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-122
COMPANY, LOGAN, MONTEZUMA AND WELD
COUNTIES, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 20, 1997, at 9:00 a.m., at the Morgan County Administration Building, 231 Ensign Street, Fort Morgan, after giving Notice of Hearing as required by law for the continuance of the April 21, 1997 Commission hearing on the following matters: (i) why McCormick Oil & Gas Company (“McCormick”) is not in violation of Rule No. 317.g. of the Rules and Regulations of the Oil and Gas Conservation Commission (the “Rules”) for failure to conduct stage cementing operations to protect fresh water aquifers for the Gillette No. 1 Well; (ii) why the Commission should not invoke the provisions of §34-60-121, C.R.S., as amended, to assess penalties based on the Commission’s Order No. 1V-120, dated May 9, 1997, finding six separate violations of Rule 304.a. resulting from McCormick’s failure to provide an adequate bond for plugging and reclamation of the wells described below; and (iii) why the Commission should not cancel McCormick’s current Certificates of Clearance, Form 10, and prohibit the issue of any new permits for oil and gas operations to McCormick.

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 May 9, 1997, the Commission issued Order No. 1V-120 finding McCormick Oil & Gas Company in violation of Rule No. 304.a. for the below-listed wells:

McCormick-Goff No. 1 Well NE¼SE¼ Sec 6 T35N R13W Montezuma County
Rieke No. 1 Well SE¼NE¼ Sec 3 T9N R54W Logan County
Gillette No. 1 Well SW¼SE¼ Sec 4 T9N R61W Weld County
Gillette No. 7 Well NW¼SW¼ Sec 4 T9N R61W Weld County
Gillette No. 10 Well SW¼SE¼ Sec 9 T9N R61W Weld County
Scheetz No. 1 Well NW¼NE¼ Sec 9 T9N R61W Weld County

5. Based on the findings of violation, the Commission ordered (Order No. 1V-120) McCormick to 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. McCormick also agreed to provide a 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 based on the violations of Rule 304.a.

6. The Commission continued to the May 20, 1997 hearing, consideration of the appropriate penalty assessment for the six (6) violations of Rule 304.a., consideration of any finding of violation of Rule 317.g., failure to protect exposed fresh water aquifers by stage cementing in the Gillette No. 1 Well, consideration of whether to cancel McCormick’s Certificates of Clearance, Form 10, to sell and transport hydrocarbons pursuant to Rule 312.f.(3) and finally, consideration of whether to prohibit the issuance to McCormick of any new permits for oil and gas operations.

7. At the May 20, 1997 hearing, the Commission took evidence and considered testimony from COGCC staff and Mr. Robert McCormick, (appearing on behalf of McCormick) regarding the allegation McCormick violated Rule 317.g. by failing to conduct stage cementing operations to protect fresh water aquifers.

8. After considering the evidence and testimony the Commission found by a preponderance of the evidence that McCormick Oil & Gas Company is in violation of Rule No. 317.g., failure to protect exposed fresh water aquifers by stage cementing.

9. The Commission then considered the appropriate fine for the six violations of Rule 304.a., the violation of Rule 317.g. and whether to cancel McCormick’s Certificates of Clearance, Form 10, pursuant to Rule 312.f.(3).

10. COGCC staff testified that a fine in the amount of Thirty-Two Thousand ($32,000) should be assessed for McCormick’s violations. Staff based this recommendation on a Five Thousand Dollar ($5,000) fine for each of the six (6) violations of Rule 304.a., failure to secure an adequate bond, and a Two Thousand Dollar ($2,000) fine for McCormick’s failure to comply with Rule 317.g., protection of the fresh water aquifer for the Gillette No. 1 Well. Staff testified that the proposed fine amount correlated with the amount of financial benefit McCormick received from not having the required bonds in place and not having performed the stage cementing operations.

11. COGCC staff then testified that several aggravating factors should be considered in the assessment of the fine, testifying and providing evidence that the violations were intentional or reckless, pursuant to Rule 523.d.(1), the violations involved recalcitrance or recidivism upon the part of the violator, pursuant to Rule 523.d.(6) and that the violations resulting in economic benefit to the violator, pursuant to Rule 523.d.(8).

