1V-558

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 SANTA FE NATURAL RESOURCES, INC, MOFFAT COUNTY, COLORADO

)

CAUSE NO. 1V

DOCKET NO. 151000473

TYPE: ENFORCEMENT

ORDER NO. 1V-558

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. Santa Fe Natural Resources, Inc. (“Santa Fe”) (Operator No. 10525) is the operator of the McIntyre 1-3 ST Well (API No. 05-081-06608) (“Well”) in Moffat County, Colorado.

2. COGCC records show that the Well has not produced and has been shut-in since September 2011.

3. The Well was due for a mechanical integrity test (MIT) by September 30, 2013. At this time, Santa Fe was not operator of the Well, but rather the operator was Axia Energy LLC.

4. On August 18, 2014, Santa Fe took over operatorship of the Well from Axia Energy LLC (Operator No. 10335). The Well was past due for a MIT at this time.

5. COGCC records show that Santa Fe failed to timely submit Form 7 reports (Operator’s Monthly Report of Operations) for the Well from August 2014 until August 2015, as required by Rule 309.

6. After acquiring the Well, Santa Fe failed to conduct a successful MIT, as required by Rule 326.

7. On June 11, 2015, Commission Staff issued a Notice of Alleged Violation (“NOAV”) (No. 2618136) to Santa Fe citing violations of the following COGCC Rules of Practice and Procedure, 2 CCR 404-1 (“Rule” or “Rules”):

a) Rule 309 (Form 7, Operator’s Monthly Report of Operations); and

b) Rule 326 (Mechanical Integrity Testing)

8. On or about June 15, 2015, Santa Fe, performed hot oil operations on the Well through its contractor. During these operations the well was pressured up to 1,500 pounds per square inch and maintained this pressure.

9. COGCC Engineering Staff has concluded that operations conducted on or about June 15, 2015 satisfy Rule 326 requirements as an equivalent test of mechanical integrity.

10. On August 12, 2015, Santa Fe submitted delinquent Form 7s.

11. Santa Fe has made the following representations to Staff:

a. At the time that Santa Fe assumed operations of the Well on August 18, 2014 from Axia Energy LLC, Santa Fe had no actual notice that a MIT test was either past due or not performed.

b. Santa Fe assumed that Axia had discharged the duty imposed by regulations of the COGCC to perform an MIT on the Well.

c. Santa Fe did not have the well files for the Well until early 2015, when it was given possession of the well files by Axia, and that those files included no evidence that the MIT had been performed or not performed.

d. Santa Fe first learned of the failure to perform the MIT when it received the Notice of Alleged Violation on June 11, 2015.

e. Santa Fe has acted diligently and responsibly in response to the NOAV in this matter.

12. Following factual investigation and legal review of the violations alleged in the NOAV, Hearing Staff now asserts Santa Fe has committed the following violations:

a) One 331-day violation of Rule 309 (Form 7, Operator’s Monthly Report of Production); and

b) One 301-day violation of Rule 326 (Mechanical Integrity Tests).

13. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy, Hearings Staff calculated a penalty of $ 36,150 for this violation. The penalty calculation is based on the following:

Rule No.	Days of Violation	Start Date	End Date	Class	Impact	Daily Base Penalty	Total Penalty
309	331	9/15/2014	8/12/2015	1	Minor	$117.38	$2,373
326	301	8/18/2014	6/15/2015	2	Minor	$1,745	$33,777
					Total		$36,150

a) Current versions of § 34-60-121 C.R.S. and Rule 523;

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

c) Rule 309:

i) Class 1 violation;

ii) Minor impact;

iii) Daily base penalty of $117.38;

d) Rule 326:

i) Class 2 violation;

ii) Minor impact;

iii) Daily base penalty of $1,745;

e) Daily penalties reflect a settlement inducement and ability to pay;

f) No aggravating factors;

g) No mitigating factors;

h) No pattern of violation; and

i) No 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 proposes, and Santa Fe agrees, to settle the NOAV on the following terms and conditions:

I. Santa Fe is found in violation of Rules 309 and 326.

II. Santa Fe will be assessed a penalty of $36,150.

III. One half of the penalty, $18,075, will be suspended conditioned on Santa Fe remaining in compliance with Rule 309 and Rule 326 for two years from the date this Order is approved by the Commission. If this condition is satisfied, the suspended penalty will be vacated. If this condition is not satisfied, the suspended portion of the penalty shall become due 30 days after notice by the Director, without any further action by the Commission.

IV. Santa Fe will make payments on the remaining portion of the penalty according to the following payment schedule:

Date	Payment
February 25, 2016	$5,000
May 25, 2016	$4,358
August 25, 2016	$4,358
November 25, 2016	$4,359

RECOMMENDED this 15^th day of December, 2015.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Peter J. Gowen, Enforcement Supervisor

AGREED TO AND ACCEPTED this day of December, 2015.

SANTA FE NATURAL RESOURCES, INC.

Signature of Authorized Company Representative

Print Signatory Name

Title

ORDER

HAVING CONSIDERED the Agreement between the Director and Santa Fe Operating Company to resolve the NOAV, the COMMISSION ORDERS:

1. Santa Fe is found in violation of Rule 309 and Rule 326 as described above.

2. Santa Fe is assessed a penalty of $36,150.

3. One half of the penalty, $18,075 is suspended conditioned on Santa Fe remaining in compliance with Rule 309 and Rule 326 for two years from the date this Order is approved by the Commission. If this condition is satisfied, the suspended penalty will be vacated. If this condition is not satisfied, the suspended portion of the penalty will become due 30 days after notice by the Director, without any further action by the Commission.

4. Santa Fe will make payments on the remaining portion of the penalty according to the following payment schedule:

Date	Payment
February 25, 2016	$5,000
May 25, 2016	$4,358
August 25, 2016	$4,358
November 25, 2016	$4,359

5. 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 35 days prior to the pertinent compliance deadline or as soon as possible if 35 days prior notice is not feasible. Failure to receive an extension prior to the compliance deadline or the failure to meet a compliance deadline may constitute a new violation subject to additional penalties.

6. Entry of this Order constitutes final agency action for purposes of judicial review as of the date this order is mailed by the Commission. For all other purposes, this Order is effective as of the date of approval by the Commission.

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

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ENTERED this day of , 2016 as of the 25^th day of January, 2016.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Julie Murphy, Secretary