1V-573

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 TEXAS TEA OF COLORADO, LLC, dba, TEXAS TEA, LLC, ADAMS AND WELD COUNTIES, COLORADO

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CAUSE NO. 1V

DOCKET NO. 160300097

TYPE: ENFORCEMENT

ORDER NO. 1V-573

STIPULATED ORDER FINDING VIOLATION

The Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”) enters this Order Finding Violation (“OFV”) pursuant to the Rules and Regulations of the Colorado Oil and Gas Conservation Commission, 2 CCR 404-1(“Rule” or “Rules”), and states as follows:

I. BACKGROUND

1. Texas Tea of Colorado, LLC, aka Texas Tea, LLC (“Texas Tea”) (Operator No. 87195) is the operator of record of the following wells:

a. Nelson 1 well (API No. 05-123-09110) (“Nelson 1 Well”) located in Weld County, Colorado (Staff Exhibit 6);

b. Schmidt 1-B well (API No. 05-001-08205) (“Schmidt 1-B Well”) located in Adams County, Colorado (Staff Exhibit 12);

c. R C Nauman 4 well (API No. 05-001-08443) (“Nauman 4 Well”) located in Adams County, Colorado (Staff Exhibit 17); and the

d. Pace 2 well (API No. 05-123-08720) (“Pace 2 Well”) located in Weld County, Colorado (Staff Exhibit 21).

2. The Notice and Application for Mandatory OFV Hearing in this matter was received by Texas Tea on January 23, 2016 (Staff Exhibit 2).

A. Nelson 1 Well

3. On February 13, 2015, COGCC received a complaint informing Staff that the Nelson 1 Well appeared to be abandoned with no evidence of surface equipment on site. (Doc No 200424198).

4. The Nelson 1 Well has not produced since November 2013. (Staff Exhibit 7).

5. The Nelson #1 Well was historically configured to produce exclusively into production tanks and facilities shared with other wells on the Nelson lease (“Shared Tank Battery”) (Staff Exhibit 11)

6. The Shared Tank Battery was located approximately 0.38 miles away from the Nelson #1 Well. (Staff Exhibits 8 and 11)

7. Sometime prior to October 2014, the Shared Tank Battery was removed at the surface owner’s request. (Staff Exhibits 8 and 11)

8. Since the Shared Tank Battery was removed, Texas Tea has not constructed replacement production facilities for the Nelson #1 Well. (Staff Exhibit 11)

9. The Nelson #1 Well has, therefore, been temporarily abandoned since at least October 2014, because there are no existing production facilities into which the Nelson #1 Well is capable of producing. (Staff Exhibits 7 and 11)

10. Texas Tea has never submitted a Form 4 (Sundry) seeking Director approval for the continued temporary abandonment of the Nelson #1 Well. (Staff Exhibit 11)

11. Texas Tea has never conducted a mechanical integrity test on the Nelson #1 Well. (Staff Exhibit 9)

12. On March 18, 2015, COGCC Staff issued Notice of Alleged Violation (“NOAV”) (No. 200426655) (Staff Exhibit 10) to Texas Tea citing a violation of the following Rules:

a. Rule 319 (Temporary Abandonment)

b. Rule 326.c. (Mechanical Integrity Testing – Temporarily Abandoned Wells)

13. Texas Tea submitted a written response to NOAV 200426655, written on a copy of the NOAV itself, which was received by the Commission on May 22, 2015. (Staff Exhibit 10)

B. Schmidt 1-B Well

14. The Schmidt 1-B Well has been shut-in since January 2012. (Staff Exhibit 13)

15. An MIT was due on the Schmidt 1-B Well on before January 31, 2014. (Staff Exhibit 13)

16. Texas Tea has never conducted an MIT on the Schmidt 1-B Well. (Staff Exhibit 14)

17. On April 29, 2015, Staff issued NOAV No. 200430624 to Texas Tea citing a violation of Rule 326 (Mechanical Integrity Testing). (Staff Exhibit 15)

