CADDNAR


[CITE: Young Oil v. DNR and Soames, 12 CADDNAR 30 (2009)]

 

[VOLUME 12, PAGE 30]

 

Cause #: 07-191G

Caption: Young Oil v. DNR and Soames

Administrative Law Judge: Lucas

Attorneys: Price (Young Oil); Boyko (DNR); Albright (Soames)

Date: April 9, 2009

 

 

[note: on May 1, 2009, respondent soames filed for judicial review in the marion environmental court (cause no. 49f12-0905-mi-0717. On October 1, 2009, Marion Environmental Court entered Judgment. On October 23, 2009, Soames sought appeal (49 A 05 0912 CV 00726). ON AUGUST 6, 2010, APPEALS COURT ENTERED MEMORANDUM DECISION -- NFP. ON SEPTEMBER 23, 2010, THE COURT ORDERED THE AUGUST 6, 2010 MEMORANDUM DECISION TO BE PUBLISHED. SEE Soames v. Indiana Department of Natural Resources, 934 N.E.2D 1154 (Ind.App. 2010).]

 

Final Order

 

(1) Thomas A. Young, individually, or through an agent or employee as he reasonably selects, is ordered by June 30, 2009 to properly plug and abandon under IC 14-37 and 312 IAC 16 each of the following wells located in Miami County, Indiana:

 

A. Soames Well Number 2A permitted by the Department of Natural Resources, Division of Oil and Gas to Young Oil as Permit Number 49219.

 

B. Soames Well Number A permitted by the Department of Natural Resources, Division of Oil and Gas to Young Oil as Permit Number 49220.

 

C. Soames Well Number 1 permitted by the Department of Natural Resources, Division of Oil and Gas to Young Oil as Permit Number 49221.

 

(2) Thomas A. Young is ordered not to remove any equipment, which is associated with the wells described in Item (1), from the real estate of Cynthia Soames.  Thomas Young shall remove the equipment from the immediate proximity of the wells as directed by the Department of Natural Resources.  Cynthia Soames may identify reasonable conditions for location of the equipment on her real estate so as to minimize the likelihood of posing a hazard to health or safety and so as to conserve the value of the equipment.

 

(3) Cynthia E. Soames is ordered not to interfere with entry by Thomas A. Young, or an agent or employee of Thomas A. Young, upon her real estate for conducting the activities described in Item (1).  If Soames does not comply with this order, the Department of Natural Resources may initiate action to require Soames to perform plugging and abandonment at her own expense and may also initiate action for the assessment of civil penalties against her under IC 14-37-13-3.

 

 

FINDINGS OF FACT AND CONCLUSIONS OF LAW

 

A. Statement of the Case and Jurisdiction

 

[VOLUME 12, PAGE 31]

 

1. On August 16, 2007, the Indiana Department of Natural Resources (the “DNR”), through its Division of Oil and Gas, issued notices of violation against Thomas A. Young, doing business as Young Oil Co.[1], with respect to the operation of three wells for oil and gas purposes located in Section 28, Township 27 North, Range 4 East in Miami County, Indiana.  The three notices of violation are collectively referred to as the “NOVs”, and the three wells are collectively referred to as the “subject wells”.

 

2. The subject wells more particularly consist of the following:

 

A. Soames Well Number 2A permitted by the Division of Oil and Gas to Young Oil as Permit Number 49219 (“Well 2A”).

B. Soames Well Number A permitted by the Division of Oil and Gas to Young Oil as Permit Number 49220 (“Well A”).

C. Soames Well Number 1 permitted by the Division of Oil and Gas to Young Oil as Permit Number 49221 (“Well 1”).

 

3. The DNR is the state agency responsible for administration of IC 14-37 which governs the permitting, bonding, maintenance, sanctioning violations, and closure of wells for oil and gas purposes.  In assisting with the performance of the agency responsibilities, the Natural Resources Commission (the “Commission”) has adopted rules at 312 IAC 16.

