BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

ADMINISTRATIVE ORDER BY CONSENT

(Pursuant to Rule 522.b.(3) of the Rules and Regulations of the

Colorado Oil and Gas Conservation Commission, 2 CCR 404-1)

FINDINGS

Relevant COGCC Rules

1.    The rules of the Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”) that were in effect during the period at issue in this Administrative Order by Consent (“AOC”), that is, from 2003 through 2010 (“Rules or individually, the “Rule”), including Rule 303.a.(1), which provides in pertinent part that, “[b]efore any person shall commence operations for the drilling or reentry of any well, such person shall file with the Director an application on Form 2 for a Permit-to-Drill . . . and obtain the Director’s approval before commencement of operations with heavy equipment.”

2.    Rule 303.b. provides that, “[a] request to recomplete or deepen a well to a different reservoir or to side-track a well shall be filed on an Application for Permit-to-Drill, Form 2.”

3.    Rule 308A. provides in pertinent part that, “[w]ithin thirty (30) days of the setting of production casing, the plugging of a dry hole, the deepening or sidetracking of a well, or any time the wellbore configuration is changed, the operator shall transmit to the Director the Drilling Completion Report, Form 5 . . ..”

4.    Rule 308B. provides that, “[t]he Completed Interval Report, Form 5A, shall be submitted within thirty (30) days of completing a formation (successful or not) . . ..”

5.    Rule 311. provides in pertinent part that, “[n]otice shall be given to the Director, and approval obtained in advance of the time the operator expects to abandon a well on Form 6 . . ..  Within thirty (30) days after abandonment, the Well Abandonment Report, Form 6, shall be filed with the Director.”

Violations of Rule 303. - Drilling/Sidetracking without an APD

6.    Kinder Morgan CO2 CO LP (“Kinder Morgan”) (Operator #46685) operates the McElmo Dome CO2 Field in Montezuma County and the Doe Canyon CO2 Field in Dolores County (together referred to as the “Fields”).  Wells drilled in these Fields are part of federal units and, as such, were issued permits under the Bureau of Land Management rules.  Additionally, these same wells were required to be permitted under the COGCC Rules.

7.    Kinder Morgan operates several wells in the Fields, which were drilled without the necessary Application for Permit-to-Drill (“APD”), Form 2, in violation of Rule 303.  A list of those wells setting forth the spud dates for the wells and the associated approved APD dates is set forth below:

Violations of Rules 308A./308B. – Drilling Completion & Completed Interval Reports

8.    Kinder Morgan operates several wells in the Fields which were drilled and completed without submitting the appropriate forms (Rule 308A., Form 5, and Rule 308B.,Form 5A).  A list of those wells setting forth the spud dates for the wells and the associated date that total depth was reached (TD Date), the date the Drilling Completion Report, Form 5, was  received (Form 5 Received), the date the formation was completed (Completion Date), and the date the Completed Interval Report, Form 5A, was received (Form 5A Received), is set forth below:

API Number:  05-XXX-XXXXX-00 for original wellbore

                     05-XXX-XXXXX-01 for first sidetrack

                     05-XXX-XXXXX-02 for second sidetrack

Violations of Rule 311. - Well Abandonment Report

9.    Kinder Morgan operates several wells in the Fields which were plugged and abandoned without submitting the appropriate Form 6, Well Abandonment Report.  A list of those wells setting forth the Current Well Status, the associated date of plugging (P & A Date), the date any Notice of Intent to Abandon, Form 6, was approved (Form 6 Intent, Approval Date), and the date any Subsequent Report of Abandonment, Form 6, was received (Form 6 Subsequent, Received Date), is set forth below:

Current Well Status:    TA, Temporarily Abandoned

                                 SI, Shut-in

                                 PR, Producing

Assessment of Fines

10.  Rule 523. specifies a base fine shall not exceed One Thousand dollars ($1,000) for each day of violation of Rules 303.a.(1), 308A., 308B., and 311.  Rule 523.a.(3) specifies that “the maximum penalty for any single violation shall not exceed Ten Thousand dollars ($10,000) regardless of the number of days of such violation,” unless the violation results in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.

