COGCC

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 SYNERGY RESOURCES CORPORATION, WELD COUNTY, COLORADO

)

CAUSE NO. 1V

DOCKET NO. 151000487

TYPE: ENFORCEMENT

ORDER NO. 1V-603

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. On February 29, 2016, Synergy Resources Corporation (“Synergy”) (Operator No. 10311) and Colorado Oil and Gas Conservation Commission (“Commission” or “COGCC”) Staff entered into an Administrative Order by Consent (“AOC”) to resolve Notice of Alleged Violation Nos. 1772582, 1772583, 1772584, 1772585, and 200434693, and any additional late or deficient Forms 5, 5A, 7, and 10 for additional wells operated by Synergy, on the terms and conditions described in more detail in the AOC. The AOC was approved by the Commission on March 7, 2016, as Order No. 1V-571.

2. Under the AOC, Synergy agreed to a penalty of $79,275.

3. Under the AOC, Synergy agreed to plug, abandon, and perform reclamation on an abandoned well in Larimer County, Colorado, the River West 2 Well (API No. 05-069-06454) (“Abandoned Well”), as a Public Project under COGCC Rule of Practice and Procedure, 2 CCR 404-1 (“Rule” or “Rules”) 523.f. The AOC provided that Synergy may satisfy the penalty by funding and carrying out the Public Project.

4. Synergy performed the Public Project to the satisfaction of COGCC Staff and satisfied $78,902.78 of the penalty. Synergy paid the remainder of the penalty to the COGCC on October 18, 2016.

5. Synergy and COGCC desire to amend the AOC to revise the schedule for submission of Forms 5, 5A, 7 and 10, and other technical corrections.

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 Synergy agree to request that the Commission enter the Order set forth below in full substitution of Order No. 1V-571.

RECOMMENDED this 18^th day of October, 2016.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By_____________________________________

Jeremy I. Ferrin
Enforcement Officer

AGREED TO AND ACCEPTED this 18^th day of October, 2016.

SYNERGY RESOURCES CORPORATION

By__________________________________________

Nick Spence
Co-COO - Development

ORDER

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

I. Definitions:

a. “Approval Date” means the date on which Staff notifies Synergy in writing, via email, that all Correctly Submitted Forms in a Batch are approved.

b. “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 VI.

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

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

e. “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 which COGCC can approve without seeking additional information from Synergy.

f. “Dispute Resolution Period” means the period in which the Submission Deadline or Correction and Resubmission Period is tolled as a result of a substantive dispute between Staff and Synergy as to a rule or requirement pertaining to a Subject Form.

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

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

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

j. “Standard of Review” is the metric Staff will use to review the Subject
Forms to determine whether they have been Correctly Submitted. For issues addressed on the approved Template Forms, 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 in 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 COGCC Rules, written policies, and written guidance effective at the time the Subject Form originally came due.

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

i. “Prior Forms” means all Forms 5, 5A, or 10 for Synergy wells that were due and not approved by COGCC from January 1, 2013 to the date of execution of this Agreement between the Director and Synergy.

ii. “Intermediate Forms” means all Forms 5, 5A, or 10 that become due during Phase One or Phase Two.

l. “Template Forms” are Staff-approved Subject Forms, which will be submitted by November 15, 2016, which will serve as a model for correctly completing the Subject Forms in the remaining Batches.

m. “Non-Subject Forms” are Forms 5, 5A, 7, or 10 that come due after the submission deadline for the final Batch in Phase Two. Non‑Subject Forms are subject to standard submission deadlines specified in Rules 308A, 308B, 309, and 312.

II. 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.”

III. Template Forms:

a. By November 15, 2016, Synergy will submit the first Batch of Subject Forms for a well pad to serve as Template Forms.

b. Failure to submit the first draft of Template Forms by November 15, 2016, is a violation of this Order. Penalties will accrue at a rate of $200 per day for the first seven days, $500 per day for the eighth to the fourteenth day, and $2,500 per day for the fifteenth to the twentieth day. Penalties commence on the day after the first draft of Template Forms was due and continue until Synergy submits the first draft of Template Forms or Synergy defaults under this AOC by failing to submit the Template Forms for twenty-one days.

c. COGCC will review the Template Forms and provide feedback to Synergy until the Template Forms are all Correctly Submitted and approved by COGCC. These forms, once approved, will serve as templates of Correctly Submitted forms for Synergy’s future submissions, including Phases One, Two, and Three.

