Brookston Resources, Inc. v. DNR, 16 CADDNAR 10
Administrative Cause Number: 20-052G
Administrative Law Judge: Elizabeth Gamboa
Petitioner Counsel: William Illingworth
Respondent Counsel: Ihor Boyko
Date: October 6, 2022
[Editor’s Note: Final Order follows Findings of Fact and Conclusions of Law.]
FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH FINAL ORDER
Jurisdiction:
1. The issue presented relates to Class II Injection Wells associated with the production of oil and gas that is regulated by the Department pursuant to Ind. Code § 14-37-3-2.
2. The Commission serves as the ultimate authority for the Department. I.C. § 4-21.5-1-15; I.C. § 14-10-2-3.
3. Procedurally, this matter is governed by I.C. 4-21.5-3, also known as the Administrative Orders and Procedures Act (AOPA).
4. The Commission possesses jurisdiction over both the subject matter and the parties to this proceeding.
Statement of the Proceedings:
1. On December 13, 2019, Brookston Resources, Inc., (Brookston) filed a Petition for Administrative Review regarding Notices of Violations (NOVs) issued by the Department of Natural Resources (Department) with regard to the wells associated with Department permit numbers 26738, 26741 and 26742 (referred to as “Subject Wells” or “Subject Permits”). Each petition was assigned a separate administrative cause number and assigned to Administrative Law Judge (ALJ) Sandra Jensen. (2019 filings)
2. Also On December 13, 2019, Brookston filed a Request for an Informal Hearing with the Department’s Division of Oil and Gas, as authorized by Ind. Code § 14-37-3-16 and 312 Ind. Admin. Code 29-3-4, to review the NOVs. Further administrative proceedings on the 2019 filings were stayed pending completion of the Informal Hearing.
3. The Department, through the Division of Oil and Gas, issued Findings and Decision on Informal Hearing on August 17, 2020, affirming the Department’s position on the NOVs.
4. On August 28, 2020, Brookston filed a Petition Requesting Administrative Review of Findings and Decision on Informal Hearing, (2020 Petition), which is the basis for the instant proceeding. The 2019 filings were consolidated into this proceeding. See, Entry with Respect to Consolidation of Cases.
5. A Prehearing Conference was held on September 9, 2020. Deadlines for completing discovery and filing dispositive motions were established at the Conference. Report of Status Conference.
6. Brookston filed a Motion for Summary Judgment on Determinative Issue with supporting materials on January 12, 2021. The Department filed Respondent DNR’s Response to Motion for Summary Judgment on February 10, 2021. Brookston filed a Reply to Respondent DNR’s Response to Motion for Summary Judgment on February 24, 2021.
7. In an Interlocutory Order on Summary Judgment (Interlocutory Order), ALJ Jensen denied Brookston’s Motion for Summary Judgment, finding the following question of fact remained:
It is determined that a good faith controversy remains regarding the basis of the Department’s conclusion that a “a well has the potential to serve as a conduit for the migration of fluid into underground sources of drinking water such that Brookston would be required to submit a corrective action plan.” See Interlocutory Order, para 88.
8. Brookston’s Motion to Reconsider Interlocutory Order on Summary Judgment, filed on April 23, 2021, was denied June 7, 2021.
9. Upon ALJ Jensen’s retirement from the Commission in September 2021, this case was assigned to ALJ Dawn Wilson. ALJ Wilson scheduled the matter for an administrative review hearing on December 16, 2021. This date was later vacated due to ALJ Wilson’s retirement in December 2021.
10. ALJ Gamboa was appointed by the Commission in January 2022, and the hearing on the facts was scheduled for April 28, 2022. Report from Telephonic Status Conference and Order Setting Administrative Review Hearing.
11. On April 25, 2022, the Department filed Respondents DNR’s Motion to Clarify Issues for the Hearing on April 28, 2022. Brookston did not oppose DNR’s Motion to Clarify,
“to the extent Respondent requests the parties stipulate to facts set forth in the Interlocutory Order on Summary Judgment dated March 25, 2021 or seeks to limit the outstanding issues identified in paragraph 2 of Respondent’s Motion and Paragraph 88 of the Interlocutory Order on Summary Judgment.