 

4. “Well for oil and gas purposes” is defined at 312 IAC 16-1-51 to mean “a hole drilled, deepened, or converted for any purposes for which a permit is required under IC 14-37 and the rules adopted under [312 IAC 16], including the following:”

 

(1) An oil or natural gas well.

(2) A Class II well under the underground injection control program promulgated under Part C of the Safe Drinking Water

Act (Public Law 95-523, as amended by Public Law 96-502, 42 U.S.C. 300f et seq.) and under 40 CFR 124, 40 CFR 144, 40 CFR 145, and 40 CFR 146.

(3) A structure test well.

(4) A well used for the sole purpose of supplying water for the secondary recovery of petroleum resources.

(5) An underground gas storage well or underground gas storage observation well.

 

5.  The NOV for Well 2A indicates the Division of Oil and Gas performed an inspection on August 15, 2007.  The NOV for Well A and the NOV for Well 1 indicate the Division of Oil and Gas performed an inspection on August 16, 2007.  Each of the subject wells was found to be in noncompliance with IC 14-37 and 312 IAC 16, and the NOVs all required Young Oil to take the following corrective action by October 16, 2007:

 

[VOLUME 12, PAGE 32]

 

Operate, or plug and abandon, or obtain a temporary abandonment permit for the well per 312 IAC 16-5-20.  NOTE: A pressure test [is] required prior to obtaining a temporary abandonment permit.

 

Post well and lease identification showing the Permit Number, Lease Name, Section, Township and Range per 312 IAC 16-5-10.  NOTE: This identification must be readable from 20 feet.

 

Remove all vegetation and inflammable materials from all well operations and facilities as per 312 IAC 16-5-11.

 

To request an extension to the correction action date of October 16, 2007, “for further information concerning the corrective action needed, or to report completion of the required corrective action,” the NOVs directed Young Oil to contact John White, an Inspector for the Division of Oil and Gas.  Stipulated Exhibit 1 through Stipulated Exhibit 3.

 

6. The NOVs also set forth the process by which Young Oil could take administrative review and reflected a request for administrative review must be made to the Commission by September 15, 2007.  The Commission is the “ultimate authority” for notices by the DNR which allege violations of IC 14-37 or 312 IAC 16.  IC 14-10-2-3 and IC 14-37-12-3.

 

7. A notice of violation issued under IC 14-37 and 312 IAC 16 is governed by IC 14-37-12-3.  The NOVs satisfied the requirements of IC 14-37-12-3.

 

8. On September 10, 2007, Young Oil filed correspondence with the Commission in which it sought timely administrative review of the NOVs.

 

9. A notice of violation issued for the operation of a well for oil and gas purposes is subject to IC 4-21.5-3-6.  If the recipient of a notice of violation issued under IC 4-21.5-3-6 timely files a request for administrative review, the agency has the burden of going forward and the burden of persuasion (sometimes collectively referred to as the “burden of proof”) with respect to the notice of violation.  Peabody Coal Co. v. Indiana Dept. of Natural Resources, 606 N.E.2d 1306 (Ind. 1992).

 

10. The DNR has the burden of proof with respect to each of the NOVs.

 

11. The Commission has jurisdiction over the subject matter and over the persons of Young Oil and the DNR.

 

B. Addition of Soames as a Party

 

[VOLUME 12, PAGE 33]

 

12. On November 26, 2007, Young Oil filed its “Motion to Join Indispensable Party” directed to Cynthia E. Soames (“Soames”).  The administrative law judge made an “Entry Providing Opportunity to Respond to Motion to Join Cynthia E. Soames as an Indispensable Party” on November 28, 2007 in which Soames and the DNR were provided until December 19 to respond.  On December 11, 2007, Soames filed her “Motion for Extension of Time of Thirty (30) Days to Respond to Motion to Join Allegedly Indispensable Party”.  An “Order Granting Motion for Extension of Time of Thirty Days to Respond to Motion to Join Allegedly Indispensable Party” was entered on December 13, 2007 by which Soames and the DNR were granted until January 18, 2008 in which to respond to Young Oil’s motion to join Soames.  The “Response of Cynthia Soames to Motion to Join Allegedly Indispensable Party” was filed on January 18, 2008.  On January 23, 2008, the administrative law judge made an “Entry Providing Opportunity to Reply to Response of Cynthia Soames to Motion to Join Allegedly Indispensable Party”.  On January 25, 2008, the “Reply of Young Oil Company to the Response of Cynthia Soames” was filed.  On February 7, 2008, the “Respondent DNR’s Reply to the Response of Cynthia Soames” was filed.  Each of these pleadings or documents is incorporated by reference.  In these pleadings or documents, Young Oil and the DNR supported joining Soames as a party, and Soames objected to being joined.

