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

E.J. Muir Unit #1 Well

1.    On May 16, 1969, Chemco, Inc. (Operator No. 16520) (“Chemco”) spud the E.J. Muir Unit #1 Well (API No. 05-061-06060), which is located in the NE¼ SW¼ of Section 35, Township 18 South, Range 45 West, 6^th P.M.

2.    On September 15, 2003, Chemco plugged and abandoned the E.J. Muir Unit #1 Well as uneconomic.  

3.    On June 29, 2010, Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”) Staff inspected the E.J. Muir Unit #1 Well site and found that the areas impacted by drilling and subsequent operations of the well had not been reclaimed.

4.    On July 2, 2010, COGCC Staff issued a Notice of Alleged Violation (“NOAV”) #200258844 to Chemco for its operations at the E.J. Muir Unit #1 Well.  Said NOAV cited a violation for the following rule:

a.    Rule 1004.a., which requires an operator, upon the plugging and abandonment of a well, to backfill all pits, mouse and rat holes and cellars, remove all debris, abandoned gathering line risers and flowline risers, and surface equipment within 3 months of plugging.  Further, an operator is to close, grade and recontour all access roads to plugged and abandoned wells, and remove all culverts and any other obstructions that were part of any access road.  As applicable, compaction alleviation, restoration, and revegetation of well sites, associated production facilities, and access roads shall be performed to the same standards as established for interim reclamation under Rule 1003.  An operator shall remove all other equipment, supplies, weeds, rubbish, and other waste material, the burning or burial of such material on the premises shall be performed in accordance with applicable local, state, or federal solid waste disposal regulations and in accordance with the 900-Series Rules and with prior written consent of the surface owner.  All such reclamation work shall be completed within 3 months on crop land and 12 months on non-crop land after plugging a well or final closure of associated production facilities, without an extension granted by the Director where unusual circumstances are encountered.  

Said NOAV required Chemco to reclaim the location by September 2, 2010.

5.      As of the date of this Administrative Order by Consent (“AOC”), Chemco has not successfully reclaim the location, however, it has recently taken steps to re-evaluate the reclamation and has assured the COGCC Staff that it will correct the situation within a mutually acceptable period of time.

6.    Rule 523. Specifies a base fine of One Thousand dollars ($1,000) for each day of violation of Rule 1004.a.  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. 

7.    Chemco should be found in violation of Rule 1004.a. because it failed to adequately reclaim the well site and access road associated with the E.J. Muir Unit #1 Well after

the well was plugged and abandoned.  The COGCC Staff have calculated a base fine of Ten Thousand dollars ($10,000) for the violation of Rule 1004.a.

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T-Wear #1 Well

8.    On or about May 21, 1972, Inexco Oil Company spud the Plunkett #1 Well (API No. 05-061-06136), which is located in the NW¼ SW¼ of Section 13, Township 18 South, Range 45 West, 6^th P.M., and subsequently drilled and abandoned the well.  On or about April 27, 1984, Cimmaron Oil & Gas Company, Inc. reentered the Plunkett #1 Well (n.k.a. the T-Wear #1 Well), recompleted it, and placed the well on production.  Subsequently, Chemco became the operator of said well, which continues to produce gas from the Morrow Formation.

9.    On June 29, 2010, COGCC Staff inspected the T-Wear #1 Well site and found that the areas impacted by drilling and subsequent operations of the well had not been reclaimed on an interim basis, and found oil saturated soils on location.

10.  On July 2, 2010, COGCC Staff issued NOAV #200258859 to Chemco for its operations at the T-Wear #1 Well.  Said NOAV cited violations for the following rules:

a.    Rule 1003.a., which requires an operator to remove debris and waste materials associated with the drilling, re-entry, or completion operations of a well.

Said NOAV required Chemco to remove all debris, waste and excess materials from the T-Wear #1 Well site, reclaim all areas no longer in use associated with the well site, by September 1, 2010.

11.  As of the date of this AOC, Chemco has satisfactorily gained compliance with Rule 1003.a. at the T-Wear #1 Well and, based on that compliance, the COGCC Staff will close NOAV #200258859 and conclude enforcement on the matter without assessment of any fine.

#     #     #

12.  The COGCC Staff and Chemco agree to resolve the enforcement action pending at the E.J. Muir Unit #1 Well through the assessment of an adjusted fine of One Thousand dollars ($1,000).

13.  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.

14. 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.

15.  Chemco 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.    

16.  Chemco, 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.

17.  Chemco agrees to the findings of this AOC only for the purpose of expeditiously resolving the matter without a contested hearing.  Notwithstanding the above, Chemco 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 Chemco shall be found in violation of Rule 1004.a., for oil and gas operations at the E.J. Muir Unit #1 Well, which is located in the NE¼ SW¼ of Section 35, Township 18 South, Range 45 West, 6^th P.M., for those acts alleged in this AOC.

IT IS FURTHER ORDERED, that Chemco, Inc. shall be assessed a total fine of One Thousand dollars ($1,000) for the Rule violation set forth above, which shall be payable within thirty (30) days of the date the order is approved by the Commission.

IT IS FURTHER ORDERED, that this AOC does not relieve the operator from undertaking and completing abatement or corrective actions that may be required by the NOAV described in Finding No. 4, above, or any amendments or modifications thereto specified by the COGCC Staff.

IT IS FURTHER ORDERED, that the operator shall execute this AOC 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

August 31, 2011

AGREED TO AND ACCEPTED this _________day of_______________, 2011.

                                    ­­­­­­­­­­­­ CHEMCO, INC.

                                    By __________________________________________

                                                Signature of Authorized Company Representative

                                    ____________________________________________                                                Print Signatory Name

                                    ____________________________________________

                                                Title