IV. Batch Submission Phases:

a. In Phase One, Synergy will submit Batches of Prior Forms as identified in the Batch Submission Schedule (Table 1). Intermediate Form due dates are suspended until Phase Two.

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

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

d. COGCC reserves the right to request that Synergy submit specific Intermediate Forms within 14 days of a good faith, written request from COGCC, where 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 Synergy wells that come due after the submission deadline for the final Batch in Phase Two.

f. Non-Subject Forms will be due in accordance with timeframes established in Rules 308A, 308B, 309, and 312, and are not applicable to the terms of this AOC.

g. Following approval of the final Batch in Phase Two, COGCC Staff will provide Synergy with written acknowledgment that the Agreement has been satisfied.

V. Submission and Review Procedures:

a. Batch Submission:

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

ii. Synergy will ensure that all Form 7s for wells in the Batch are submitted concurrently with or prior to the Subject Forms.

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

iv. Failure to submit any of the Form 7s or Subject Forms for a Batch is a violation of this Order. Penalties will accrue at a rate of $200 per day for the first seven days, $500 per day for the eighth to the fourteenth day, and $2,500 per day for the fifteenth to the twentieth day. Penalties commence on the day after all current Form 7s and all Subject Forms for a Batch were due and continue until Synergy submits all current Form 7s and all Subject Forms for a Batch or Synergy defaults under this AOC by failing to submit the current Form 7s and all Subject Forms for twenty-one days.

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. COGCC will approve all Correctly Submitted Subject Forms it reviews. COGCC will provide feedback on all reviewed Subject Forms that are not Correctly Submitted in the Form Tracking Spreadsheet by email to Synergy.

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 exceeded, COGCC may Return all Subject Forms for that pad that were not approved. If the Bulk Return Threshold is not exceeded, COGCC will Return all Subject Forms that are not Correctly Submitted. Once COGCC begins review of a Subject Form, COGCC will review the entire Subject Form and provide comments on the Form Tracking Spreadsheet for the entire Subject Form, regardless of whether the Bulk Return Threshold is met during review of that Subject Form.

iv. COGCC will complete its review of the Batches within the Staff Review Period for the Initial 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) Synergy will have satisfied all of its obligations under this Order for such Form and the COGCC will not pursue any further enforcement against Synergy 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 Synergy and ends in accordance with the Batch Submission Schedule (Table 1).

ii. For all Subject Forms Returned by COGCC, Synergy is responsible for correcting the errors, omissions, and other deficiencies that are identified in the Form Tracking Spreadsheet.

iii. Synergy 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. Synergy remains obligated to Correctly Submit all Returned Subject Forms, regardless of whether specific errors, omissions or other deficiencies were identified in the Form Tracking Spreadsheet.

iv. COGCC will conduct a review of any resubmitted Subject Forms to determine whether they were Correctly Submitted. 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 the 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: (A) Synergy will have satisfied all of its obligations under this Order for such Form and the COGCC will not pursue any further enforcement against Synergy regarding that Subject Form’ and (B) the last day of the Staff Review Period for Resubmission will be deemed the approval date for the purpose of determining when the next Batch is due.

vi. Failure to Correctly Submit all Returned 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 $200 per day for the first seven days, $500 per day for the eighth to the fourteenth day, and $2,500 per day for the fifteenth to the twentieth day. Penalties commence on the day after all Returned Forms in the Batch were due and continue until all Returned Forms in the Batch are Correctly Submitted, excluding those days associated with COGCC’s review, or until Synergy defaults under this AOC by failing to submit the all Returned Subject Forms for twenty-one days.

d. Dispute Resolution:

i. In the event there is a dispute between Staff and Synergy with respect to application or interpretation of a COGCC rule or requirement pertaining to a Subject Form or Forms, Staff and Synergy will meet to resolve the dispute.

ii. In the event Staff and Synergy cannot resolve the dispute, Synergy will submit the issue in writing to a COGCC Hearing Officer. Staff will be given an opportunity to respond in writing. The Hearing Officer will render a written decision.

iii. During the Dispute Resolution Period, all Submission Deadlines or Correction and Resubmission Deadlines will be tolled, and no penalties shall accrue to Synergy for failure to submit the Subject Forms at issue.

iv. The Dispute Resolution Period shall commence the day the Staff or Synergy requests via email a meeting to resolve the dispute, and ends the day the dispute is resolved.