18. Texas Tea received NOAV 200430624 in first class mail, return receipt requested, on May 2, 2015. (Staff Exhibit 16)

C. RC Nauman 4 Well

19. The RC Nauman 4 Well has been shut-in since January 2012. (Staff Exhibit 18)

20. An MIT was due on the RC Nauman 4 Well on or before January 31, 2014. (Staff Exhibit 18)

21. Texas Tea has never conducted an MIT on the RC Nauman 4 Well. (Staff Exhibit 19)

22. On April 29, 2015, Staff issued NOAV No. 200430630 to Texas Tea citing a violation of Rule 326 (Mechanical Integrity Testing). (Staff Exhibit 20)

23. Texas Tea received NOAV 200430630 via first class mail, return receipt requested, on May 2, 2015. (Staff Exhibit 16)

D. Pace 2 Well

24. On September 15, 2014, the Commission entered Order No. 1V-485, which required that Texas Tea bring the Pace 2 Well into compliance with COGCC rules and regulations by March 19, 2015 (six months after the Commission mailed Order 1V-485). (Staff Exhibit 32)

25. Order No. 1V-485 further required that Texas Tea only return wells to production where Commission Staff is satisfied that production will not result in the potential for an adverse impact to public health, safety, and welfare, including the environment and wildlife resources. (Staff Exhibit 32)

26. Texas Tea failed to comply with Order No. 1V-485 by failing to bring the Pace 2 Well into compliance with COGCC Rules by March 19, 2015. (Staff Exhibit 34) Specifically, an inspection conducted on April 24, 2015, by John Axelson, East Environmental Supervisor (Document No. 667500362) (Staff Exhibit 22), noted that Texas Tea had failed to:

a. Repair leaks from the access panel and valves associated with the storage tanks at the Pace 2 location,

b. Remove miscellaneous trash and debris, including buckets, concrete, pipe and trash from the Pace 2 location,

c. Remove and properly dispose of oily waste and hydrocarbon impacted soil at the horizontal separator,

d. Repair and properly label the concrete vault, and

e. Provide documentation supporting completion of clean up action required for Remediation Project 5616, including disposal documentation.

27. On June 16, 2015, COGCC Director issued a letter (Document No. 2314815) to Texas Tea giving authorization to remove for sale produced fluids in the tanks at the Pace #2 tank battery to allow Texas Tea to continue work required to comply with COGCC Order No. 1V-485. (Staff Exhibit 22)

28. On July 9, 2015, COGCC received a complaint (Document No. 200435406) alleging that a leak had occurred from the Pace #2 flowline underneath the Miller Compressor Station operated by Kerr McGee Gathering LLC (“Kerr McGee”). (Staff Exhibit 23)

29. Kerr McGee was first alerted to a release at the Miller Compressor Station (Facility ID 120780) on June 25, 2015, when a technician smelled natural gas at the facility. (Staff Exhibit 23)

30. On July 1, 2015, Kerr McGee shut down the compressor station and removed equipment to uncover process piping and find the location of the leak. Kerr McGee discovered process piping operated by Kerr McGee, a three-inch fiberglass flow line later determined to be operated by Texas Tea, and three flowlines operated by Encana Oil & Gas (USA) Inc. (“Encana”). (Staff Exhibit 23)

31. On July 3, 2015, representatives from Texas Tea, Kerr McGee, and COGCC met on location to further investigate the source of the release. Texas Tea personnel energized the flow line to determine if it was leaking. Within approximately one minute after being energized, gas and fluids were released from the Texas Tea three-inch fiberglass flowline. Oil stained soil was observed surrounding the Texas Tea flowline. The Texas Tea flowline test and observations are documented by COGCC in a Field Inspection Report (Document No. 677900099). This inspection noted that Texas Tea had commenced repairs of leaks from the access panel and valves associated with the storage tanks at the Pace 2 location. (Staff Exhibit 24)