12. On April 26, 2022, the ALJ issued the following order on the Department’s Motion to Clarify, in relevant part:
Based on the agreement of the parties, the facts set forth in the Interlocutory Order on Summary Judgment dated March 25, 2021, are established as facts in the hearing. Further, the issues to be addressed at the hearing on April 28, 2022, will be limited to the issue raised in the interlocutory order on Summary Judgment, paragraph 88 [quoted above].
13. The administrative hearing was held as scheduled on April 28, 2022, in the office of the Natural Resources Commission Division of Hearings. Brookston Resources was represented by William Illingworth and by company representative James Brooker. The Department was represented by Department attorney Ihor Boyko and by Department representative Rusty Rutherford.
14. The following witnesses were duly sworn and testified at the hearing:
a. Gregory Schrader – Technical Geologist One, Department of Natural
Resources, Division of Oil and Gas
b. James Brooker – President and CEO of Brookston Resources, Inc.
15. The following exhibits were admitted into evidence without objection:
a. Department’s Exhibit A – DNR letter to Brookston dated March 21, 2019
regarding permit number 26738 (4 pages);
b. Department’s Exhibit B – DNR letter to Brookston dated March 21, 2019,
regarding permit number 26741 (4 pages);
c. Department’s Exhibit C – DNR letter dated March 21, 2019, regarding
permit number 26742 (4 pages);
d. Department’s Exhibit D – Well Logs, Permit No. 21960 (4 pages)
e. Department’s Exhibit E – Well Logs, Permit No. 22020 (4 pages);
f. Department’s Exhibit F – Well Logs, Permit No. 19617 (4 pages);
g. Department’s Exhibit G – Well Logs, Permit No. 21944 (4 pages);
h. Department’s Exhibit H – Well Logs, Permit No. 22274 (4 pages).
16. Brookston did not offer exhibits for admission during the hearing.
17. By agreement of the parties, the ALJ took official notice of the NOVs issued by the Department, which had been included with the 2019 filings and relate to permits at issue in this case
18. The parties filed post-trial briefs with the Commission on June 3, 2022.
Findings of Fact[1]
19. The Subject Wells have been under the control of various operators since 1963. Immediately prior to Brookston taking control of the Subject Permits in 2002, the Subject Wells had been operated by Bronco Oil Company as Class II Water Injection Wells under the Environmental Protection Agency’s (EPA) Underground Injection Control Program (UIC). See Interlocutory Order, para. 30, 31.
20. In 2002, Brookston submitted “Change of Operator” permit applications for each Subject Well to the Department. The applications indicated Brookston intended to operate the wells as Class II Enhanced Recovery Wells. The Department issued change of operator permits to Brookston in October 2002. The permits required the operator of the wells to obtain injection authorization prior to operating the wells. See. Id., para 30-35.
21. Brookston has never sought authority to operate the Subject Wells. See Id., para. 36.
22. Gregory Schrader is employed by the Department, Division of Reclamation. Schrader holds a Bachelor of Science in Geology and has been employed by the Department for approximately 15 years.
23. Schrader’s responsibilities include conducting file reviews of Class II injection wells. See Testimony of Schrader.
24. The Department has an agreement with the (EPA) to conduct a certain number of file reviews annually. Files that “have had the longest time since their last review” or “if they’ve had their injection rate expire” are prioritized for review. See Testimony of Schrader.
25. The purpose of file reviews is to determine whether the well’s assigned injection pressure and rate are proper to protect ground water from intrusion by the injected saltwater. See Testimony of Schrader.
26. The Subject Wells have not been approved for use since Brookston took them over; therefore, there are no approved injection pressure and rates for the Subject Wells.
27. Schrader conducted file reviews of the Subject Wells in March 2019. See Testimony of Schrader.
28. To conduct the file reviews, Schrader plotted the Subject Wells on map and scaled a one-quarter mile circle around each well. One quarter mile is the extent of the Department’s “jurisdiction,” or review area, when conducting file reviews. Schrader then scaled in the wells known by the Department to exist based on GPS information and pictures maintained by the Department. Next, Schrader logged the surrounding wells on a spreadsheet with information on the wells’ construction obtained from well logs stored by the Department. Schrader summarized his findings to determine whether the surrounding wells are “passing” or “failing.” See Testimony of Schrader.