VI. Batch Submission Schedule

Table 1 Batch Submission Schedule
Batch #	Minimum Size/Maximum Size		Submission Deadline	Bulk Return Threshold	Staff Review Period for Initial Submission	Correction and Resubmission Period	Staff Review Period for Resubmission
PHASE ONE: Submissions of Prior Forms and suspension of Intermediate Forms.
1	10 wells/15 wells		1/6/2017	Not Applicable	21 days	14 days	14 days
2	10 wells/15 wells		Batch 1 Approval Date + 40 days	Not Applicable	Batch 2 Submission Deadline + 21 days	14 days	Batch 2 Resubmission Deadline + 14 days
3	10 wells/15wells		Batch 2 Approval Date + 40 days	Not Applicable	Batch 3 Submission Deadline + 21 days	14 days	Batch 3 Resubmission Deadline + 14 days
		PHASE TWO: Submissions must prioritize Intermediate Forms while filing as many Prior Forms as needed to complete a pad and/or satisfy the minimum Batch size.
4	20 wells/30 wells		Batch 3 Approval Date + 40 days	Applicable	Batch 4 Submission Deadline + 28 days	14 days	Batch 4 Resubmission Deadline + 14 days
5	20 wells/30 wells		Batch 4 Approval + 30 days	Applicable	Batch 5 Submission Deadline + 28 days	14 days	Batch 5 Resubmission Deadline + 14 days
6	20 wells/30 wells		Batch 5 Approval + 30 days	Applicable	Batch 6 Submission Deadline + 28 days	14 days	Batch 6 Resubmission Deadline + 14 days
7	All Remaining Wells		Batch 6 Approval + 30 days	Applicable	Batch 7 Submission Deadline + 28 days	14 days	Batch 7 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.
8, 9, 10, etc.	All Remaining Prior Forms		Prior Batch Approval + 30 days	Applicable	Batch 8, 9, 10, etc. Submission Deadline + 28 days	14 days	Batch 8, 9, 10, etc. Resubmission Deadline + 14 days

VII. Batches must include submission of Subject Forms for complete well pads. The minimum batch size for Batches in Phase One is 10 wells, but may be up to 15 wells 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 20 wells, but may be up to 30 wells to accommodate the submission of Subject Forms for additional wells as necessary to complete a pad.

VIII. If Synergy is more than 21 days late completing a corrective action, the Director may require Synergy 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, and pay a liquidated penalty of $146,250.

IX. The Director retains the discretion to demand penalties for a violation of this Order. Any decision by the Director not to demand penalties for a violation of this Order is not a waiver, and may not be construed as a waiver, of the Director’s right to demand penalties for any other violation of this Order.

X. Synergy will pay any penalties imposed under this Order within 30 days after the Director mails a demand letter by first class mail to Synergy’s Denver office, return receipt requested, without further action by the Commission. The failure to timely pay any penalties imposed pursuant to this Order is a violation that may subject Synergy to additional penalties.

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

XII. 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 7 days prior to the pertinent compliance deadline or as soon as possible if 7 days prior notice is not feasible.

XIII. Sale or Transfer of a Well or Pad subject to Order:

a. In the event that any wells subject to Phases One or Two of the Order are sold or transferred to another operator, Synergy shall file all Subject Forms associated with the transferred wells. The Form 10, Change of Operator, shall not be approved until all Subject Forms associated with the transferred wells are approved. COGCC agrees to give the Subject Forms priority with respect to review.

b. In the event Synergy proposes to transfer more than two pads, the successor operator may be responsible for submission of all required forms, including Forms 5, 5A and 10, Certificate of Clearance, for the subject wells. Synergy shall notify Staff of the sale or transfer of the wells via email, within 10 days of the submission of the Form 10, Change of Operator, pertaining to the subject wells. Where the successor operator will be responsible for submission of all required forms, the Form 10, Change of Operator, for the subject wells will not be approved until COGCC receives a written agreement from the successor operator that the successor operator will be responsible for submission of all required forms, including Forms 5, 5A and 10, Certificate of Clearance, for the transferred wells.

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

XV. 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 October, 2016, as of the 24^th day of October, 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 Order 1V-603 was mailed by first-class mail, return receipt requested to the following addresses:

Synergy Resources Corporation

20203 Highway 60

Platteville, CO 80651

Synergy Resources Corporation

1625 Broadway, Suite 300

Denver, CO 80202

____________________________________

Margaret Humecki