IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES CAUSE NO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES CAUSE NO. 1
AND REGULATIONS OF THE COLORADO OIL AND GAS
CONSERVATION COMMISSION BY McCORMICK OIL & GAS ORDER NO. 1V-120
COMPANY, LOGAN, MONTEZUMA AND WELD
COUNTIES, COLORADO )

REPORT OF THE COMMISSION

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

This cause came on for hearing before the Commission on April 21, 1997, at 8:30 a.m., in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing as required by law, on why Mr. Robert McCormick, operator of McCormick Oil & Gas Company, is not in violation of Rule Nos. 304.a. and 317.g. of the Oil and Gas Conservation Commission, and why it should not invoke the provisions of §34-60-121 C.R.S., as amended, providing for penalties for violations of the Rules and Regulations of the Commission for six (6) wells.

FINDINGS

The Commission finds as follows:

1. McCormick Oil & Gas Company (“McCormick”) is an interested party in the subject matter of the above referenced hearing.

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On July 23, 1996, September 11, 1996, October 8, 1996, October 25, 1996, December 4, 1996, December 9, 1996, December 16, 1996, and January 7, 1997, Commission staff contacted Mr. Robert McCormick, of McCormick Oil & Gas Company, by telephone and discussed the apparent lack of a valid plugging bond for McCormick Oil & Gas Company for the below-listed wells:

McCormick-Goff #1 Well NE¼SE¼ Sec 6 T35N R13W Montezuma County
Rieke #1 Well SE¼NE¼ Sec 3 T9N R54W Logan County
Gillette #1 Well SW¼SE¼ Sec 4 T9N R61W Weld County
Gillette #7 Well NW¼SW¼ Sec 4 T9N R61W Weld County
Gillette #10 Well SW¼SE¼ Sec 9 T9N R61W Weld County
Scheetz #1 Well NW¼NE¼ Sec 9 T9N R61W Weld County

hereinafter collectively referred to as the “McCormick Wells.”

5. On January 10, 1997, Colorado Oil and Gas Conservation Commission (COGCC) staff issued seven Notices of Alleged Violation (NOAVs) to McCormick Oil & Gas Company. The above-described wells still have outstanding violations of Rule 304.a., failure to provide the Commission with a valid plugging bond. The NOAVs required that McCormick Oil & Gas Company submit a valid plugging bond or provide proof that the original plugging bond is still valid. In addition, the Gillette #1 Well was cited for a violation of Rule 317.g., failure to protect exposed fresh water aquifers by stage cementing. The abatement date for these violations was February 10, 1997. The return receipt for the NOAVs was received by the Commission on January 14, 1997. On February 7, 1997 Mr. McCormick met with Commission staff and provided delinquent production reports and discussed outstanding violations. Mr. McCormick requested and was granted an extension to February 28, 1997 to submit proof of a valid plugging bond. On February 10, 1997 Commission staff sent a letter and two amended NOAVs that reflected the discussions of February 7, 1997, return receipt requested. The return receipt was received by the Commission on February 13, 1997. On February 13, 1997 Commission staff received additional paperwork from McCormick Oil & Gas Company that had been required by the NOAVs.

6. On February 28, 1997 Mr. McCormick contacted Commission staff by telephone and requested additional time to secure a valid plugging bond. Commission staff informed Mr. McCormick that no further extensions would be granted and that an Administrative Order by Consent (AOC) would be sent immediately. On March 3, 1997 Mr. McCormick both telephoned and met with Commission staff, attempting to get further extensions. Staff denied extension requests and hand delivered an AOC to Mr. McCormick during his visit. Staff also mailed an AOC to Mr. McCormick on March 3, 1997, return receipt requested. The COGCC received the return receipt from the AOC on March 5, 1997. As of April 14, 1997 McCormick Oil & Gas Company had not secured compliance with Rules 304.a. and 317.g.

7. Mr. Robert S. McCormick appeared on behalf of McCormick Oil and Gas Company at the April 21 hearing. Mr. McCormick testified that he secured a Thirty Thousand Dollar ($30,000) blanket bond from the First Republic Trust Company in August, 1988, and that the bond remains in full force and effect. Mr. McCormick testified that he is aware that First Republic Trust Company declared bankruptcy and ceased doing business in the late 1980s. Mr. McCormick testified that he believed First Republic Trust Company’s obligations had been assumed by NCNB Dallas. Mr. McCormick stated that he later discovered, at an undetermined date, that First Republic Trust Company was not taken over by any successor bank.

8. Mr. McCormick testified that at all times prior to July, 1996, when Commission staff contacted him regarding deficiencies in his bond, he believed his prior bond remained in full force and effect. Mr. McCormick also contends that his bond continues in effect at this time, notwithstanding the bankruptcy of First Republic Trust Company. Mr. McCormick stated that the bond continues to be enforceable because it was originally secured by his real property located in Durango, Colorado (the “Durango Property”). Mr. McCormick testified that he paid Seventeen Thousand Dollars ($17,000) for the bond in 1988, and has paid no premiums since that date.

