BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

ORDER FINDING VIOLATION

The Commission heard this matter on September 19, 2011, in the Commission Room for the City & County of Broomfield, City & County Building, One DesCombes Drive, Broomfield, Colorado, for an order finding violation hearing against Tatonka Oil and Gas Company, Inc. at certain wells located in Moffat County.

FINDINGS

Culverwell #10-23-07-94 Well

1.      Tatonka set two conductor pipes on the Culverwell 67N94W pad (Facility No. 313340), located in the NW¼ SE¼ of Section 23, Township 7 North, Range 94 West, 6^th P.M.  Only one well was permitted for this pad, the Culverwell #10-23-07-94 Well (the “Culverwell Well”) (API No. 05-081-07364).

 2.   On December 20, 2010, COGCC Staff issued Notice of Alleged Violation (“NOAV”) #200288524 to Tatonka for the following alleged rule violations:

a.      Rule 902.a., which requires pits used for exploration and production of oil and gas shall be constructed and operated to protect public health, safety, and welfare and the environment, including soil, waters of the state, and wildlife, from significant adverse environmental, public health, or welfare impacts from E&P waste, except as permitted by applicable laws and regulations.

b.      Rule 1002.f., which specifies that oil and gas operators shall implement and maintain Best Management Practices (BMPs) at all oil and gas locations to control stormwater runoff in a manner that minimizes erosion, transport of sediment offsite, and site degradation. BMPs shall be maintained until the facility is abandoned and final reclamation is achieved pursuant to Rule 1004. Operators shall employ BMPs, as necessary to comply with this rule, at all oil and gas locations, including, but not limited to, well pads, soil stock piles, access roads, tank batteries, compressor stations, and pipeline rights of way. BMPs shall be selected based on site-specific conditions, such as slope, vegetation cover, and proximity to water bodies, and may include maintaining in-place some or all of the BMPs installed during the construction phase of the facility.

c.      Rule 1003.a., which provides that debris and waste materials other than de minimis amounts, including, but not limited to, concrete, sack bentonite and other drilling mud additives, sand plastic, pipe and cable, as well as equipment associated with the drilling, re-entry, or completion operations shall be removed. All E&P waste shall be handled according to the 900 Series rules. All pits, cellars, rat holes, and other bore holes unnecessary for further lease operations, excluding the drilling pit, will be backfilled as soon as possible after the drilling rig is released to conform with surrounding terrain. On crop land, if requested by the surface owner, guy line anchors shall be removed as soon as reasonably possible after the completion rig is released. When permanent guy line anchors are installed, it shall not be mandatory to remove them. When permanent guy line anchors are installed on cropland, care shall be taken to minimize disruption or cultivation, irrigation, or harvesting operations. If requested by the surface owner or its representative, the anchors shall be specifically marked, in addition to the marking required below, so as to facilitate farming operations. All guy line anchors left buried for future use shall be identified by a marker of bright color not less than four (4) feet in height and not greater than one (1) foot east of the guy line anchor. In addition, all well sites and surface production facilities shall be maintained in accordance with Rule 603.j.

d.      Rule 1003.b., which provides that all disturbed areas affected by drilling or subsequent operations, except areas reasonably needed for production operations or for subsequent drilling operations to be commenced within twelve (12) months, shall be reclaimed as early and as nearly as practicable to their original condition or their final land use as designated by the surface owner and shall be maintained to control dust and minimize erosion to the extent practicable. As to crop lands, if subsidence occurs in such areas additional topsoil shall be added to the depression and the land shall be re-leveled as close to its original contour as practicable. Interim reclamation shall occur no later than three (3) months on crop land or six (6) months on non-crop land after such operations unless the Director extends the time period because of conditions outside the control of the operator. Areas reasonably needed for production operations or for subsequent drilling operations to be commenced within twelve (12) months shall be compacted, covered, paved, or otherwise stabilized and maintained in such a way as to minimize dust and erosion to the extent practicable.

The NOAV required the following abatement or corrective actions to be taken by Tatonka: mitigate cited violations of two conductor casings that were capped with no cellar, an unlined pit with no contents, lack of reclamation work or storm water BMPs on the pad site, and a permit that had expired on November 27, 2006.  These actions were required to have been completed by February 15, 2011.

3.    Rule 523. specifies a base fine of One Thousand dollars ($1,000) for each day of violation of Rules 902.a., 1002.f., 1003.a., and 1003.b.  Rule 523.a.(3). specifies that “the maximum penalty for any single violation shall not exceed Ten Thousand dollars ($10,000) regardless of the number of days of such violation,” unless the violation results in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.

4.    Tatonka violated Rule 902.a. because it constructed a pit without a liner and without contents.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 902.a.

5.    Tatonka violated Rule1002.f. because it failed to properly implement best management practices at the pad site. The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1002.f.