12. McCormick testified regarding the mitigating factors that should be applied in the assessment of any fine, testifying that the causes of the violation were outside of the violator’s reasonable control and responsibility, pursuant to Rule 523.d.(4) and that the violator made a good faith effort to comply with applicable requirements prior to the Commission learning of the violation, pursuant to Rule 523.d.(5).

13. The Commission found that McCormick’s financial inability to comply with Rule 304.a. does not constitute a mitigating factor under Rule 523.d.(5). The Commission further found that McCormick’s six (6) violations of Rule 304.g. when considered in light of both the aggravating and mitigating factors presented at hearing, support the assessment of a Five Thousand Dollar ($5,000) fine for each violation, for a total fine of Thirty Thousand Dollars ($30,000).
14. The Commission found that McCormick’s testimony regarding his understanding of the permit conditions for reentry of the Gillette No. 1 Well, did not constitute a mitigating factor under Rule 523.d.(5). The Commission determined that McCormick should either comply with Rule 317.g., by performing stage cementing operations to protect fresh water aquifers on the Gillette No.1 Well and or plug and abandon the well in accordance with Commission regulations. Further, the Commission found that McCormick’s violation of Rule 317.g. when considered in light of both the aggravating and mitigating factors presented at hearing, support the assessment of a Two Thousand Dollar ($2,000) fine.

15. Based on staff recommendations, McCormick’s testimony, and McCormick’s attempt to provide an adequate bond, the Commission found it inappropriate to cancel McCormick’s Certificates of Clearance, Form 10, to sell and transport hydrocarbons pursuant to Rule 312.f.(3), and further found it unnecessary to prohibit the issuance of any new permits to McCormick.

16. In accordance with §35-60-106(13), C.R.S. and Rule 702., the Commission found it warranted, based on the ownership issues associated with the lien McCormick granted on real property he owns in trust located in La Plata County, Colorado, for McCormick to secure and provide to the Commission a surety bond, in a form and from a company acceptable to the Commission on or before September 1, 1997.

ORDER

NOW, THEREFORE IT IS ORDERED, that McCormick Oil & Gas Company is in violation of Rule 304.a. for the below-listed six (6) wells and shall be assessed a fine in the amount of Five Thousand Dollars ($5,000) per well.

McCormick-Goff No. 1 Well NE¼SE¼ Sec 6 T35N R13W Montezuma County
Rieke No. 1 Well SE¼NE¼ Sec 3 T9N R54W Logan County
Gillette No. 1 Well SW¼SE¼ Sec 4 T9N R61W Weld County
Gillette No. 7 Well NW¼SW¼ Sec 4 T9N R61W Weld County
Gillette No. 10 Well SW¼SE¼ Sec 9 T9N R61W Weld County
Scheetz No. 1 Well NW¼NE¼ Sec 9 T9N R61W Weld County

IT IS FURTHER ORDERED, that McCormick Oil & Gas Company is in violation of Rule No. 317.g. for the Gillette No. 1 Well, located in the SW¼SE¼ of Section 4, Township 9 North, Range 61 West, 6th P.M., Weld County, and shall be assessed a fine in the amount of Two Thousand Dollars ($2,000).

IT IS FURTHERED ORDERED, that McCormick remedy the violation of Rule 317.g. by complying with the stage cementing requirements contained in Rule 317.g., McCormick’s permit and the Commission’s Notices of Alleged Violation, or that McCormick plug and abandon the Gillette No. 1 Well in accordance with Rule 319, within thirty (30) days of the date the order is issued.

IT IS FURTHER ORDERED, that the total fine assessed of Thirty-Two Thousand Dollars ($32,000) shall be payable within thirty (30) days of the date the order is issued.
IT IS FURTHER ORDERED, that McCormick Oil & Gas Company shall provide a conventional surety bond or cash bond for all existing wells and well sites operated by McCormick no later than September 1, 1997.

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 13th day of June, 1997, as of May 20, 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 June 13, 1997

(1V#122)