32. A July 3, 2015, COGCC Field Inspection Report (Document No. 677900099) required corrective actions including submittal of a Form 19 Spill/Release report. The spill report was not submitted within 72-hours as required by COGCC Rule 906. (Staff Exhibit 24)

33. On July 10, 2015, Texas Tea submitted a Form 19 initial spill/release report via email. (Document No. 200435406) (Staff Exhibit 25)

34. Texas Tea never filed a supplemental spill report for the release at the Pace #2 well site.

35. On July 15, 2015, Texas Tea consultant, Art Braun of Braun Environmental, Inc. (“Braun”), visited the Miller Compressor Station to inspect the flowline excavation and collect soil samples. A representative of Kerr McGee also collected split soil samples and a sample of groundwater from the excavation beneath the Texas Tea flowline. (Staff Exhibit 31)

36. Analytical results from the soil samples collected by Texas Tea and Kerr McGee verified impacted soil with concentrations of Total Petroleum Hydrocarbons exceeding Table 910-1 standards. In addition, Kerr McGee’s sample of groundwater collected from the Texas Tea flowline excavation contained benzene above the Table 910-1 standard. (Staff Exhibits 26 and 36)

37. Benzene was documented at a concentration of 130 ug/L in groundwater compared to the 5 ug/L standard. Soil contained as high as 3,716 mg/Kg combined GRO & DRO exceeding the 500 mg/kg cleanup level. (Staff Exhibit 26)

38. The release and associated impacts under the Miller Compressor Station, whether historic and/or contemporary, were caused by a release from the Texas Tea fiberglass Pace #2 flowline. (Staff Exhibit 36)

39. On September 28, 2015, Staff issued NOAV No. 200437494 (Staff Exhibit 31) to Texas Tea citing a violation of the following Rules:

a. Rule 906 (Spills and Releases)

b. Rule 907 (Management of E&P Waste)

c. Rule 1102.d. (Operations, Maintenance, and Repair – One Call Participation)

d. §34-6-121(1), C.R.S. (Violation of Commission Order)

40. On December 31, 2015, Texas Tea repaired the Pace #2 flowline and passed a flowline integrity test that was witnessed by COGCC Staff. (Field Inspection Report, Document No. 674602310) (Staff Exhibit 28)

41. Between December 31, 2015 and January 4, 2016, Texas Tea completed the remediation of the Pace #2 flowline release by removing contaminated soil and backfilling the excavation. (Field Inspection Report, Document No. 681700069, dated January 4, 2016) (Staff Exhibits 29 and 36)

E. One Call

42. COGCC Rule 1102.e. requires all operators of COGCC-regulated pipelines to be a “member of the Utility Notification Center of Colorado and participate in Colorado's One Call notification system.”

43. Texas Tea operates multiple COGCC-regulated pipelines, including the flowline located beneath the Miller Compressor Station. (See Staff Exhibits 6, 12, 17, and 21)

44. Texas Tea has not been a member of the One Call notification system since October 2011. (Staff Exhibit 30)

F. Pattern of Violation

45. Pursuant to the Act, if the Commission determines there is “evidence that an operator is responsible for a pattern of violation” of the Act, or Commission rules, orders, or permits, “it may issue an order that prohibits the issuance of any new permits to the operator, suspends any or all of the operator’s certificates of clearance, or both.” §34-60-121(7), C.R.S. Pursuant to Rule 523.d.(3), the Commission will “consider an operator’s history of violations of the Act, or Commission rules, orders, or permits and any other factors relevant to objectively determining whether an operator has engaged in a pattern of violations.”

46. Texas Tea has been an operator registered with the COGCC since March 1997.

47. COGCC records reveal that Texas Tea has been issued 55 NOAVs during its operating history (Staff Exhibit 33), which include, but are not limited to:

a. 5 citations for violations of Rule 210;

b. 21 citations for violations of Rule 309;

c. 16 citations for violation of Rule 319;

d. 9 citations for violation of Rule 324;

e. 18 citations for violation of Rule 326;

f. 6 citations for violation of Rule 603; and

g. 5 citations for violations of Rule 906.

