IN THE MATTER OF ALLEGED VIOLATIONS OF THE
CAUSE NO. 1
RULES AND REGULATIONS OF THE COLORADO
OIL AND GAS CONSERVATION COMMISSION BY
ORDER NO. 1V-175
McCORMICK OIL & GAS COMPANY, LOGAN,
MONTEZUMA, AND WELD COUNTIES, COLORADO
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 8:30 a.m., on August 19,
1999, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver,
Colorado, after giving Notice of Hearing as required by law, on why McCormick
Oil & Gas Company is in violation of certain rules and regulations of the Oil
and Gas Conservation Commission and why the Commission 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.
FINDINGS
1. McCormick Oil & Gas Company (“McCormick”) is an interested party in the
subject matter of the above-referenced hearing. McCormick has also done business
as Vaquero Aceite Joint Venture and as McCormick-Vaquero LLC, though not in
official correspondence with the Colorado Oil and Gas Conservation Commission
(“COGCC”).
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 of the subject matter, and of the parties
interested therein, and jurisdiction to promulgate the hereinafter prescribed
order.
4. Vaquero Aceite Joint Venture (“Vaquero”) filed for Chapter 7 bankruptcy
protection in January 1999. Vaquero claims an interest in the Gillette Nos. 1, 7
and 10 Wells and the Sheetz #1 Well. Daniel A. Hepner (“Trustee”) was appointed
the Chapter 7 bankruptcy trustee of the Vaquero bankruptcy estate on June 10,
1999. Trustee has no knowledge of the matters on which the following findings
are based or whether such findings are correct, because the events set forth
below occurred prior to Vaquero’s bankruptcy filing. However, Trustee does not
contest such findings as to McCormick. Trustee’s consent to such findings is not
and should not be deemed an admission of the findings against Robert S.
McCormick individually.
5. On May 2, 1990, the Gillette #7 Well located in the NW¼ SW¼ of Section 4,
Township 9 North, Range 61 West, 6th P.M., Weld County was plugged and
abandoned. On February 2, 1996, COGCC staff performed a site inspection on the
well and found that a cement pump base still remained on location.
6. On January 10, 1997, COGCC staff issued a Notice of Alleged Violation (“NOAV”)
to McCormick for the Gillette #7 Well. The NOAV cited a violation of Rule 1004.,
failure to complete restoration within six (6) months of plugging and
abandonment. The NOAV specified an abatement date of February 10, 1997. The
return receipt for the NOAV was received by COGCC on January 14, 1997.
7. The Rieke #1 Well located in the SE¼ NE¼ of Section 3, Township 9 North,
Range 54 West, 6th P.M., Logan County, has been shut-in since December of 1988.
On April 4, 1995, COGCC staff performed a site inspection. Staff found the well
was shut-in with sucker rods installed in the well. No pumping unit was on the
site and the well was incapable of production.
8. On January 10, 1997, COGCC staff issued a NOAV to McCormick for the Rieke #1
Well. The NOAV cited violation of Rule 319.b.(3)., failure to obtain Director
approval to shut-in a well in excess of six (6) months and violation of Rule
326.b., failure to perform a mechanical integrity test (“MIT”) on a well within
thirty (30) days if surface equipment is removed or the well becomes incapable
of production. The NOAV specified an abatement date of July 10, 1997. The return
receipt for the NOAV was received by the COGCC on January 14, 1997.
9. The Gillette #1 Well located in the SW¼ SE¼ of Section 4, Township 9 North,
Range 61 West, 6th P.M., Weld County, was drilled in 1952. COGCC records do not
reflect that the well has ever produced.
10. On February 7, 1997 Mr. Robert McCormick, a principal of McCormick, met with
COGCC staff to discuss outstanding violations. Mr. McCormick requested and was
granted an extension to July 31, 1997 to abate the restoration violation cited
for the Gillette #7 Well. A revised NOAV with an abatement date of July 31, 1997
for Rule 1004. was issued on February 10, 1997 for the Gillette #7 Well.