29. Wells that do not “pass” are considered “questionable wells” within the review area. If one or more questionable wells is located within the review area, a “Corrective Action Letter” is sent to the owner of the reviewed well. A corrective action form is also sent with the letter with a guidance document to provide options for correcting the defect. See Testimony of Schrader.
30. An existing injection well is considered “passing” if it contains 50 feet of cement on the backside of the longest casing, above the injection zone and below the USDW. See Testimony of Schrader.
31. A plugged well is considered passing if it has fifty feet of continuous cement above the injection zone and below the USDW. See Testimony of Schrader
32. Often, corrective actions are resolved between the permit holder and the Department by re-assigning a rate of injection based on modeling that ensures the injection fluids remain below the USDW by at least 100 feet. See Testimony of Schrader.
33. The area between the injection zone of a well and the USDW is considered by the EPA as the “freshwater zone.” See Testimony of Schrader.
34. Schrader determined five questionable wells existed within one quarter mile of three Subject Wells. Schrader’s findings are summarized in the chart below:
|
SUBJECT PERMIT
Permit 26738
Permit 26741
Permit 26742 |
Correlating Questionably Plugged Well
Permit 21960 (Mills #5) Permit 22020 (Lottes-Wiseman #1)
Permit 21960 (Mills #5)
Permit 22274 (Reisz, et al. #1) Permit 19617 (William Reisz #1) Permit 21944 (Elmer Pruess #4-A)
|
See, Interlocutory Order, para. 46.
35. For each of the Questionable Wells, Department records show the injection zone to be the “Jackson sandstone.” This is considered a possible “lateral conduit” for injected fluids. The file review is intended to determine whether injected fluids from a well could travel through the “lateral conduit” then up through a potentially open conduit to a potential USDW. See Testimony of Shrader.
36. Well logs indicate the location of the Jackson sandstone, thus providing the depth of the injection zone for each Questionable Well. See Testimony of Schrader.
37. Questionable Permits 19617, 21944, and 22274 have 36-foot, 40-foot, and 35-foot cement plugs respectively, between the USDW and the injection zone. See Interlocutory Order, para. 51.[2]
38. The injection zone for Questionable Permit 21960 is between 717 to 719 and from 738 to 741 feet. The USDW was determined to exist at approximately 200 feet. See Exhibit A, p. 2. A cement plug exists from 390 feet to 430 feet, for a continuance length of 40 feet between the injection site and the USDW See, Exhibit D, p. 4, Testimony of Schrader.
39. The injection zone for Questionable Permit 22020 is 729 feet to 738 feet. The well plug was present at 395 feet to 425 feet, and again from 718 feet to 732 feet. The plugs are 30 feet and 18 feet respectively; however, they are not continuous. See Exhibit E, p. 4; Testimony of Schrader.
40. Questionable Permits 21960 and 22020 have 40–foot and 30–foot plugs, respectively, above the injection zones.
41. Brookston did not contradict the Department’s evidence as to the plugs in the Questionable Wells. Schrader’s testimony with regard to the plugs of Questions Wells 2-1960 and 22020 is adopted as findings of fact.
42. Whether a USDW could be found at the Jackson sandstone is, however, contested.
43. According to Schrader, the presence of USDW would not normally be noted on well logs. Rather, the determination is made based on a “geo-physical log of some sort, the electrical log or induction log that can allow us to determine whether the freshwater zone has changed to a salt-water zone….” Those logs were not available to Schrader so he “extrapolated from other areas.” Schrader testified he determined a USDW exists due to the indication on the well logs that sandstone existed which indicated the potential for the presence of a USDW. See Testimony of Schrader.
44. Schrader admitted the area is devoid of water wells, which could mean there is no USDW or that either there is no reason for a water well to have been drilled or that there are existing wells which have not been reported to the Department’s Division of Water. See Testimony of Schrader.
45. Brooker points to the absence of any indication of a source of drinking water in the drilling records of the Questionable Wells as requiring a conclusion that no USDW exists. According to Brooker, in his experience, a USDW, if one existed, would have been discovered during drilling, and, if discovered, would have been recorded on the drilling records. See Testimony of Brooker.