48. The Commission has issued three prior enforcement orders finding Texas Tea in violation of multiple Commission rules over the last four years: Order 1V-397, Order 1V-410, and Order 1V-485. (Staff Exhibit 32) In those Orders, the Commission found Texas Tea in violation of the following:

Facility/Category	Order	Date	Violation	Brief Rule Description
Van Scoyck #1	1V-397	12/7/2012	210.b.(2)	Failure to maintain proper signs
Van Scoyck #1	1V-397	12/7/2012	319.b.(3)	Continued TA without COGCC approval
Van Scoyck #1	1V-397	12/7/2012	326.b.(1)	Failure to MIT TA well
Van Scoyck #1	1V-397	12/7/2012	603.j.	Failure to control weeds
Van Scoyck #1	1V-397	12/7/2012	906.a.	Failure to remediate spill/release
Pace #2	1V-397	12/7/2012	210.d.	Failure to maintain proper signs
Pace #2	1V-397	12/7/2012	604.a.(4)	Failure to maintain secondary containment (berms)
Pace #2	1V-397	12/7/2012	902.d.	Failure to cover openings in concrete vault
Adams #1	1V-397	12/7/2012	319.b.(1)	Continued TA without COGCC approval
Adams #1	1V-397	12/7/2012	319.b.(3)	TA without sundry
Adams #1	1V-397	12/7/2012	326.b.(1)	Failure to MIT TA well
Krogh #2	1V-397	12/7/2012	319.b.(1)	Continued TA without COGCC approval
Krogh #2	1V-397	12/7/2012	319.b.(3)	TA without sundry
Krogh #2	1V-397	12/7/2012	326.b.(1)	Continued TA without COGCC approval
General Ops	1V-397	12/7/2012	706	Failure to maintain adequate financial assurance
General Ops	1V-397	12/7/2012	707	Failure to maintain adequate inactive well financial assurance
General Ops	1V-397	12/7/2012	309	Failure to timely submit Form 7s (Monthly Report of Operations)
General Ops	1V-397	12/7/2012	310	Failure to timely remit Conservation Levy payment
Order Violation	1V-410	5/6/2013	34-60-121	Violation of Order 1V-397
Order Violation	1V-410	5/6/2013	525	Finding of a Pattern of Violation
Rocky Mountain II #1	1V-485	9/15/2014	210.b.	Failure to maintain proper signs
Rocky Mountain II #1	1V-485	9/15/2014	309	Failure to timely submit Form 7s (Monthly Report of Operations)
Rocky Mountain II #1	1V-485	9/15/2014	319.b.(3)	Continued TA without COGCC approval
Rocky Mountain II #1	1V-485	9/15/2014	324A.a.	Failure to take action to avoid pollution
Rocky Mountain II #1	1V-485	9/15/2014	326.b.(1)	Failure to MIT TA well
Rocky Mountain II #1	1V-485	9/15/2014	603.f.	Failure to keep site free from weeds, debris, unused equip
Rocky Mountain II #1	1V-485	9/15/2014	912.a.	Flaring/Venting of hydrocarbons to the atmosphere

49. There are four patterns of violation that mark Texas Tea’s compliance history. First, Texas Tea has failed to comply with Rule 326 at four different wells. Rule 326 requires regular mechanical integrity testing to ensure that an operator’s wells do not represent a risk to the environment. Next, Texas Teas has violated Rule 319 six different times. Rule 319 requires COGCC approval before an operator can temporarily abandon a well and annual updates on the status of the well once that approval is granted. Rule 319 is an important means by which the COGCC monitors temporarily abandoned wells, which represent a risk of abandonment to the State and require timely mechanical integrity testing and possibly increased financial assurance. Next, the Commission previously found Texas Tea in violation of Rule 210 three times at three wells. Rule 210 requires that oil field equipment be properly labeled and signed in order to provide the public, and first responders, crucial information in the event of an emergency. Lastly, Texas Tea has also failed to comply with prior enforcement orders. Order No. 1V-410 was issued for a violation of Order No. 1V-397 and this order finds a violation of Order No. 1V-485.