11. On February 10, 1997, COGCC staff issued a NOAV to McCormick for the
Gillette #1 Well. The NOAV cited violation of Rule 319.b.(3)., failure to obtain
Director approval to shut-in a well in excess of six (6) months and violation of
Rule 326.b., failure to perform a MIT on a well within two (2) years of initial
shut-in date. The NOAV specified an abatement date of July 31, 1997. The return
receipt for the NOAV was received by COGCC on February 13, 1997.
12. On February 21, 1997, COGCC staff conducted a site inspection on the
Gillette #1 Well and determined the well was incapable of production as of that
date.
13. On December 8, 1998, COGCC staff issued a NOAV to McCormick for the Sheetz
#1 Well located in the NW¼ NE¼ of Section 9, Township 9 North, Range 61 West,
6th P.M., Weld County. The NOAV cited a violation of Rule 319.b.(3)., a well
which has ceased production or injection or is incapable of production or
injection shall be abandoned within six (6) months thereafter unless the time is
extended by the Director upon application by the owner. The NOAV had an
abatement date of January 7, 1999.
14. The last COGCC Form 7, Operator's Monthly Production Report, submitted to
COGCC by McCormick was for March 1998. Production reports submitted for January,
February, and March 1998 listed all wells as shut-in, with no production or
sales reported. However, levy payments for the first and second quarters of 1998
were made to the COGCC by the oil transporters for the Gillette #10 Well located
in the SW¼ SE¼ of Section 9, Township 9 North, Range 61 West, 6th P.M., Weld
County, COGCC Lease Number 56480.
15. On December 8, 1998, COGCC staff issued a NOAV to McCormick for the Gillette
#10 Well located in the SW¼ SE¼ of Section 9, Township 9 North, Range 61 West,
6th P.M., Weld County. The NOAV cited violations of Rule 206., all producers,
operators, transporters, refiners, gasoline or other extraction plant operators
and initial purchasers of oil and gas within the state shall from time to time
file accurate and complete reports containing such information and covering such
periods as the Commission shall require, and Rule 309., each producer or
operator of an oil or gas well shall file with the Commission, within forty-five
(45) days after the month in which production occurs, a report on Operator's
Monthly Production Report, Form 7, containing all information required by said
form. The NOAV had an abatement date of January 7, 1999.
16. The last reported production for the Goff-Pierre #1 Well located in the NE¼
SE¼ of Section 6, Township 35 North, Range 13 West, N.M.P.M., Montezuma County,
COGCC Lease Number 40277, was in September, 1995. On March 31, 1997 COGCC staff
approved a COGCC Form 6, Well Abandonment Report, Notice of Intent to Abandon,
for the Goff-Pierre #1 Well.
17. On December 8, 1998 COGCC staff issued a NOAV to McCormick for the
Goff-Pierre #1 Well. The NOAV cited violations of Rule 319.b.(3)., a well which
has ceased production or injection or is incapable of production or injection
shall be abandoned within six (6) months thereafter unless the time is extended
by the Director upon application by the owner, and Rule 326.b.(1), a MIT shall
be performed on each shut-in well within two (2) years of the initial shut-in
date. The NOAV had an abatement date of January 7, 1999.
18. The NOAVs sent to McCormick on December 8, 1998 via certified mail were
returned unclaimed on January 4, 1999, showing the attempted delivery dates of
December 10, 18, and 25, 1998. Mr. Robert McCormick telephoned COGCC staff on
December 23, 1998 and stated that although he had received notice from the U. S.
Postal Service of the attempted delivery, he had not claimed the envelope from
the Post Office. COGCC staff informed Mr. McCormick of the content of the NOAVs
and the abatement requirements during the call.
19. As of July 1, 1999, the abatement requirements listed above for the Gillette
#1 Well, Rieke #1 Well, Sheetz #1 Well, Gillette #10 Well, Goff-Pierre #1 Well,
and Gillette #7 Well have not been performed.
