on December 18, 2014, released the rig from the pad on March 18, 2015, finished completion operations on June 11, 2015, and reported first production on June 16, 2015. (Doc. Nos. 400757064, 401034156, and 401002630).

7. PDC did not timely submit the Chesnut Well’s Form 5A, Completed Interval Report, within 30 days of the reported first date of production on June 16, 2015. (Doc. No. 401002630).

8. PDC failed to submit a Form 10, Certificate of Clearance, within 30 days after the initial sale of oil or gas for this Well. (Doc No. 401031309).

9. On April 15, 2016, COGCC Staff issued NOAV No. 401026439 to PDC for violations of the following Rules at the Chesnut Well:

a. Rule 308B (COGCC Form 5A. Completed Interval Report); and

b. Rule 312 (COGCC Form 10. Change of Operator/Certificate of Clearance).

10. Through the enforcement process and examination of COGCC records, COGCC Staff identified a large number Forms 5, 5A, and 10 for additional wells operated by PDC that are late or deficient and cannot be approved by Staff.

PENALTY CALCULATION

11. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy, Hearings Staff calculated a penalty of $62,325 for these violations. The penalty calculation is based on the following:

NOAV No., Facility	Rule	Class	Days	Start Date	End Date	Base Penalty	Total Penalty
400994763, Becker	308A	Class 2, Minor	9	6/30/2015	7/9/2015	$2,500	$22,500
400994763, Becker	316C.a.	Class 2, Minor	1	10/18/2015	10/18/2015	$2,500	$2,500
401026439, Chesnut	308B	Class 2, Minor	236	7/17/2015	3/9/2016	$2,500	$54,300
401026439, Chesnut	312	Class 1, Minor	276	7/17/2015	4/18/2016	$200	$3,878
TOTAL BASE PENALTY							$83,325
Settlement Inducement and Mitigating Factor (25%)							$21,000
FINAL PENALTY							$62,325

a. Application of the Duration Matrix from the COGCC Enforcement Guidance and Penalty Policy January 2015 (corrected 4/8/2015);

b. Consolidation of the violation of Section 34-60-121(1), C.R.S., with the violation of Rule 316C.a.;

c. Settlement inducement;

d. Mitigating factor (Rule 523.c.B.(2)) for cooperation with the Commission and prudent, effective response to the violation; and

e. No aggravating factors, pattern of violation, or gross negligence or knowing and willful misconduct.

AGREEMENT

NOW, THEREFORE, based on the Findings and pursuant to Rule 522.e.(1) and the Commission’s Enforcement and Penalty Policy, the Director and PDC agree to request that the Commission approve the Order set forth below to resolve the NOAVs.

PDC agrees to this AOC only for the purpose of expeditiously resolving this matter without a contested hearing. PDC reserves the right to contest the findings of this AOC in any proceeding before any agency, court, or other tribunal, except for a proceeding to enforce the terms of this AOC. The findings and any action undertaken by PDC pursuant to this AOC shall not constitute evidence of fault or liability by PDC with respect to any third-party claim against PDC.

RECOMMENDED this 24^th day of August, 2016.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Britta Beckstead, Asst. Attorney General

AGREED TO AND ACCEPTED this 24^th day of August, 2016.

PDC ENERGY INC.

O. F. Baldwin II, Vice President of Land

ORDER

HAVING CONSIDERED the Agreement between the Director and PDC to resolve the NOAVs, the COMMISSION ORDERS:

1. PDC is found in violation of Rules 308A, 308B, 316C.a., and 312, as described above.

2. PDC will pay a penalty of $62,325, by certified check, within 30 days after the Commission mails this Order.

3. Definitions:

a. “Batch” is a set number of wells for which Subject Forms will be submitted pursuant to the Batch Submission Schedule (Table 1) set forth at Paragraph 7.

b. “Bulk Return Threshold” is reached if one or more Subject Forms are not Correctly Submitted for two wells per pad in a Batch. If this Threshold is reached, COGCC Staff will Return all Subject Forms for that pad within the Staff Review Period.

