[CITE: DNR v. Midwestern Production Corp., 13 CADDNAR 49 (2012)]
[VOLUME 13, PAGE 49]
Cause #: 11-145G
Caption: DNR v. Midwestern Production Corp.
Administrative Law Judge: Jensen
Attorneys: Boyko (DNR); pro se (Midwestern)
Date: May 20, 2012
FINAL ORDER
[See Editor’s note at end of this document regarding change in the decision’s original format.]
41. The CPA issued to Midwestern with respect to permit numbered 46804 in the amount of $1,250.00 is hereby affirmed.
42. The Permits issued to Midwestern are hereby revoked.
43. Midwestern is ordered under Indiana Code 14-37-13-2 to properly plug the wells and abandon the well sites associated with the Permits and to perform site restoration as required by 312 IAC 16-5-19(q).
44. The Department may elect to plug and abandon the wells associated with the Permits although under Indiana Code § 14-37-13-2(d) Midwestern remains liable for the costs of plugging and abandoning the wells.
45. If the Department elects to plug and abandon the wells associated with the Permits a statutory lien is foreclosed in favor of the Department on the casing and all equipment located on or removed from the well sites authorized by the Permits as well as on the leasehold of the land upon which the wells are located and upon any crude oil stored on the well sites or recovered at the time the wells are abandoned to secure the costs of plugging and abandoning the wells.
46. If the Department elects to plug and abandon the wells associated with the Permits, the Department, its agents, employees, or contractors are authorized to dispose of the casing and all equipment located on or removed from the well sites and any crude oil stored on the well sites or recovered at the time the wells are abandoned. An inventory of the casing and all equipment and any crude oil shall be made, and the salvage or other reasonable market value of the casing, all equipment and any crude oil shall be applied as a credit to offset the actual costs incurred in plugging and abandoning the wells.
47. Pursuant to Indiana Code §14-37-6-1, Midwestern is required to execute and file with the Department a bond of two thousand five hundred dollars ($2,500) for each well or a blanket bond of forty-five thousand dollars ($45,000) for any number of wells in addition to the payment of the required annual well fee.
FINDINGS OF FACT
Procedural Background and Jurisdiction
1. The instant proceeding was commenced by the Department of Natural Resources’ (Department) filing of a Complaint for the Issuance of an Order to Revoke Permits and Require Posting of Bond (Complaint) filed with the Natural Resources Commission (Commission) on August 22, 2011.
2. The Department’s Complaint alleges that Midwestern Production Corporation (“Midwestern”) is the holder of 15 permits, identified by permit numbers 53666, 21705, 50737, 49214, 48911, 46306, 48975, 47381, 46420, 46410, 44504, 45960, 51639, 46804, and 22507 (hereinafter referred to collectively as “the Permits), to drill and operate oil and gas related wells.
3. The Complaint further alleges that a Notice of Violation (“NOV”) was issued to Midwestern in conjunction with each of the Permits on various dates between September 4, 2009 and June 23, 2011 and that a Civil Penalty Assessment (“CPA”) was also issued with respect to Permit numbered 46804.
4. According to the Department’s Complaint, Midwestern has “failed to abate each violation noted or pay the civil penalty assessed, secure an extension of time to abate each violation or request timely administrative review of the NOV or CPA as provided by I.C. 4-21.5-3-6…”
5. The Department is responsible for the regulation of wells for oil and gas purposes through the administration of Indiana Code §§ 14-37 and 312 IAC 16.
6. The instant proceeding is governed procedurally by the Administrative Orders and Procedures Act, Indiana Code §§ 4-21.5 et seq., and administrative rules adopted by the Commission at 312 IAC 3, et seq.
7. The Commission is the “ultimate authority” for the Department relating to substantive matters controlled by Indiana Code §§ 14-37 et seq. and 312 IAC 16 et seq. Indiana Code § 4-21.5-1-15; 312 IAC 3-1-2.
8. The Commission is possessed of jurisdiction over the persons of the parties and the subject matter of this proceeding.
9. The Department has the burden of proof with respect to the allegations contained within its Complaint.
10. A prehearing conference was conducted as scheduled on October 14, 2011, followed by two telephone status conferences on December 15, 2011 and February 22, 2012. An administrative hearing was scheduled and conducted on March 1, 2012.
[VOLUME 13, PAGE 50]
Findings of Fact
11. James Brian AmRhein (“AmRhein”) is an Assistant Director with the Department’s Division of Oil and Gas and in that capacity manages the overall functions of the Division’s Enforcement and Compliance Section. Testimony of AmRhein.
12. The Permits at issue in the instant proceeding are held by Midwestern. Testimony of AmRhein, Claimant’s Exhibits A-1 through A-15[1].
13. With respect to Permits numbered 53666, 21705, 50737, 49214, 48911, 48975, 47381, 46420, 44504 and 45960, the NOVs issued by the Department required as corrective action that Midwestern “[s]ubmit a Quarterly Monitoring Report in accordance with 312 IAC 16-5-18” no later than July 18, 2011. Testimony of AmRhein, Claimant’s Exhibits B-1 through B-10.
