[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
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
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.
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
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
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 (
[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
23. Fire prevention is
specifically addressed today in
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
[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
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
[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:
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
[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”.