c. “Correction and Resubmission Period” is the defined time period in which PDC must Correctly Submit all Subject Forms in a Batch after Staff’s initial review.

d. “Correctly Submit” means submitting an accurate and complete Subject Form that is compliant with COGCC Rules in place at the time the Subject Form originally came due and that COGCC can approve without seeking additional information from PDC.

e. “Form Tracking Spreadsheet” is a formatted spreadsheet provided by COGCC Staff to track submitted Subject Forms and document COGCC Staff’s comments and PDC’s responses.

f. “Return” is the process by which Staff will return a Subject Form to PDC for correction.

g. “Staff Review Period” is the defined time period in which Staff will review all Subject Forms in a Batch. There are two Staff Review Periods – the Staff Review Period after the Submission of a Batch and the Staff Review Period after PDC’s Correction and Resubmission Period.

h. “Standard of Review” is the metric Staff will utilize to review the Subject Forms to determine whether they have been Correctly Submitted. For issues addressed on the approved Template Forms (Doc. Nos. 400990492, 401032404, 401040761, 400990625, 400994413, 401039251, 400999598, 401032726, 400999679, and 401033115), Staff will review the Subject Forms in a manner consistent with the Template Forms. For issues not addressed on the approved Template Forms, Staff will review the Subject Forms in a manner consistent with the same or similar issues previously addressed on the Form Tracking Spreadsheet. For any issues not previously addressed on either the Template Form or the Form Tracking Spreadsheet, Staff will review the issues pursuant to the COGCC Rules, written policies, and written guidance effective at the time the Subject Form originally came due.

i. “Subject Forms” means, collectively, Prior Forms and Intermediate Forms:

i. “Prior Forms” means all Forms 5, 5A, and 10 for PDC wells that were due and not approved by COGCC prior to the approval of this Order.

ii. “Intermediate Forms” means all Forms 5, 5A, or 10 for PDC wells that become due during Phase One or Phase Two, except for Forms 5A for offset mitigation or to update the formation status.

4. Upon Commission approval of this Order, COGCC Staff will return all Prior Forms to draft status in eForms with the comment “Returned to draft for settlement.”

5. Batch Submission Phases:

a. In Phase One, PDC will submit Batches 1-3 and prioritize the submission of Prior Forms. Intermediate Form due dates are suspended until Phase Two.

b. In Phase Two, PDC will submit Batches 4-10 and prioritize any Intermediate Forms for submission. Batches in Phase Two will consist of any Intermediate Forms due during Phases One or Two and as many Prior Forms as is necessary to satisfy the requisite Batch Size.

c. In Phase Three, PDC will submit all remaining Subject Forms.

d. COGCC reserves the right to request that PDC submit specific Intermediate Forms within 14 days of a good faith, written request from COGCC, where the timely submission of such Forms is critical to fulfill COGCC's statutory mandate, §34-60-102(1)(a), C.R.S. Situations that may require these requests include, but are not limited to, evaluation of collision and fracture stimulation interference or potential impacts to correlative rights.

e. This Order has no impact on the deadlines for and COGCC’s ability to pursue enforcement regarding Forms 5, 5A, or 10 for PDC wells that come due after the submission deadline for the final Batch in Phase Two.

6. Submission and Review Procedures:

a. Batch Submission:

i. PDC will submit a Batch’s Subject Forms in accordance with the procedures and Batch Submission Schedule specified in Table 1.

ii. PDC will ensure that all Form 7s for wells in the Batch are current prior to submitting the Subject Forms.

iii. When submitting the Batch, PDC will list all Subject Forms submitted in the Batch on the Form Tracking Spreadsheet and email the Tracking Spreadsheet to the Designated COGCC Staff.

iv. Failure to submit current Form 7s and all Subject Forms for a Batch is a violation of this Order. Penalties will accrue at a rate of $2,000 per day, commencing on the day the Batch was due and continuing until PDC submits Subject Forms for that Batch.

