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 MARALEX RESOURCES, INC, GARFIELD COUNTY, COLORADO

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CAUSE NO. 1V DOCKET NO. 161000390 TYPE:  ENFORCEMENT ORDER NO. 1V-609

ADMINISTRATIVE ORDER BY CONSENT

(Pursuant to Rule 522.e. of the Rules and Regulations of the

Colorado Oil and Gas Conservation Commission, 2 CCR 404-1)

FINDINGS

1. Maralex Resources, Inc. (“Maralex”) (Operator No. 53255) is the operator of the Baldy Creek Federal #3-28 Well (API No. 05-045-06280) (“Well”) in Garfield County, Colorado.

2. The Well has been shut-in since December 2009.

3. Prior to the test performed after the issuance of the below Notice of Alleged Violation (“NOAV”), a Mechanical Integrity Test (“MIT”) had never been performed on this Well.

4. In February of 2014, Maralex contracted with a rig company to perform the MIT. The rig company notified Maralex that it could not cross the bridge to access the Well until it had been certified by Garfield County. Maralex contracted with another rig company that could cross the bridge without the County certification.

5. On May 31, 2016, COGCC Staff inspected the Well, confirmed that the Well was shut-in, and directed Maralex to perform an MIT on the Well (Doc. No. 666802207).

6. On August 11, 2016, COGCC Staff issued NOAV No. 401091611 to Maralex for violations of Rule 326 (Mechanical Integrity Testing) of the COGCC Rules of Practice and Procedure, 2 C.C.R. 404-1 (“Rule” or “Rules”) for the failure to perform an MIT on the Well within two years of the initial shut-in date. 

7. On August 21, 2016, Maralex performed a successful MIT on the Well (Doc. No. 401099821).

8. Pursuant to Rule 523 and the COGCC Enforcement Guidance and Penalty Policy, Hearings staff calculated a penalty of $60,970. The penalty calculation is based on the following:

Rule	Class, Impact	Daily Penalty	Start Date	End Date	Days	Total Penalty
326	Class 2, Minor	$2,500	8/11/2015	8/21/2016	376	$60,970

a. Application of the Duration Matrix of the Enforcement Guidance and Penalty Policy;

b. Start date of one year before the NOAV was issued;

c. End date of the commencement of the corrective action (performance of the MIT);

d. No aggravating or mitigating factors; and

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

9. In addition to the Well that is the subject of this NOAV, Maralex has 75 wells that are overdue for MITs, which are listed in Appendix A to this AOC (“Noncompliant Wells”).  

AGREEMENT

      NOW, THEREFORE, based on the Findings and pursuant to Rule 522.e.(1), the Director and Maralex agree to request that the Commission enter the Order set forth below. The Parties have agreed to present this Order to the Commission for approval to resolve this NOAV, provide a compliance schedule for the Noncompliant Wells, and encourage the efficient completion of the plugging or mechanical integrity testing of the Noncompliant Wells.

RECOMMENDED this 22^nd day of November, 2016.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By                                     _______________________

                                                             Britta Beckstead, Asst. Attorney General

AGREED TO AND ACCEPTED this ____ day of November, 2016.

MARALEX RESOURCES INC.                           

                        By

Signature of Authorized Company Representative

Print Signatory Name and Title                 

ORDER

HAVING CONSIDERED the Findings and the Agreement between the Director and Maralex to resolve the NOAV and establish a compliance schedule for the Noncompliant Wells, the COMMISSION ORDERS:

1. Maralex is found in violation of Rule 326, as described above.

2. Maralex is assessed a penalty of $60,970 for this violation.

3. Maralex will pay $20,000 of the penalty 30 days after this Order is mailed by the Commission. Maralex will pay the remaining $40,970 of the penalty by March 31, 2017. All penalties assessed pursuant to this Order will be paid by certified check.

4. If Maralex fails to pay the penalty pursuant to Paragraph 3, the Director may require Maralex to pay the total penalty remaining (including any overdue or deferred penalties) within 30 days after service of the Director’s demand for payment pursuant to Rule 521, without further action from the Commission.

5. Compliance Schedule. Pursuant to the following schedule over a four-year period (“Compliance Schedule”), Maralex will either: (1) plug and abandon the Noncompliant Wells in accordance with the Rules; or (2) conduct successful MITs on the Noncompliant Wells in accordance with the Rules (“Corrective Actions”).

a. YEAR 1: In Year 1 of the Compliance Schedule, Maralex is required to complete the Corrective Actions at 11 Noncompliant Wells or demonstrate it spent $650,000 in verified expenses towards the performance of the Corrective Actions.

b. YEAR 2: In Year 2 of the Compliance Schedule, Maralex is required to complete the Corrective Actions at 16 Noncompliant Wells or demonstrate it spent $1,305,000 in verified expenses towards the performance of the Corrective Actions.

c. YEAR 3: In Year 3 of the Compliance Schedule, Maralex is required to complete the Corrective Actions at 25 Noncompliant Wells or demonstrate it spent $1,885,000 in verified expenses towards the performance of the Corrective Actions.

d. YEAR 4: In Year 4 of the Compliance Schedule, Maralex is required to complete the Corrective Actions at 24 Noncompliant Wells or demonstrate that it spent $1,740,000 in verified expenses towards the performance of the Corrective Actions.