46. Schrader visited the well site after issuing the corrective action letters to Brookstone. He did not see any “saltwater fields.” See Testimony of Schrader.
47. James Brooker is president and CEO of Brookston. He holds a bachelor’s degree and a master’s degree in petroleum engineering. He has worked in reservoir engineering for approximately twenty-five years. See Testimony of Brooker.
48. In Brooker’s experience, the presence of USDW would have been indicated on the well logs because the presence of fluid in the bore hole would have impacted drilling. Further, according to Brooker, the conditions encountered during the drilling process would have been noted because the conditions are important to the determination of whether oil exists at the well site. Also, because there is no indication pipes were dropped during drilling to prevent water getting into the bore hole, there was no water present. Brooker opined there was no USDW that would impact at the Jackson sandstone. See Testimony of Brooker.
49. Brooker also opined there is a low probability of injection fluid migrating to the USDW due to the low permeability of the Jackson sandstone. See Testimony of Brooker. Brooker’s testimony does not, however, negate Schrader’s finding that migration could occur.
50. The expertise of both Shrader and Brooker have been demonstrated by their respective testimonies. The credibility of either witness is not doubted.
51. Both Schrader’s and Brooker’s opinions on the presence, or absence, of a USDW is based upon a paper review and not a physical review of the location.
52. Schrader’s determination of the potential presence of an USDW is supported by the evidence.
53. None of the Questionable Wells has fifty feet of continuance plug between the injection zone and the USDW.
54. A file review conducted in 2004 by the Department identified six questionable wells in the review area, including those listed above. See, Interlocutory Order, para 44. Brookston did not respond to the corrective action letters issued by the Department after the 2004 file review. See Id., para 56. No action was taken on the 2004 letters by the Department. See Id., para. 56.
55. The Department again sent Corrective Action letters to Brookston for each Subject Well on March 21, 2019. See Testimony of Schrader; page 1 of Exhibits A, B, and C. The letters instructed Brookston to complete a corrective action plan within thirty days of the date of the letter.
56. Brookston did not submit a Corrective Action Plan. See Testimony of Schrader; testimony of Brooker.
57. On November 12, 2019, the Department issued Notices of Violations regarding the subject permits. The following text appears on the NOV’s under “Corrective Action:”
The location noted above was inspected on 11/12/2019 and was found to be in noncompliance with 312 IAC 29-1 et seq or IC 14-4 et seq. The corrective action listed below must be taken by 1/2/2020. Provide requested information for Class II well review in accordance with 312 IAC 29-28-8(e).
The following appears, handwritten, below the above text: “See my letter dated 3/21/2019, copy attached.”
Conclusions of Law:
58. As noted by ALJ Jensen in the Interlocutory Order, ensuring the safety of the USDW is an extraordinarily important part of the oil and gas production industry. See Interlocutory Order, para. 64.
59. Pursuant to Ind. Code § 14-37-3-12, the commission has primary enforcement authority for Class II wells under the Underground Injection Control Program (UIC), promulgated pursuant to federal law. The commission
shall enforce the requirements of the Underground Injection Control Program and all other rules under this article to prevent the pollution or endangerment of underground sources of drinking water caused by a well regulated by this article.
60. The Subject Wells are regulated under I.C. 14-37.
61. The Commission has adopted rules pursuant to I.C. § 14-37-3-15 and 4-22-2 to assist in the implementation of the I.C. 14-37.
62. As established in the Interlocutory Order, the sole issue is whether “a well has the potential to serve as a conduit for the migration of fluid into underground sources of drinking water such that Brookston should be required to submit a corrective action plan.” See, Interlocutory Order, para. 88.
63. The burden of proof on this issue is with the Department by a preponderance of the evidence. . Ind. Code § 4-21.5-3-14(c); Peabody Coal Co. v. Ralston, 578 N.E.2d 751, 754 (Ind. Ct. App. 1991).
64. The file reviews were conducted pursuant to 312 IAC 29-28-8, which provides:
(a) At any time, but at least every five (5) years, the division will
perform a file review of a Class II well to determine whether
continued operation of the well meets the requirement of IC 14-37
and this article.