b. COGCC Review:

i. In Phases One, Two, and Three, COGCC will conduct a review of submitted Subject Forms to determine whether they were Correctly Submitted according to the Standard of Review. COGCC will approve all Correctly Submitted Subject Forms it reviews. COGCC will provide detailed feedback of all reviewed Subject Forms that are not Correctly Submitted in the Form Tracking Spreadsheet by email to the Designated PDC Contact.

ii. In Phase One, COGCC will provide a complete review of all Subject Forms for all wells in the Batch. COGCC will Return all Subject Forms that are not Correctly Submitted.

iii. In Phases Two and Three, if the Bulk Return Threshold is reached, COGCC may Return all Subject Forms for that pad that were not approved. If the Bulk Return Threshold is not reached, COGCC will Return all Subject Forms that are not Correctly Submitted.

iv. COGCC will complete its review of the Batches within the Staff Review Period for Submission specified in Table 1. If a Subject Form is not Returned or if the Form Tracking Spreadsheet for such Form is not emailed within the Staff Review Period, then: (A) PDC will have satisfied all of its obligations under this Order for such Form and the COGCC will not pursue any further enforcement against PDC regarding that Subject Form; and (B) the last day of the Staff Review Period for Submission will be deemed the approval date for the purpose of determining when the next Batch is due.

c. Correction and Resubmission Period:

i. The Correction and Resubmission Period for the Batch begins the day after the COGCC emails the Form Tracking Spreadsheet to PDC and ends in accordance with the Batch Submission Schedule (Table 1)

ii. For those Subject Forms reviewed by COGCC, PDC is responsible for correcting the errors, omissions, and other deficiencies that are identified in the Form Tracking Spreadsheet. For those Subject Forms not reviewed by COGCC, PDC is responsible for correcting the types of errors, omissions, and other deficiencies identified on the Form Tracking Spreadsheet, as well as the types of errors, omissions, and other deficiencies that are not identified on the Form Tracking Spreadsheet, but are identified by COGCC Rules, written policies, and written guidance effective at the time the Subject Form originally came due.

iii. Subject to Paragraph 6.c.ii, PDC will Correctly Submit all Returned Subject Forms in the Batch within the Correction and Resubmission Period and list resubmitted Subject Forms in the Form Tracking Spreadsheet.

iv. COGCC will conduct a review of any resubmitted Subject Forms to determine whether they were Correctly Submitted according to the Standard of Review and the Form Tracking Spreadsheet. COGCC will Return all Subject Forms that are not Correctly Submitted.

v. COGCC will complete its review of the Returned Subject Forms within the Staff Review Period for Resubmission specified in Table 1. If a Subject Form is not Returned or if the Form Tracking Spreadsheet for such Form is not emailed within the Staff Review Period, then PDC will have satisfied all of its obligations under this Order for such Form and the COGCC will not pursue any further enforcement against PDC regarding that Subject Form.

vi. Failure to Correctly Submit all Returned Subject Forms in the Batch within the Correction and Resubmission Period for that Batch is a violation of this Order. Penalties will accrue at a rate of up to $2,000 per day, commencing on the day after the Correction and Resubmission Period ends and continuing until all Returned Subject Forms in the Batch are Correctly Submitted, excluding those days associated with COGCC’s review. PDC need correct only those errors, omissions, and other deficiencies that are identified in the Form Tracking Spreadsheet for Returned Subject Forms.