11.  Pursuant to Rule 523.a.(1), the Commission has the discretion to find that each day a violation exists constitutes a separate violation.  In assessing the appropriate fine for these violations, treating each day as a separate violation would result in a $700,000 plus penalty for violations that did not result in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.  After considering the circumstances of this case, COGCC Staff and Kinder Morgan agree that a violation period of two days should be used for calculating the penalty.

12.  The COGCC Staff and Kinder Morgan agree to resolve the collective Rule violations in this matter through the assessment of total base fines of One Hundred Forty Six Thousand dollars ($146,000), to be attributed to those wells involved in this AOC as:

13.  The base fines in this matter should be decreased by the mitigating factors set forth in Rule 523.d., which include:

 (1)   Kinder Morgan demonstrated effective and prudent response to the violations;

 (2)   Kinder Morgan cooperated with the Commission by performing an audit to identify and disclose many of those violations set forth herein; and

 (3)   Kinder Morgan has demonstrated a history of compliance with Commission rules, regulations and orders.

 14.  For those Rule violations set forth herein, Kinder Morgan should be ordered to pay a total adjusted fine of Ninety Eight Thousand dollars ($98,000), which takes into consideration a fine reduction of Forty Eight Thousand dollars ($48,000) for mitigating factors.

15. If this matter is not resolved by this AOC, COGCC Staff specifically reserve the right to bring this matter for hearing by the Commission.  Nothing within this proposed AOC should be construed as the COGCC Staff waiving their right to prosecute any violation set forth in this AOC or to present evidence which alters the days of violation set forth in this AOC.

16. Payment of the fine pursuant to this AOC does not relieve the operator from its obligations to complete corrective actions set forth in the NOAV, as may be amended or modified by COGCC Staff.

17.  Kinder Morgan should execute this AOC no later than fourteen (14) days after the date it is executed by COGCC Staff for recommendation to the Commission for expedited approval.  Fines may increase if this matter is not recommended for expedited approval.    

18.  Kinder Morgan, or its successors or assigns, should be required to remain responsible for complying with this AOC, in the event of any subsequent sale of property.

19.  Kinder Morgan agrees to the findings of this AOC only for the purpose of expeditiously resolving the matter without a contested hearing.  Notwithstanding the above, Kinder Morgan does not admit to any of the factual or legal determinations made by the Commission herein, and fully reserves its right to contest same in any future action or proceeding other than a proceeding to enforce this AOC.

                                                                                   ORDER

NOW, THEREFORE, IT IS ORDERED, that Kinder Morgan shall be found in violation of those Rules set forth in Finding No. 12, for its oil and gas operations at the associated wells referenced therein, for those acts alleged in this AOC.

IT IS FURTHER ORDERED, that Kinder Morgan shall be assessed a total adjusted fine of Ninety Eight Thousand dollars ($98,000), for the Rule violations set forth in Finding No. 12, which shall be payable within thirty (30) days of the date the order is approved by the Commission.

IT IS FURTHER ORDERED, that the operator shall execute this Administrative Order by Consent no later than fourteen (14) days after the date it is executed by the COGCC Staff for recommendation of expedited approval by the Commission.  

IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

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.

RECOMMENDED this                  day of____________, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                                                                                                By                                                                            ____ 

                                                                                    Robert A. Willis, Enforcement Officer

Dated at Suite 801

1120 Lincoln St.

Denver, Colorado 80203

                        AGREED TO AND ACCEPTED this _________day of_______________, 2011.

                                    ­­­­­­­­­­­­ KINDER MORGAN CO2 COMPANY LP

                                    By __________________________________________

                                                Signature of Authorized Company Representative

                                    ____________________________________________                                                Print Signatory Name

                                    ____________________________________________

                                                Title

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

                        This cause came on for hearing before the Commission on the 16^th  day of May, 2011, in ___Denver___, Colorado, for the approval of this Administrative Order by Consent.

ENTERED this _25^th day of May, 2011, as of _16^th day of May, 2011.         

                                                                        OIL AND GAS CONSERVATION COMMISSION

                        OF THE STATE OF COLORADO

                        By____________________________________

                                                                                    Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

May 25, 2011