6.    Tatonka violated Rule 1003.a. because it failed to remove debris and waste materials from the location.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1003.a.

7.    Tatonka violated Rule 1003.b. because it failed to properly reclaim the location.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1003.b.

Eldon Gerber #07-24-07-92 Well

8.    On December 22, 2006, Tatonka spud the Eldon Gerber #07-24-07-92 Well (the “Eldon Gerber Well”) (API No. 05-081-07359), located in the SW¼ NE¼ of Section 24, Township 7 North, Range 92 West, 6^th P.M. 

9.    On May 25, 2010, COGCC Staff issued NOAV #200288526 to Tatonka for its operations for the following rule violations:

a.      Rule 326.b.(1), which requires a Mechanical Integrity Test (“MIT”) to be performed on each shut-in well within 2 years of the initial shut-in date.  A MIT shall be performed on each shut-in well on 5 year intervals from the date the initial MIT was performed.  If, at any time, surface equipment is removed or the well becomes incapable of production, a MIT must be performed within 30 days.  The MIT for a shut-in well shall be:

i.      Isolation of the wellbore with a bridge plug or similar approved isolating device set 100 feet or less above the highest perforations and a pressure test with liquid or gas at a pressure of not less than 300 psi surface pressure or any equivalent test or combination of test approved by the Director

ii.    Following the performance of the initial MIT for shut-in wells, additional tests, other than the 5 year interval test, may be required.

iii.   Not less than 10 days prior to the performance of any MIT required by this rule, any person required to perform the test shall notify the Director, in writing, or the scheduled date on which the test will be performed.

iv.   All wells shall maintain mechanical integrity.  All wells which lack mechanical integrity shall be repaired or plugged and abandoned within 6 months of failing a MIT or of a determination through any other means that the well lacks mechanical integrity, and the well site reclaimed in accordance with Rule 1004.a.  All injection wells which fail a MIT, or which are determined through any other means to lack mechanical integrity, shall be shut-in immediately.

b.      Rule 902.a., as referenced above.

c.      Rule 1002.f.(2), which requires oil and gas operators shall implement and maintain Best Management Practices (BMPs) at all oil and gas locations to control stormwater runoff in a manner that minimizes erosion, transport of sediment offsite, and site degradation. BMPs shall be maintained until the facility is abandoned and final reclamation is achieved pursuant to Rule 1004. Operators shall employ BMPs, as necessary to comply with this rule, at all oil and gas locations, including, but not limited to, well pads, soil stock piles, access roads, tank batteries, compressor stations, and pipeline rights of way. BMPs shall be selected based on site-specific conditions, such as slope, vegetation cover, and proximity to water bodies, and may include maintaining in-place some or all of the BMPs installed during the construction phase of the facility.

d.      Rule 1003.a., as referenced above.

e.      Rule 1003.b., as referenced above.

f.     Rule 1003.d.(2), which provides that all drilling fluids shall be disposed of in accordance with the 900 Series rules.  Operators shall ensure that soils meet the concentration levels of Table 910-1, above. After the drilling pit is sufficiently dry, the pit shall be backfilled. Materials removed from the pit for drying shall be returned to the pit prior to the backfilling.  No more than de minimis amounts may be incorporated into the surface materials.  The backfilling of the drilling pit will be done to return the soils to their original relative positions so that the muds and associated solids will be confined to the pit and not squeezed out and incorporated in the surface materials.  Closure and reclamation of drilling pits shall occur no later than six (6) months after drilling and completion activities conclude, weather permitting.

The NOAV required the following abatement or corrective actions to be taken by Tatonka: mitigate cited violations of a pit that is not in compliance with COGCC rules, a well head, capped, and shut in with no ability to produce well, a open cellar around the well head, a rat hole that has not been filled in, lack of a MIT to maintain shut in status, erosion channels around the edge of the pad in several spots, lack of storm water BMPs, and a lack of interim reclamation on the pad site. These actions were required to have been completed by February 15, 2011.

10.  Rule 523. specifies a base fine of One Thousand dollars ($1,000) for each day of violation of Rules 326.b.(1), 902.a., 1002.f(2), 1003.a., 1003.b., and 1003.d.(2).  Rule 523.a.(3). specifies that “the maximum penalty for any single violation shall not exceed Ten Thousand dollars ($10,000) regardless of the number of days of such violation,” unless the violation results in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.

11.  Tatonka violated Rule 326.b.(1) because it failed to perform the required mechanical integrity test within two years of the shut-in date.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 326.b.(1).

12.  Tatonka violated Rule 902.a. because it failed to construct a pit that would protect public health, safety, and welfare and the environment, including soil, waters of the state, and wildlife, from significant adverse environmental, public health, or welfare impacts from E&P waste. The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 902.a.

13.  Tatonka violated Rule 1002.f(2) because it failed to implement best management practices in order to prevent storm water run-off.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1002.f(2).