50. Cumulatively, what these patterns indicate is an unwillingness, or inability, to comply with COGCC Rules. Texas Tea has repeatedly failed to comply with even the most basic COGCC requirements. Texas Tea also has also failed to comply with COGCC Rules that directly relate to protection of public health, safety, and welfare, including the environment and wildlife resources.

II. FINDINGS

Jurisdictional Findings

51. Due notice of the time, place and purpose of the hearing has been given in all respects, as required by law. (See Staff Exhibits 1 - 5)

52. The Commission has jurisdiction over the subject matter embraced in this Application, and of the interested parties, and jurisdiction to promulgate the following order pursuant to the Oil and Gas Conservation Act.

Liability, Corrective Action, and Penalty Amount

53. Based on the foregoing, the Commission finds that Texas Tea has committed the following violations and calculates the following penalties:

NOAV No.	Well Name	Rule	Old/New Act	Class, Impact	Days of Violation	Total Penalty
200426555	Nelson 1	319	Old	N/A	10	$10,000
200426555	Nelson 1	326	Old	N/A	10	$10,000
200430624	Schmidt 1-B	326	Old	N/A	10	$10,000
200430630	RC Nauman 4	326	Old	N/A	10	$10,000
200437494	Pace 2	906	New	2, Moderate	175	$20,000
200437494	Pace 2	909	New	2, Moderate	180	$129,500
200437494	Pace 2	1102.d.	Old	N/A	10	$10,000
200437494	Pace 2	§121(1)	New	3, Minor	70	$124,000

TOTAL						$323,500

54. Pursuant to Rule 523 and the Commission’s Enforcement and Penalty Policy, the Commission calculates a penalty of $323,500 for these violations. The penalty calculation is based on the following:

a. Nelson 1, Schmidt 1-B, and RC Nauman 4 Wells;

i. Texas Tea has violated Rule 326 at the Nelson 1, Schmidt 1-B, and RC Nauman 4 Wells for failing to conduct timely mechanical tests.

ii. Texas Tea has violated Rule 319 at the Nelson 1 by failing to submit a Form 4 (Sundry) seeking Director approval for the continued temporary abandonment of the well.

iii. These violations began prior to the June 6, 2014 effective date of HB 14-1356 and extend for at least ten days;

iv. Daily starting base penalty of $1,000 per day per violation;

v. Statutory limit of not more than ten days of violation because there was no significant waste of oil and gas resources, damage to correlative rights, or significant adverse impact on public health, safety, or welfare, including the environment or wildlife resources;

b. Pace 2 Well;

i. Current versions of § 34-60-121 C.R.S. and Rule 523 apply (except as specified below);

ii. Texas Tea has violated Rule 906 at the Pace 2 Well by failing to file a supplemental spill report regarding the flowline release at the Miller Compressor Station;

1. Staff determined that this violation resulted in a Moderate impact;

2. Staff recalculated this penalty in order to ensure that the penalty was appropriate to the nature of the violation;

3. The violation commenced on July 13, 2015 (ten days after the spill was confirmed) and continued through January 4, 2016 (the day Staff had sufficient information to confirm that Texas Tea had completed its remediation of the flowline release);

iii. Texas Tea has violated Rule 909 at the Pace 2 Well by failing to timely perform the necessary remediation in order to mitigate, remove, or reduce contamination that exceeded the concentration levels in Table 910-1 so as to ensure protection of public health, safety, and welfare, and to prevent and mitigate significant adverse environmental impacts;

1. Staff determined that this violation resulted in a Moderate impact;

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

3. The violation commenced on July 3, 2015 (the day the spill was confirmed) and continued through December 30, 2015 (the day that Texas Tea commenced its remediation of the flowline release);

iv. Texas Tea has violated Rule 1102.d. by failing to be a member of the Utility Notification Center of Colorado and participate in Colorado's One Call notification system;