 

13. On February 7, 2008, the administrative law judge made an “Order Adding Cynthia Soames as Third Party Respondent”.  Soames had contested the timeliness of the request of administrative review by Young Oil, but consistently with Finding 7, the administrative law judge determined the request was timely.  In addition, the administrative law judge concluded in substance:

 

(A) Through IC 14-37 and 312 IAC 16, the DNR regulates the “drilling, casing, operating, plugging, and abandoning” of wells for oil and gas purposes to prevent waste, fresh water pollution, blowouts, cavings, seepages, fires, and unreasonable detrimental effects upon fish, wildlife, and botanical resources.  IC 14-37-3-5 and IC 14-37-3-15.  This regulation is part of a broader legislative mandate for the management of oil and gas production in IC 14-37.

 

(B) Soames outlined in her documents a history of litigation between Young Oil and herself, to which the DNR was not a party, and which was not directed to implementation of IC 14-37 and 312 IAC 16.  The litigation appeared to have little bearing on this proceeding except as it might tend to identify who was the “owner” or the “operator” of the subject wells.  312 IAC 16-1-38 and 312 IAC 16-1-39.  If either the “owner” or the “operator” was Young Oil, the DNR must have the ability to secure compliance with IC 14-37 and 312 IAC 16 from Young Oil.  If Soames was either the “owner” or the “operator”, the DNR must have the ability to secure compliance with IC 14-37 and 312 IAC 16 from Soames.  The administrative law judge acknowledged that the NOVs alleged but did not establish violations.  The administrative law judge concluded that if the evidence established a violation or violations, either Soames must achieve compliance or she must cooperate in actions by Young Oil to achieve compliance.  Either way, Soames was an indispensable party.

 

[VOLUME 12, PAGE 34]

 

14. The conclusion in Finding 13 should properly be and is affirmed.  Soames is an indispensable party to this proceeding.  In addition to Young Oil and the DNR, the Commission has jurisdiction over the person of Soames.

 

C. Stipulations of Fact

 

15. A hearing was conducted as scheduled on October 29, 2008 in Peru, Indiana.  During the hearing, the parties orally stipulated to facts which are memorialized in Finding 16 through Finding 20.

 

16. At all times here relevant, Thomas Young, d/b/a, Young Oil Company, had entered into an oil and gas lease with Cynthia Soames.  This lease is now terminated by Order of the Miami Circuit Court in 2005 and the Indiana Court of Appeals in 2006.  The time for appeal from that determination has passed.

 

17. In conjunction with the oil and gas lease referenced in Finding 16, Young Oil Company was issued DNR permits 49219, 49220, and 49221 with regard to the Soames real estate located in Miami County, Indiana.

 

18. On or about August 16, 2007, the DNR by its Division of Oil and Gas issued notices of violation to the Claimant with regard to permit numbers 49219, 49220, and 49221 (the “NOVs”).  True copies of the NOVs are attached to and incorporated into this stipulation of facts as Exhibits 1 through 3.  The NOVs are the subject of this administrative proceeding.

 

19. Soames was at all times relevant the owner of the real estate referenced in the NOVs.

 

20. Young Oil has offered to cap or plug the subject wells, which are the subject of the NOVs, as per DNR rules.  Soames has refused Young Oil permission to come upon her real estate in order to cap those wells with threat of arrest.