9. Mr. McCormick testified that the Durango Property has been subject to an option to purchase which recently expired.

10. Mr. Dave Shelton, a COGCC staff engineer, testified regarding the staff’s efforts to work with McCormick on the bonding issue, the number of extensions granted to McCormick after staff notified Mr. McCormick of the financial assurance deficiencies in July, 1996, and McCormick’s failure, after several extensions, to provide the COGCC with any acceptable form of financial assurance. A proposed order was presented to the Commission for their consideration.

11. Ms. Marsha Choury, a COGCC surety analyst, testified that she researched Mr. McCormick’s claim that the bond remained in effect, and that after attempting to contact the bonding company and its alleged successors, she concluded that no enforceable bond exists to secure McCormick’s financial assurance obligations.

12. Mr. McCormick and Mr. Shelton also testified regarding McCormick’s failure to properly cement the fresh water aquifers in the Gillette No. 1 Well in violation of Rule 317.g., failure to protect exposed fresh water aquifers by stage cementing.

13. After consideration of the evidence, the Commission finds that staff has demonstrated by a preponderance of the evidence that no bond is in effect with respect to the McCormick Wells, and that McCormick Oil and Gas Company is in violation of Rule 304.a., failure to provide the Commission with valid financial assurance for the six McCormick Wells described above (Proposed Order Items No. 1-6). The Commission finds that this deficiency requires immediate attention.

14. The Commission finds that McCormick must immediately provide sufficient and acceptable financial assurance in the amount of Thirty Thousand Dollars ($30,000) for the McCormick Wells, and hereby approves as interim financial assurance a lien provided in accordance with Colo. Rev. Stat. § 34-60-106(12)(f), secured by McCormick’s interest in the Durango Property, in a form determined appropriate by the Attorney General’s Office (Proposed Order Item No. 8).

15. The Commission continues to the May hearing its consideration of the appropriate fine amount associated with these violations (Proposed Order Item No. 7), and any finding regarding violation of Rule 317.g., failure to protect exposed fresh water aquifers by stage cementing in the Gillette No. 1 Well (Proposed Order Item No. 9).

16. The Commission continues to the May hearing its consideration of the cancellation of McCormick’s Certificates of Clearance, Form 10, to sell and transport hydrocarbons pursuant to Rule 312.f.(3) and prohibition of issuance of any new permits (Proposed Order Item No. 10).

17. In view of the Commission’s decision to defer the imposition of penalties, to forego any change of status for McCormick’s Certificates of Clearance at this time and to allow McCormick to present additional evidence to support a reduction in the penalty amount, McCormick agrees to enter into a consensual lien on the Durango Property in the amount of $32,000 in a form acceptable to the Commission and the Attorney General’s Office to secure any future obligations.

ORDER

NOW, THEREFORE, IT IS ORDERED, that McCormick Oil & Gas Company is hereby found in violation of Rule No. 304.a. for the below-listed wells:

McCormick-Goff #1 Well NE¼SE¼ Sec 6 T35N R13W Montezuma County
Rieke #1 Well SE¼NE¼ Sec 3 T9N R54W Logan County
Gillette #1 Well SW¼SE¼ Sec 4 T9N R61W Weld County
Gillette #7 Well NW¼SW¼ Sec 4 T9N R61W Weld County
Gillette #10 Well SW¼SE¼ Sec 9 T9N R61W Weld County
Scheetz #1 Well NW¼NE¼ Sec 9 T9N R61W Weld County

IT IS FURTHER ORDERED, that McCormick Oil & Gas Company shall immediately provide sufficient and acceptable financial surety in the amount of Thirty Thousand Dollars $30,000 in the form of a lien acceptable to the Commission on the real property owned by Mr. Robert S. McCormick located in Durango, La Plata, County, Colorado.

IT IS FURTHER ORDERED, that McCormick Oil & Gas Company shall immediately provide, in a form acceptable to the Commission and the Attorney General’s Office, a consensual lien in the amount of an additional Thirty-two Thousand Dollars ($32,000), on the real property owned by Mr. Robert S. McCormick located in Durango, La Plata, County, Colorado to secure any penalty obligations assessed against McCormick Oil & Gas Company.

IT IS FURTHER ORDERED, that the consideration of the appropriate fine amount associated with violations of Rule 304.a. and any finding regarding violation of Rule 317.g. shall be continued to the May 20, 1997 hearing.

IT IS FURTHER ORDERED, that the consideration of the cancellation of the Certificates of Clearance, Form 10, and prohibition of issuance of any new permits shall be continued to the May 20, 1997 hearing.

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 9th day of May, 1997, as of April 21, 1997.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Secretary

Dated at Suite 801, 1120 Lincoln Street Denver, Colorado 80203 May 22, 2002

(1V#120)