1. This violations began prior to the June 6, 2014 effective date of HB 14-1356 and extend for at least ten days;

2. Daily starting base penalty of $1,000 per day per violation;

3. Statutory limit of not more than ten days of violation because there was no significant waste of oil and gas resources, damage to correlative rights, or significant adverse impact on public health, safety, or welfare, including the environment or wildlife resources;

v. Texas Tea has violated §34-6-121(1) at the Pace 2 Well by failing to comply with Order No. 1V-485 which required Texas Tea to bring the Pace 2 Well into compliance with COGCC Rules by March 19, 2015;

1. Staff determined that this violation resulted in a Minor impact;

2. Application of the Duration Matrix;

3. The violation commenced on April 24, 2015, (the day COGCC staff confirmed non-compliance with Order No. 1V-485) and continued through July 3, 2016, (the day COGCC staff confirmed that Texas Tea had commenced corrective actions necessary to comply with Order No. 1V-485);

c. No aggravating factors;

d. No mitigating factors; and

e. No gross negligence or knowing and willful misconduct.

55. Taking into account the violations currently at issue, as well as those confirmed in prior orders, the Commission finds that Texas Tea has engaged in a pattern of violations pursuant to Section 34-60-121(7), C.R.S., and Rule 523.d.(3).

ORDER

NOW, THEREFORE, the COMMISSION ORDERS:

1. Texas Tea is found in violation of §34-6-121(1), C.R.S. and Commission Rules 319, 326, 326.c., 906, 907, 909, 1102.d. for the reasons set forth above.

2. Texas Tea is assessed a penalty of $323,500 for these violations.

3. Texas Tea will pay $323,500 within 30 days after this approved OFV is mailed by the Commission.

4. Texas Tea is found to have engaged in a pattern of violations pursuant to Section 34-60-121(7), C.R.S., and Rule 523.d.(3). The Director is authorized to immediately suspend Texas Tea’s Form 10, Certification of Clearance, as to all of Texas Tea’s wells, and withhold the issuance of any new drilling or oil and gas location permits.

5. Texas Tea will bring all wells that it operates in the State of Colorado fully into compliance with all COGCC Rules and Regulations within 30 days after this approved OFV is mailed by the Commission.

6. Should Texas Tea fail to pay all penalties assessed and return to compliance within 30 days after this OFV is mailed by the Commission, Staff is authorized to:

a. Terminate Texas Tea’s Operator Number (No. 87195);

b. Rescind Texas Tea’s Form 1 (Doc. No. 703757);

c. Revoke Texas Tea’s right to conduct oil and gas operations in Colorado;

d. Foreclose Texas Tea’s existing financial assurance and claim both the principal and any accrued, but undisbursed, interest that may exist;

e. Use funds from the Oil and Gas Conservation and Environmental Response Fund to investigate, prevent, monitor, or mitigate conditions that threaten to cause, or that actually cause, significant adverse environmental impacts at oil and gas locations operated by Texas Tea; and

f. Claim all equipment, saleable product, and appurtenances related to Texas Tea’s operations, if any, as property of the Commission should COGCC Staff initiate any of the activities described in subpart (e) above, provided that any proceeds from the disposition of the assets will be applied to any work undertaken by the Commission.

7. Texas Tea, or its successors or assigns, shall repay any funds expended by the State in the event COGCC Staff exercises the authority granted above.

8. 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.

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

10. The Commission heard this matter on April 18-19, 2016, satisfying the requirement for a mandatory hearing under Rule 523.d.

Stipulated and agreed to this _____ day of March, 2016.

Robert Parker, Manager

Texas Tea of Colorado, LLC,

aka Texas Tea, LLC

Operator Number 87195

David Beckstrom, COGCC Enforcement Officer

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

ENTERED this day of April, 2016, as of the day of April, 2016.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Julie Murphy, Secretary