(b) A review conducted under subsection (1) may consider the following:
(1) The current injection intervals.
(2) Maximum injection pressure rates.
(3) Compliance with well construction requirements for Class II wells
including internal and external and mechanical integrity of the Class
II well.
(4) A survey of all wells within the area of review[3] that penetrate the
injection zone to consider whether these wells may:
(A) be adversely affected by the operation of the Class II well; and
(B) have the potential to cause or contribute to the migration of
injection fluids into underground sources of drinking water due to
inadequate construction or plugging.
(c) If the division determines a well has the potential to serve as a conduit
for the migration of fluids into underground sources of drinking water
a corrective action plan will be established under this section.
(d) The division shall notify the owner or operator of the Class II well and
request a corrective action plan that will prevent fluid movement:
(1) into an underground source of drinking water;
(2) to the surface; or
(3) into an unpermitted zone.
(e) Within thirty (30) days after receiving notice from the division the owner or
operator of the Class II well shall submit a proposed corrective action plan to
prevent the movement of fluid into an underground source of drinking water
that considers the following:
(1) The nature and volume of injected fluid.
(2) The nature of native fluids or byproducts of injection.
(3) Potentially affected persons.
(4) Geology.
(5) Hydrology.
(6) History of the injection operation.
(7) Completion and plugging records.
(8) Abandonment procedures in effect when the well was abandoned.
(9) Hydraulic connections with an underground source of drinking water.
65. In general, Class II injection wells inject fluids underground during oil and gas production. 312 IAC 29-2-4. The “injection zone” is the “geological formation, group of formations, or part of a formation receiving fluids through a well.” 312 IAC 29-2-75.
66. An underground source of drinking water “means an aquifer or a portion of an aquifer, other than an exempted aquifer, that: 1) presently supplies fresh water to any use; or 2) contains a sufficient quantity of fresh water to supply a future user.” 312 IAC 29-2-131.
67. A file review may be conducted at any time. 312 IAC 29-28-2(a). Pursuant to 312 IAC 29-28-8(b)(4), the file review may include “a survey of all wells” in the area of review to determine whether those wells “have the potential to cause or contribute to the migration of injections fluids into underground sources of drinking water due to inadequate construction or plugging.”
68. As owner or operator of a Class II well “authorized under Subpart C of the Underground Injection Control Program (40 CFR 144.21 through 144.28)” Brookston is subject to “any federal terms or conditions placed on an owner or operator under Subpart C, which terms and conditions may be enforced as if ordered by the Department under Ind. Code § 14-37 and 312 IAC 29. Ind. Code § 14-37-1-3.
69. The federal Underground Injection Control (UIC) Program establishes minimum requirements for state UIC programs. See 40 C.F.R § 144.1.
70. As determined in the Interlocutory Order,
[i]nterpretation of 40 CFR 144.39, particularly subsections (a)(2) and (c) requires the conclusion that the Subject Permits, which are identified as permits for Class II wells may be modified based solely upon previously known information, except that any consideration of a modification regarding the facility location must be based upon newly identified information or standards.
Interlocutory Order, para 84.
71. When the Department issued the subject permits to Brookston in 2002, the permits were made contingent upon Brookston obtaining injection authorization prior to operating the well. Brookston has not sought such authorization and no injection/pressure rates have been established on the Subject Wells. As no such rates have been established, it cannot be said that the Department’s NOVs would result in a modification of those permits.
72. The Department has met its burden of establishing that the Subject Wells have the potential to serve as a conduit for the migration of fluid into underground sources of drinking water such that Brookston should be required to submit corrective action plans.
Final Order:
73. The Department met its burden of establishing that the Subject Wells have the potential to serve as conduits for the migration of fluid into underground sources of drinking water. Brookston is therefore required to submit corrective action plans to the Department for each Subject Well.
[1] A Finding of Fact more appropriately construed as a Conclusion of Law or a Conclusion of Law more appropriately considered a Finding of Fact shall be so considered.
[2] No separate findings with regard to Questionable Permits 19617, 21944 and 22274 are made in this order as the facts were established in the Interlocutory Order.
[3] The applicable area of review in this case is one-quarter mile. CFR 40, Part 144.3.