14.  Tatonka violated Rule 1003.a. because it failed to remove debris and waste materials from the location.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1003.a.

15.  Tatonka violated Rule 1003.b. because it failed to properly reclaim the location.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1003.b.

16.  Tatonka violated Rule 1003.d.(2) because it failed to properly close the drilling pit.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1003.d.(2).

17.  Tatonka should be assessed penalties as provided for by Rule 523. attributable to the following wells as compiled below:

18.  Further, COGCC Staff requests that any and all bonds posted by Tatonka be claimed by the Commission and that the proceeds of such bonds be used to offset expenses associated with the plugging and abandonment of the wells listed above and reclamation of the well sites in accordance with COGCC rules.

19.  Furthermore, Rule 525.b. provides that whenever the Commission or the Director has evidence that an operator is responsible for a pattern of violation of any provision of the Oil and Gas Conservation Act (§34-60-101, et seq.) (the “Act”), or of any rule, permit or order of the Commission, the Director shall issue a notice to the operator to appear for a hearing before the Commission.  If the Commission finds after such hearing, that a knowing and willful pattern of violation exists, it may issue an order which shall prohibit the issuance of any new permits to the operator.

20.  A knowing and willful pattern of violation exists because Tatonka has failed, for more than one year, to perform the abatement and corrective actions required by various Notices of Alleged Violation (“NOAVs”).  Until the fine assessed under this application is paid in full and all required abatement and corrective actions are performed by Tatonka, the Director should not approve any application for permit-to-drill, any Certificate of Clearance and/or Change of Operator, Form 10, or other permit for conducting oil and gas operations for Tatonka or any entity of which Brian Hughes is a principal, majority owner, operational or general manager, or in which Mr. Hughes otherwise exercises control.

21.  Payment of the fine pursuant to this AOC does not relieve the operator from its obligations to complete corrective actions set forth in the NOAV, as may be amended or modified by COGCC Staff.

22.  Tatonka, or its successors or assigns, should be required to remain responsible for complying with this AOC, in the event of any subsequent sale of property.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Tatonka shall be found in violation of the following Rules at the Culverwell #10-23-07-94 Well, located in the NW¼ SE¼ of Section 23, Township 7 North, Range 94 West, 6^th P.M: 

1.    Rule 902.a., for failure to construct a pit that protects public health, safety, and welfare, and the environment, from significant adverse impacts.

2.    Rule 1002.f., for failure to implement best management practices to prevent storm-water run-off and erosion.

3.    Rule 1003.a., for failure to remove debris and waste materials from the location.

4.    Rule 1003.b., for failure to properly reclaim the location.

IT IS FURTHER ORDERED, that Tatonka shall be found in violation of the following Rules at the Eldon Gerber #07-24-07-92 Well, located in the SW¼ NE¼ of Section 24, Township 7 North, Range 92 West, 6^th P.M:

1.    Rule 326.b.(1), for failure to perform the required mechanical integrity tests.

2.    Rule 902.a., for failure to construct a pit that protects public health, safety, and welfare, and the environment, from significant adverse impacts.

3.    Rule 1002.f.(2), for failure to implement best management practices in order to prevent storm water run-off.

4.    Rule 1003.a., for failure to remove debris and waste materials from location.

5.    Rule 1003.b., for failure to properly reclaim the location.

6.    Rule 1003.d.(2), for failure to properly close the drilling pit.

IT IS FURTHER ORDERED, that Tatonka shall be assessed a total fine of One Hundred Thousand dollars ($100,000) for the Rule violations set forth above, which shall be payable within thirty (30) days of the date the order is approved by the Commission.

IT IS FURTHER ORDERED, that any and all bonds posted by Tatonka shall be claimed by the Commission and that the proceeds of such bonds be used to offset expenses associated with the plugging and abandonment of the wells listed above and reclamation of the well sites in accordance with COGCC rules.

IT IS FURTHER ORDERED, that, acting pursuant to the finding of a knowing and willful pattern of violation exists as to Tatonka and its principal, Brian Hughes, the Director shall not approve any application for permit-to-drill, any Certificate of Clearance and/or Change of Operator, Form 10, or other permit for conducting oil and gas operations for Tatonka, or any entity of which Brian Hughes is a principal, majority owner, operational or general manager, or in which Mr. Hughes otherwise exercises control.

IT IS FURTHER ORDERED, that this Order does not relieve the operator from undertaking and completing abatement or corrective actions that may be required by the Notice of Alleged Violations described in Finding Nos. 2 and 9 above, or any amendments or modifications thereto specified by the COGCC Staff.

IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

IT IS FURTHER ORDERED, that 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    23^rd   day of September, 2011, as of September 19, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                                                                                                By                                                                            

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln St.

Denver, Colorado 80203

September 19, 2011