14. Midwestern had not, as of March 1, 2012, submitted the required Quarterly Monitoring Reports. Testimony of AmRhein.
15. Midwestern had been issued a CPA with respect to permit numbered 46804, assessing a monetary penalty of $1,250.00 that was due within 30 days of June 11, 2011. Id. and Exhibit B-12a. The CPA has not been paid by Midwestern. Testimony of AmRhein.
16. Douglas Kearby (“Kearby”) , a Department, Division of Oil and Gas Field Inspector, is charged with the responsibility of conducting inspections of wells within his district to ensure compliance with Indiana’s oil and gas regulations.
17. Following an inspection by Kearby, an NOV was issued to Midwestern with respect to permit numbered 51639 requiring that:
The corrective action listed below must be taken by 8/23/2011
Operate, or plug and abandon the well or obtain a temporary abandonment permit for the well per IC 14-37-8.
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.
Claimant’s Exhibit B-11.
18. The only material visible during a re-inspection of the well site associated with permit numbered 51639 conducted on February 27, 2012 was the top of the old casing. The well associated with this site is not operable and would require “substantial work” to be made operable. The required corrective action had not been taken by Midwestern. Testimony of Kearby, Claimant’s Exhibit C.
19. The NOV issued by the Department with respect to permit numbered 46804 following an inspection by Kearby on September 2, 2009 required:
The corrective action listed below must be taken by 11/4/2009:
Operate, or plug and abandon the well or obtain a temporary abandonment permit for the well per IC 14-37-8.
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 material from all well operations and facilities as per 312 IAC 16-5-11.
Claimant’s Exhibit B-12.
20. Kearby re-inspected the well site associated with permit numbered 46804 on February 27, 2012. Kearby explained that the well had previously not been equipped with a pumping unit and expressed that Midwestern had done work with this site noting the existence of a pumping unit and the appearance that all the lines were connected. Kearby observed that electric wiring was connected to the motor but noted his inability to ascertain whether it was “connected to a source wire.” Kearby also noted that the polish rod was rusty, which indicates that this well had not been operated recently. Further, Kearby observed that there was no lease ID at the site.
21. While it appears possible that the well authorized by permit numbered 46804 may be operational or nearly restored to an operational condition, it is reasonable to infer from the evidence that the well had not, as of February 27, 2012, been operating despite the requirement that Midwestern complete its corrective action by November 4, 2009. In any event the required signage had not been installed. The NOV associated with permit numbered 46804 has not been abated as required.
22. An NOV was issued in association with permit numbered 46306 on September 4, 2009 requiring Midwestern to take the following corrective action by November 4, 2009:
Operate, or plug and abandon the well or obtain a temporary abandonment permit for the well per IC 14-37-8
Remove all vegetation and inflammable materials from all well operations and facilities as per 312 IAC 16-5-11.
Claimant’s Exhibit B-13.
[VOLUME 13, PAGE 51]
23. Kearby also re-inspected the well associated with permit numbered 46306 on February 27, 2012 and discovered that a pumping unit had been connected to the well; however the electric necessary to operate the pump was not connected to a source of electricity. . Furthermore, Kearby noted during the inspection that the polish rod was “extremely loose” and when moved the entire wellhead also moves “indicating that there might not be any down hole equipment in the well” and that the pumping tee is simply sitting over the casing. Testimony of Kearby, Claimant’s Exhibit E.
24. Kearby’s inspection revealed that the violation as it related to the removal of vegetative material had been addressed but concluded that the well associated with permit numbered 46306 could not be operated in the condition he observed on February 27, 2012 and therefore the NOV had not been entirely addressed. Testimony of Kearby.
25. The NOV issued for permit numbered 46410 on September 4, 2009 required Midwestern to:
Remove equipment and debris from the well site and perform cleanup operations as needed per 312 IAC 16-5-11.
Operate, or plug and abandon the well or obtain a temporary abandonment permit for the well per IC 14-37-8.
The corrective action was required to be completed by November 4, 2009. Claimant’s Exhibit B-14.
26. The re-inspection of the well site associated with permit numbered 46410, which was conducted by Kearby on February 27, 2012, revealed that the equipment and debris had been removed but confirmed that the well was not operational. Kearby testified that while equipment was present at the well site, the pump motor was not bolted down to the pumping unit and was not connected to a source of electricity. Kearby also noted that the polish rod was loose indicating that it may not have been connected to any “down hole” equipment. Testimony of Kearby, Claimant’s Exhibit F. Again, the corrective action required by the NOV had not been completed by Midwestern.
27. Permit numbered 22507 was the subject of an NOV issued on June 23, 2011 that obligated Midwestern to take the following corrective actions by August 23, 2011:
Operate, or plug and abandon the well or obtain a temporary abandonment permit for the well per IC 14-37-8.
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 equipment and debris from the well site and perform cleanup operations as needed per 312 IAC 16-5-11.