20. A monetary penalty of Eighteen Thousand dollars ($18,000) should be assessed
against McCormick, in accordance with Rule 523.a., for continuing violation of
Rules 1004., 319.b.(3)., 326.b., 206. and 309. The fines for each well for the
above-listed violations are as follows: for the Gillette #1 Well, Four Thousand
dollars ($4,000); for the Gillette #7 Well, Two Thousand dollars ($2,000); for
the Gillette #10, Two Thousand dollars ($2,000); for the Rieke #1 Well, Four
Thousand dollars ($4,000); for the Goff-Pierre #1 Well, Four Thousand dollars
($4,000); and for the Sheetz #1 Well, Two Thousand dollars ($2,000). Per Rule
523.d., COGCC staff considers the following to be aggravating factors for fine
determination: the violation was intentional or reckless (523.d.(1)); the
violation involved recalcitrance or recidivism upon the part of the violator
(523.d.(6)); the violation involved intentional false reporting or recordkeeping
(523.d.(7)); the violation resulted in economic benefit to the violator
(523.d.(8)).
21. On June 13, 1997, as of May 20, 1997, Order No. 1V-122 found McCormick in
violation of Rule 304.a. for the six (6) wells listed below and assessed a fine
in the amount of Five Thousand dollars ($5,000) per well.
McCormick-Goff #1 Well NE¼SE¼ Sec 6 T35N R13W Montezuma County
(a/k/a Goff-Pierre #1 Well)
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
Sheetz #1 Well NW¼NE¼ Sec 9 T9N R61W Weld County
McCormick was ordered to provide a conventional surety bond or cash bond for all
existing wells and well sites operated by McCormick no later than September 1,
1997.
22. In addition, Order No. 1V-122 found McCormick in violation of Rule 317.g.
for the Gillette #1 Well and assessed a fine of Two Thousand dollars ($2,000)
for the violation. McCormick was ordered to remedy the violation of Rule 317.g.
by complying with the stage cementing requirements contained in Rule 317.g.,
McCormick's permit and the COGCC's Notices of Alleged Violation, or by plugging
and abandoning the Gillette #1 Well in accordance with Rule 319., within thirty
(30) days of the date the order was issued.
23. In addition, Order No. 1V-122 specified that the total fine of Thirty-Two
Thousand dollars ($32,000) shall be payable by McCormick within thirty (30) days
of the date the order is issued.
24. On April 22, 1997, McCormick executed two (2) promissory notes in favor of
the COGCC, secured by a deed of trust on certain property in Durango, Colorado.
One note for the amount of Thirty Thousand dollars ($30,000) was provided to
satisfy the financial assurance requirements in Order No. 1V-122. Another note
for the amount of Thirty-two Thousand dollars ($32,000) was provided to satisfy
the fines assessed in Order No. 1V-122.
25. On August 11, 1998, Richard L. Emmett, a Durango attorney, offered to
purchase the COGCC’s interest in the two (2) promissory notes and the associated
deed of trust for the amount of Forty Thousand dollars ($40,000). On March 8,
1999 the COGCC received a copy of the Sheriff’s Notice of Sale and Notice of
Right to Cure or Redeem for the Durango property. In view of the property sale,
on March 12, 1999 the COGCC indicated its interest to Mr. Emmett in selling the
notes and deed of trust. On April 26, 1999, the COGCC assigned all of its right,
title and interest to the promissory notes and deed of trust to Richard L.
Emmett and Dan Huntsman in consideration of a payment to COGCC from them of
Fifty Thousand dollars ($50,000).
26. On April 29, 1999, the COGCC deposited with the State Treasurer’s Office
Thirty Thousand dollars ($30,000) as financial assurance for the McCormick wells
and Twenty Thousand dollars ($20,000) as partial payment toward the assessed
fine of Thirty-two Thousand dollars ($32,000).