7. Batch Submission Schedule

Table 1 Batch Submission Schedule
Batch #	Minimum Size	Submission Deadline	Bulk Return Threshold	Staff Review Period for Submission	Correction and Resubmission Period	Staff Review Period for Resubmission
PHASE ONE: Submissions must prioritize Prior Forms. Submissions of Intermediate Forms are suspended.
1	10 wells	9/15/2016	Not applicable	21 days	10 days	14 days
2	10 wells	Batch 1 Approval + 14 days	Not applicable	Batch 2 Submission Deadline + 21 days	10 days	Batch 2 Resubmission Deadline + 14 days
3	10 wells	Batch 2 Approval + 14 Days	Not applicable	Batch 3 Submission Deadline + 21 days	10 days	Batch 3 Resubmission Deadline + 14 days
PHASE TWO: Submissions must prioritize Intermediate Forms.
4	30 wells	Batch 3 Approval + 21 Days	Applicable	Batch 4 Submission Deadline + 28 days	14 days	Batch 4 Resubmission Deadline + 14 days
5	30 wells	Batch 4 Approval + 21 Days	Applicable	Batch 5 Submission Deadline + 28 days	14 days	Batch 5 Resubmission Deadline + 14 days
6	30 wells	Batch 5 Approval + 21 Days	Applicable	Batch 6 Submission Deadline + 28 days	14 days	Batch 6 Resubmission Deadline + 14 days
7	30 wells	Batch 6 Approval + 21 Days	Applicable	Batch 7 Submission Deadline + 28 days	14 days	Batch 7 Resubmission Deadline + 14 days
8	30 wells	Batch 7 Approval + 21 Days	Applicable	Batch 8 Submission Deadline + 28 days	14 days	Batch 8 Resubmission Deadline + 14 days
9	30 wells	Batch 8 Approval + 21 Days	Applicable	Batch 9 Submission Deadline + 28 days	14 days	Batch 9 Resubmission Deadline + 14 days
10	30 wells	Batch 9 Approval + 21 Days	Applicable	Batch 10 Submission Deadline + 28 days	14 days	Batch 10 Resubmission Deadline + 14 days

PHASE THREE: Submission of all remaining Prior Forms.

Wells for which Forms come due after the submission deadline for the final Batch in Phase Two are subject to standard submission deadlines specified in Rules 308A, 308B, 309, and 312.

11, 12, 13 etc.

30 wells

Prior Batch Approval + 21 days

Applicable

Batch 11, 12, 13 etc. Submission Deadline + 28 days

14 days

Batch 11, 12, 13 etc. Resubmission Deadline + 14 days

8. Batches must include submission of Subject Forms for complete well pads. The minimum batch size for Batches in Phase One is 10 wells, but can be larger to accommodate the submission of Subject Forms for additional wells as necessary to complete a pad. The minimum batch size for Phases Two and Three is 30 wells, but can be larger to accommodate the submission of Subject Forms for additional wells as necessary complete a pad.

9. If PDC is more than 21 days late completing a corrective action, the Director may require PDC to Correctly Submit all remaining Subject Forms by a deadline determined by the Director, but no less than 30 days from the issuance of a Demand Letter as described in Paragraph 11, and pay a liquidated penalty of $153,750.

10. Unless PDC fails to comply with Paragraph 9, the Director will not issue additional NOAVs or impose an additional penalty for either: (1) a violation of this Order due to PDC’s failure to perform a corrective action; or (2) any potential violations of Rules 308A, 308B, 316C.a., or 312 regarding the Subject Forms.

11. PDC will pay any penalties imposed under Paragraphs 6 or 9 within 30 days after the Director mails a Demand Letter by first class mail, return receipt requested, without further action from the Commission. The failure to timely pay the penalties in Paragraphs 2, 6, and 9 is a violation of this Order that may subject PDC to additional penalties.

12. PDC is responsible for the payment of the penalties and the performance of the corrective actions required by this Order regardless of the sale or transfer of the wells for which the Subject Forms were or will be filed. The Form 10, Change of Operator, will not be approved for those wells until the requirements of this Order are complete, unless otherwise agreed by the Director, PDC, and the buyer.

13. This Order is effective as of the date it is mailed by the Commission. It constitutes final agency action for purposes of judicial review.

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

==================================================================

ENTERED this ___ day of August, 2016, as of the ___ day of August, 2016.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Julie Murphy, Secretary

CERTIFICATE OF MAILING

On _________ ____, 2016, a true and accurate copy of Commission Order 1V- 593 was mailed by first-class mail, return receipt requested to the following:

PDC Energy Inc.
Attn: Venessa Langmacher

1775 Sherman St., Ste. 3000

Denver, CO 80203

Signature