Claimant’s Exhibit B-15.
28. Kearby’s re-inspection of the well site associated with permit numbered 22507 revealed that no work had been done at the site and the violations had not been addressed by Midwestern. Testimony of Kearby, Claimant’s Exhibit G.
29. Michael Bryan (“Bryan”), who is the President of Midwestern, testified that the leases associated with permits 22507 and 51639 belong to Ray Robertson and he is personally prepared to transfer those permits to Robertson. However, because of pending civil litigation Midwestern has been prohibited from transferring the permits without the consent of a Midwestern shareholder who owns 1/3 the company shares and who refuses to cooperate with Bryan. Bryan indicated his intention to file a motion seeking a court order allowing the transfer of the permits “this week”. Testimony of Bryan.
30. The NOVs associated with permits 22507 and 51639 were issued on June 23, 2011 and it is clear from Bryan’s stated intent to file a motion “this week” seeking court authority to transfer those permits that no effort was made in the eight months between issuance of the NOVs and the administrative hearing to facilitate the transfer of those permits.
31. Bryan did not address the permits for which Midwestern had failed to submit Quarterly Monitoring Reports but offered insight with respect to the remaining permits, numbered 46804, 46306 and 46410[2]. Bryan testified that although he “didn’t do a real good job on any of it” they should be able to operate. Bryan explained that the wells have not been operated because they would not produce oil in the zones they are in. Bryan advised that it was Midwestern’s intention to open additional zones, which would require the removal of the present equipment and replacement in a different way. Bryan expressed a desire not to spend too much time or money on these wells until the additional zones are opened. Id.
32. It is observed that the NOVs associated with permits numbered 46804, 46306 and 46410 were issued on September 4, 2009 and that Midwestern has been provided 30 months within which to bring these wells into an operational condition and open additional zones, if that was Midwestern’s intent.
Conclusions of Law
33. In this proceeding the Department bears the burden of going forward and the burden of persuasion, commonly referred to as the burden of proof, with respect to its claims for revocation of the subject permits. Department of Natural Resources v. Molden, 11 CADDNAR 1 (2007).
34. As a person to whom the Permits were issued, Midwestern is an “operator” of the corresponding wells. 312 IAC 16-1-38. As 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 his benefit, and potentially for the benefit of others, Midwestern is also an “owner” of the wells associated with the subject permits. 312 IAC 16-1-39.
[VOLUME 13, PAGE 52]
35. The Department issued NOVs associated with the Permits to Midwestern for violations of Indiana Code §§ 14-37 et seq. and portions of 312 IAC 16 et seq. as authorized by Indiana Code § 14-37-12-2.
36. The evidence that Midwestern has failed to submit the Quarterly Monitoring Reports associated with permits numbered 53666, 21705, 50737, 49214, 48911, 48975, 47381, 46420, 44504 and 45960 is not refuted. The evidence is also clear that the required corrective actions specified in the NOVs associated with permits numbered 51639, 46306, 46410, 46804 and 22507 have also not been entirely completed by Midwestern within the specified time.
37. Under the circumstances that the noncompliant conditions specified in the NOVs were not corrected within the time specified the Department is empowered to issue the CPA with respect to permit numbered 46804. Indiana Code § 14-37-13-3, Indiana Code § 14-37-12-5 and 312 IAC 16-5-21(c).
38. The Department may, as it has done through the filing of the Complaint herein, seek revocation of the permits where the owner or operator has been issued an NOV and has failed to either:
….(A) abate the violation within the prescribed period.
(B) Secure in writing from the division an extension of time in which to abate the violation before the expiration of the period established for abatement.
(C) Request a proceeding under IC 4-21.5-3-6 within:
(i) thirty (30) days after receipt of the notification; or
(ii) the period provided by the division for abatement;
whichever is longer.
Indiana Code § 14-37-13-1(5), see also 312 IAC 16-3-9(a)(6).
39. There is no evidence that Midwestern sought administrative review of the NOVs under Indiana Code § 4-21.5-3-6 and Midwestern has not abated the violations set forth in the NOVs issued in conjunction with the Permits despite having ample time to do so. Midwestern has not paid the amounts assessed in the issued CPAs with respect to permits numbered 46804.
40. The Department is justified in seeking revocation of the Permits and the imposition of a requirement that Midwestern post bond.
[EDITOR’S NOTE: The original format of the Administrative Law Judge’s Findings of Fact, Conclusions of Law, and Final Order has been modified to correspond with CADDNAR format. The Final Order, Paragraphs 41 through 47, have been relocated to the “Final Order” section at the beginning of this document.]
[1] The parties stipulated to the admissibility of the Exhibits attached to the Department’s Complaint as exhibits numbered A-1 through A15 and B1 through B15. The identification of these exhibits was maintained for purposes of the administrative hearing.
[2] Bryan described the remaining wells as four wells with “operate, plug or abandon” violations when, in fact, not including permits numbered 22507 and 51639, there remain only three such permits at issue in this proceeding.