6. Year 1 will commence on the date this AOC is executed by Maralex and will continue through December 31, 2017. Years 2-4 will commence on January 1^st and end on December 31^st.

7. The following are adjustments to the Compliance Schedule if Maralex exceeds its requirements for a given Year:

a. If Maralex demonstrates it has spent more than the required amount of verified expenses in a given Year, the amount of the additional verified expenses will be deducted from the following Year’s required amount of verified expenses.

b. If Maralex demonstrates it has completed Corrective Actions on more than the required number of Noncompliant Wells for a given Year, the number of additional Noncompliant Wells will be deducted from the following Year’s required number of Noncompliant Wells.

8. If Maralex pays unforeseen expenses in excess of $100,000 at any one well or location to address compliance issues that are unrelated to the Compliance Schedule, the Director will consider an extension to the Compliance Schedule outlined above to account for the associated compliance expenses. 

9. Prioritization of Noncompliant Wells. The Director may require Maralex to prioritize specific Noncompliant Wells as part of the Compliance Schedule.  If BLM orders Maralex to MIT or plug a Noncompliant Well, Maralex may prioritize that Noncompliant Well as part of the Compliance Schedule.

10. Quarterly Progress Reports. Maralex will provide quarterly progress reports to COGCC Staff, including the verification of expenses incurred in fulfilling the Compliance Schedule, five business days after the end of each quarter. 

11. Form 4, Sundry Notices. For all temporarily abandoned Noncompliant Wells, Maralex must file an initial Form 4, Sundry Notice, requesting approval of temporarily abandoned status within 30 days of execution of the AOC and thereafter file annual Form 4, Sundry Notices, requesting approval of continued temporarily abandoned status.

12. Consequences for Failure to Meet the Requirements of the Compliance Schedule. If Maralex fails to fulfill the requirements of the Compliance Schedule for a given Year:

a. Maralex will pay a $30,000 penalty for each Noncompliant Well for which Maralex was required, but has failed, to complete the Corrective Actions on under the Compliance Schedule. The calculation of this penalty will apply regardless of whether Maralex fails to perform the Corrective Actions on the required number of Noncompliant Wells or spend the required amount of verified expenses in that given Year.

b. Maralex will pay any penalty due under this Paragraph within 90 days after service of the Director’s demand for payment pursuant to Rule 521, without further action from the Commission.

c. If Maralex fails to fulfill the requirements of the Compliance Schedule for a given Year, the Director may request that Maralex provide written consent to COGCC’s performance of any remaining past-due Corrective Actions. 

d. Unless Maralex fails to fulfill the requirements of the Compliance Schedule for a given Year, the Director will not issue an NOAV for Maralex’s failure to comply with Rule 326 at the Noncompliant Wells.

13. Other COGCC Enforcement Actions. Except for violations remedied by the Compliance Schedule, this Order will not stay COGCC enforcement actions against Maralex. For compliance issues unrelated to the Compliance Schedule, the Director will adhere to the following:

a. The Director will not issue an NOAV for any alleged violations of Class 1 or Class 2 Rules that do not threaten to cause, or that do not actually cause, significant adverse environmental impacts, if Maralex corrects the compliance issues within four months. 

b. The Director will issue an NOAV for any alleged violations of Class 3 Rules. 

14. BLM Enforcement Actions. This Order has no effect on the BLM’s enforcement regarding these Noncompliant Wells. COGCC Staff will attempt to coordinate with the BLM regarding this Order, as appropriate and practicable. 

15. Tolling Agreement. Maralex agrees to toll the statute of limitations, Section 34-60-115, C.R.S., for any known or unknown violations of Rules 319 and 326 at the Noncompliant Wells from December 16, 2015 until Maralex’s full completion of the four-year Compliance Schedule, but only for those Noncompliant Wells that are not tested for mechanical integrity or plugged pursuant to the Compliance Schedule.

16. Compliance dates specified in this Order may only be extended for good cause, as determined at the Director’s sole discretion. A request for extension must be made, in writing, at least 14 days prior to the pertinent compliance deadline or as soon as possible if 14 days prior notice is not feasible.

17. Failure to pay the penalty, perform a corrective action, or submit a request for a compliance deadline extension by the above deadlines is an independent violation that may be subject to additional penalties. 

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

19. 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 December, 2016 as of the ___ day of December, 2016.

OIL AND GAS CONSERVATION COMMISSION

                                                            OF THE STATE OF COLORADO

                                                            By

                                                                        Julie Murphy, Secretary

CERTIFICATE OF MAILING

On ___________, 2016, a true and accurate copy of Order 1V-609 was mailed by certified mail, return receipt requested to the following address:

Maralex Resources, Inc.

Attn: A.M. O’Hare

P.O. Box 338

Ignacio, CO 81137

                                                            ____________________________________

                                                                                 Margaret Humecki