27. On February 24, 1999, the COGCC filed a Motion for Relief from Automatic
Stay in In re Vaquero Joint Venture Aceite, et al. (U.S. Bankruptcy Court,
District of Colorado, case no. 99-10217 SBB). The COGCC requested the Bankruptcy
Court issue an order declaring the COGCC is not stayed by 11 U.S.C. §362 to: (1)
proceed with the present administrative proceeding to adjudicate McCormick’s
alleged violations of the COGCC statutes and regulations promulgated thereunder,
(2) enter an order declaring McCormick in violation of said statute and
regulations, (3) order McCormick to comply with said order, and (4) assess a
fine for violation of said statute and regulations. The COGCC acknowledged,
pursuant to 11 U.S.C. §362(b)(4), that it would seek further bankruptcy court
approval if it sought to collect any monetary judgment against assets of the
bankruptcy estate. The COGCC’s motion was granted by the Bankruptcy Court in
April, 1999.
28. Mr. Robert S. McCormick has admitted the violations described in this Order
and acknowledges that the recommended fine is appropriate under the
circumstances. Mr. McCormick asserts that the violations were not the result of
wrongdoing by him personally, but rather resulted from deliberate wrongdoing by
former principals and employees of McCormick and related entities. Mr. McCormick
is currently in litigation with regard to the alleged wrongdoing by his former
partners and employees; the determination of those issues is outside the scope
of the matters before the COGCC in this Order.
ORDER
NOW, THEREFORE, IT IS ORDERED, that McCormick Oil & Gas Company (“McCormick”)
shall be found in continuing violation of Rule 1004., failure to complete
restoration within six (6) months of plugging and abandonment, for the Gillette
#7 Well located in the NW¼ SW¼ of Section 4, Township 9 North, Range 61 West,
6th P.M., Weld County, Colorado.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
Rule 319.b.(3), failure to obtain Director approval to shut-in a well in excess
of six (6) months and continuing violation of Rule 326.b., failure to perform a
mechanical integrity test a well within thirty (30) days if surface equipment is
removed or the well becomes incapable of production, for the Rieke #1 Well
located in the SE¼ NE¼ of Section 3, Township 9 North, Range 54 West, 6th P.M.,
Logan County, Colorado.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
Rule 319.b.(3), failure to abandon within six (6) months a well which has ceased
production or obtain Director approval to shut-in a well in excess of six (6)
months and continuing violation of Rule 326.b, failure to perform a mechanical
integrity test on a well within two (2) years of initial shut-in date for the
Gillette #1 Well located in the SW¼ SE¼ of Section 4, Township 9 North, Range 61
West, 6th P.M., Weld County, Colorado.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
Rule 319.b.(3), failure to abandon within six (6) months a well which has ceased
production or obtain Director approval to shut-in a well in excess of six (6)
months for the Sheetz #1 Well located in the NW¼ NE¼ of Section 9, Township 9
North, Range 61 West, 6th P.M., Weld County, Colorado.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
Rule 206., failure to file accurate and complete reports containing such
information and covering such periods as the Commission shall require, and Rule
309., failure to file with the Commission, within forty-five (45) days after the
month in which production occurs, a report on Operator's Monthly Production
Report, Form 7, containing all information required by said form for the
Gillette #10 Well located in the SW¼ SE¼ of Section 9, Township 9 North, Range
61 West, 6th P.M., Weld County, Colorado.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
Rule 319.b.(3), failure to obtain Director approval to shut-in a well in excess
of six (6) months and continuing violation of Rule 326.b., failure to perform a
mechanical integrity test a well within two (2) years of initial shut-in date
for the Goff-Pierre #1 Well located in the NE¼ SE¼ of Section 6, Township 35
North, Range 13 West, N. M. P.M., Montezuma County, Colorado.