 

D. Fire Hazard Prevention

 

21. “Regulation of the oil and gas industry has been justified on the theory that many phases of it are affected with a public interest.”  8 Am. Jur. 2d, Gas and Oil § 74 (1999).  Enactments for the conservation of oil and gas are public in nature, and the state regulatory agency has the authority and responsibility to protect the public interest in orderly development and production of resources.  Harding & Shelton, Inc. v. Sundown Energy, Inc., 130 P.3rd 776 (Okla. 2006).  In construing an early statute directed to the oil and gas industry, the Indiana Supreme Court observed its main object was public safety, rather than the prevention of waste.  Given v. State, 160 Ind. 552, 66 N.E. 750 (Ind. 1903). 

 

[VOLUME 12, PAGE 35]

 

22. Essential to these public interests, and particularly to public safety, is the need to avert fires and explosions.  Fire prevention is well established as a primary purpose for the regulation of oil and gas production in Indiana.  Jamieson v. Indiana Natural Gas and Oil Co., 128 Ind. 555, 28 N.E. 76 (Ind. 1891). 

 

23. Fire prevention is specifically addressed today in Indiana at 312 IAC 16-5-11.  This rule section provides:

 

   Sec. 11. (a) To prevent fire hazards, all waste oil, cut oil, bottom sediments, and tank bottoms shall be collected in burn off pits located a safe distance from any oil well, oil storage tank, building, or other structure and shall be burned as necessary to prevent overflowing. Before any burn off pit is constructed, the owner or operator shall file an application with the division on a division form. Waste oil in tank bottoms shall be conveyed from storage tanks to pits in such a manner as to not create a fire hazard. Pits shall be constructed to prevent the escape of oil and of sufficient height to prevent surface water from entering the pit. No pits shall be constructed where the soil is porous and closely underlaid by either gravel or sand strata. These pits shall not be used to collect production brine. The burn off pits and their walls shall be kept free of vegetation.

   (b) All lease and storage tanks shall be surrounded by an impermeable dike that has a capacity of one and one-half (1˝) times that of the tank or tanks it surrounds. The dike and the area within the dike shall be maintained free from vegetation, fluids, and inflammable materials. The dike shall not be breached.

   (c) All well, tank, oil heating or treating installation, and booster pump locations shall be kept free from vegetation and inflammable material.

   (d) All gas produced in the operation of oil wells that is not utilized shall not be burned closer than what is a reasonable safe distance from a well, storage tank, or building.

 

24. 312 IAC 16-5-11 is a recodification of the Commission’s prior rule at 310 IAC 7-1-37 which had formerly addressed the prevention of fire hazards.  Notices of violation have been affirmed, under this rule section, where an operator allowed excessive vegetation close enough to a well for oil and gas purposes that the vegetation posed a fire hazard.  Integrity Energy Systems, Inc. v. Department of Natural Resources, 7 Caddnar 30 (1994).  To similar effect is DNR v. Meteor Developments and Ringel Farms, 7 Caddnar 63 (1994) authorizing the foreclosure of a lien against an operator that failed to address a fire hazard at the well site. 

 

25. Johnny D. White is an experienced inspector for the DNR’s Division of Oil and Gas.  He has a Bachelor of Science degree in environmental science and has been employed by the Division of Oil and Gas as an inspector since 1993.  White testified his employment responsibilities include “upholding”[2] the statutes and rules pertaining to oil and gas production.  His territory is the northern half of Indiana.

 

[VOLUME 12, PAGE 36]

 

26. White testified when a well is not being operated there is “always some contention of an environmental hazard because no one is going out there on a day-to-day basis to check” the well.  He added that “as of right now, I don’t believe there is a lot of environmental harm.”

 

27. White also testified “if weeds are allowed to grow next to a large tank of oil, and there is a brush fire of some sort, the tanks are likely to catch fire.”  He added that a “firewall”[3] is “a containment dike that is built around tanks of oil in case there is a leak in one of the tanks.  It will maintain the oil inside that firewall”.  Weeds growing within a firewall can weaken the integrity of structures at a well site.

 

28. Although he was unable to identify the exact date of issuance, White testified notices of noncompliance were directed in 2006 to Young Oil in 2006 providing that, within 30 days, Young Oil was to cut weeds surrounding each of the subject wells.  He testified 30 days was a reasonable timeframe to cut the weeds.  Because the weeds were not cut, the NOVs required that “all vegetation and inflammable materials” be removed as required by 312 IAC 16-5-11.

 

29. White’s testimony as described in Finding 25 through Finding 28 is not disputed and is found to be factual.  Nothing in the evidence supports a finding that any person has since 2006 cut the weeds surrounding the subject wells or from their firewalls.  There is no basis for determining the site conditions have improved in the more than two years since the notices of noncompliance were directed to Young Oil.  A reasonable inference is that they may have deteriorated.

 

30. The continued existence of uncut weeds at each of the subject wells poses a direct fire hazard and additionally jeopardizes the integrity of the firewalls.  These are at the core of concerns which Indiana oil and gas laws, enacted beginning in the 19th Century, were intended to address.  Uncut weeds near a well or on a firewall continue to be major concerns under current laws.  The continued existence of uncut weeds at the subject wells forms an ample and proper basis for the issuance of each of the NOVs.

 

E. Plugging and Abandonment

 

31. As stated in Jarvis Drilling v. Midwest Oil Producing, 626 N.E.2d 821, 827 (Ind. App. 1993), transfer denied April 25, 1994:

 

In Indiana, an owner or operator of a well has the duty to plug an abandoned well in compliance with DNR regulations when the conditions of IC 13-8-10-1 are present.  Transfer [of a DNR permit] to a third person does not extinguish that obligation.

 

[VOLUME 12, PAGE 37]

 

32. IC 13-8-10-1 was recodified as IC 14-37-8-1 in 1995.  P.L.1-1995, SEC. 30.  As stated in pertinent part in subsection (a), this section now provides:

 

   Sec. 1. (a) An owner or operator shall plug and abandon a well that:
        (1) is completed as a nonproductive well;
        (2) ceases to produce oil or natural gas; or
        (3) is no longer operated for the purpose for which the well is permitted;
unless the owner or operator is authorized to delay the plugging and abandonment of the well under” IC 14-37-8-8.

 

33. An “owner” is a “person who has the right to drill into and produce from a pool and to appropriate the oil and gas produced from the pool for:

            (1) the person or others; or

            (2) the person and others.”  312 IAC 16-1-39.

 

34. As a consequence of the lease from Soames to Young Oil, which was referenced in Finding 16, Young Oil became an “owner” of each of the subject wells.  When the Miami Circuit Court terminated the lease in 2005, Young Oil ceased to be an “owner”, and Soames resumed her status as “owner” of the subject wells. 

 

35. An “operator” is a person (1) issued a permit under 312 IAC 16; or, (2) engaged in an activity for which a permit is required under 312 IAC 16.  312 IAC 16-1-38.  The DNR issued permits to Young Oil under 312 IAC 16 for each of the subject wells.  Young Oil is an operator for each of the subject wells. 

 

36. None of the subject wells are producing oil or natural gas under IC 14-37-8-1(a)(2).  None of the subject wells are being operated for the purpose for which they were permitted under IC 14-37-8-1(a)(3).  Subsection (a)(2) and subsection (a)(3), each, standing alone, form a legal basis upon which the owner or operator could be required to plug and abandon the wells “unless the owner or operator is authorized to delay the plugging and abandonment”. 

 

37. The corrective action demanded by the DNR for each of the subject wells was for Young Oil to operate, to plug and abandon, or to obtain a temporary abandonment permit.  Because its lease had been terminated and Young Oil had ceased to be an owner as referenced in Finding 34, Young Oil was prospectively precluded from either operating the subject wells or seeking their temporary abandonment.  As an operator, however, Young Oil has a statutory duty to properly plug and abandon the subject wells.  Even if Young Oil were not precluded from performing temporary abandonment, Soames could not require that Young Oil seek or the DNR grant a temporary abandonment permit.  