IT IS FURTHER ORDERED, that with respect to wells that are the subject of this
Order and which are not part of the bankruptcy estate, McCormick shall secure
compliance with the violations listed within thirty (30) days of the earlier of
(1) the entry of any final, non-appealable judicial order finding or declaring
that one or more of the wells which are the subject of this Order are not, or
are no longer, the property of the bankruptcy estate, or (2) the effective date
of the abandonment of one, some or all of said wells by the Trustee.
IT IS FURTHER ORDERED, that McCormick shall be assessed a total fine of Eighteen
Thousand dollars ($18,000.00) for the violations listed above.
IT IS FURTHER ORDERED, that McCormick shall be found in continuing violation of
the provisions of Order No. 1V-122 and that the continuing violation of Rule
317.g. has the threat of significant negative impact on the environment or on
public health, safety, or welfare.
IT IS FURTHER ORDERED, that McCormick has demonstrated a pattern of knowing and
willful violation of COGCC Rules and Orders. Pursuant to §34-60-121.(7), C.R.S.,
the COGCC shall prohibit the issuance of any new permits to McCormick, or any
company of which any of the principals of McCormick is a principal, until such
time as McCormick demonstrates to the satisfaction of the COGCC that it has
brought each of the violations into compliance and that any penalty not subject
to judicial review or appeal has been paid.
IT IS FURTHER ORDERED, that if McCormick, or its successor-in-interest with
respect to any of the subject wells, does not comply with the requirements of
this order, then the COGCC shall use the cash bond to plug and abandon and
restore the wells and well sites operated by McCormick, and may exercise its
rights under §34-60-124.(6)(c), C.R.S.; except that the COGCC will first seek a
judicial determination whether the property is part of the bankruptcy estate,
and if it is part of the bankruptcy estate, the COGCC will seek Bankruptcy Court
approval before such property is confiscated and sold for salvage.
IT IS FURTHER ORDERED, that this Order does not constitute a finding that Mr.
Daniel Hepner, in his individual capacity or as Trustee for the bankruptcy
estate, is an operator of the subject wells as the term “operator” is defined by
§34-60-103(6.8), C.R.S. However, nothing in this Order is, or shall be construed
as, a waiver of the COGCC’s right to file a proof of claim for pre-petition
liability of the debtor; to seek an administrative claim pursuant to 11 U.S.C.
§503 for, among other things, the cost to plug and abandon the wells and/or to
restore the well sites, as appropriate; or to seek an order of the Bankruptcy
Court requiring the bankruptcy estate to comply with this Order.
IT IS FURTHER ORDERED, that Trustee’s consent to the provisions of this Order
does not constitute a finding that the violations set forth herein constitute an
actual threat to the environment or the public health, safety or welfare, nor do
they constitute a waiver of Trustee’s right to contest any administrative claim
which may be filed by the COGCC for claims pursuant to 11 U.S.C. §503 to address
actual or threatened impacts on the environment or on public health, safety, or
welfare.
IT IS FURTHER ORDERED, that this Order does not constitute an order that the
Trustee, in his individual capacity or as Trustee for the bankruptcy estate,
shall secure compliance with the violations listed herein, and should the COGCC
desire to enforce this order against the Trustee or property of the bankruptcy
estate, the COGCC must seek an order of the Bankruptcy Court for such authority.
IT IS FURTHER ORDERED, that this Order does not constitute an adjudication of
any issue relating to the business dealings or ongoing litigation(s) between Mr.
Robert S. McCormick and other present or former principals or employees of
McCormick or any related entity.
IT IS FURTHER ORDERED, that the provisions contained in the above Order shall
become effective forthwith.
IT IS FURTHER ORDERED, that the COGCC expressly reserves its right, after notice
and hearing, to alter, amend or repeal any and/or all of the above orders.
ENTERED this 31st day of August, 1999, as of August 19, 1999.
OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
By Dated at Suite 801 Patricia C. Beaver, Secretary 1120 Lincoln Street Denver, Colorado 80203 August 31, 1999.
(1V#175)