 

[VOLUME 12, PAGE 38]

 

38. Because Soames had resumed her status as owner of the subject wells, she could have applied for permits to operate the subject wells for oil and gas purposes in accordance with IC 14-37 and 312 IAC 16.  Securing permits would have provided her with the opportunity for their operation, or, upon compliance with 312 IAC 16-5-20, for their placement in temporary abandonment.  Although a somewhat novel implementation of IC 14-37 and 312 IAC 16, she might arguably have been entitled to obtain temporary abandonment status under 312 IAC 16-5-20 without permitting the subject wells.  In any event, Soames has not applied to permit the subject wells nor has she caused the testing requisite for their temporary abandonment.  As an owner, Soames has a statutory duty to properly plug and abandon the subject wells.

 

39. Both Soames (as owner) and Young Oil (as operator) have the legal duty to properly plug and abandon the subject wells.

 

40. In the NOVs, the DNR has sought sanctions to impose the duty upon Young Oil but not upon Soames.  “Exemptions from AOPA set forth under IC 4-21.5-2-5(8) through IC 4-2.5-2-5(10) indicate administrative review is unavailable from agency determinations to issue or not to issue sanctions or to perform or not to perform inspections.  These are matters of prosecutorial discretion.” Adochio, et al. v. Kranz, et al. (Stay), 11 Caddnar 396, 397 (2008).  The Commission lacks jurisdiction to mandate that the DNR require both Young Oil and Soames to plug and abandon the subject wells.  Even if there were jurisdiction, the legislative design of IC 14-37 is suited to seeking relief primarily from the “operator” and only secondarily from the “owner” of a well.

 

41. If more than one party has a legal duty to plug a well, the parties may determine among themselves who shall bear the expense.  The obligation to plug a well arises when the conditions of IC 14-37-8-1 are present, not when the DNR orders a party to do so.  Jarvis Drilling at pp. 827 and 828.

 

42. Soames and Young Oil have no agreement concerning who bears the expense for plugging and abandoning the subject wells.  The DNR has directed the NOVs exclusively to Young Oil.  As a consequence, Young Oil would bear the entirety of the expense.  As the owner, Soames is entitled to any equipment from the subject wells.

 

43. Soames has refused entry to Young Oil to the sites of the subject wells and has additionally sought to limit Young Oil’s agents to the performance of temporary abandonment rather than plugging and abandonment.  Soames has no legal authority to preclude the DNR or the Commission from exercise of the police powers against Young Oil as reasonably required to achieve conformance with IC 14-37 and 312 IAC 16.  Soames must not interfere with the performance by Young Oil of proper plugging and abandonment of the subject wells.  Soames may, at her own expense, select an Indiana licensed professional geologist (or another qualified professional approved by the DNR) to observe and record the plugging and abandonment of the subject wells.

 

[VOLUME 12, PAGE 39]

 

44. If Soames persists in interfering with reasonable efforts by Young Oil to perform plugging and abandonment of the subject wells, the DNR may initiate action to require Soames to perform plugging and abandonment at her own expenses and for the assessment of civil penalties against her under IC 14-37-13-3. 

 

45. Plugging and abandonment of the subject wells must properly be completed by Young Oil, through Thomas A. Young or through an agent or employee of Thomas A. Young, not later than June 30, 2009.



[1] During the hearing conducted on October 29, 2008, Thomas A. Young testified “Young Oil Co.” is now a corporation licensed by the Indiana Secretary of State.  On December 15, 2008, Young filed a “Motion to Supplement Record” regarding the legal status of Young Oil Co.  Following an opportunity for briefing in which Cynthia E. Soames filed a “Response to Motion to Supplement Record”, an “Order Denying Motion to Supplement Record” was entered on December 16, 2008.  Reference in this Order to “Young Oil” is intended to apply to the entity as a sole proprietorship of Thomas A. Young.

[2] The court reporter has not been requested to prepare a transcript of testimony at hearing.  If a witness is shown as being quoted in these findings, the statement is as nearly verbatim as could be determined by the administrative law judge.  If a transcript is subsequently prepared that indicates different wording, the transcript shall be considered the official record and a quotation as paraphrasing of witness testimony.

[3] The term “impermeable dike” in 312 IAC 16-5-11(b) is equivalent to the term “firewall”.