[CITE: DNR v. Continental Financial Group, Kesler Oil and Eagle Exploration, 2 CADDNAR 66 (1987)]
[VOLUME 2, PAGE 66]
Cause #: 84-276G
Caption: DNR v.
Continental Financial Group, Kesler Oil and Eagle
Exploration
Administrative Law
Judge: Lucas
Attorneys: Schaefer,
DAG; Smith; Maher
Date: October 30,
1987
ORDER
Permit 42661 and Permit 43050 issued to Eagle Exploration, Inc. are revoked.
FINDINGS OF FACT
1. The Department of Natural Resources (the "Department") is an "agency" as the term is defined in IC 4-22-1. The Natural Resources Commission (the "Commission") is the ultimate authority of the Department with respect to the subject matter of these administrative actions.
2. The Commission has jurisdiction over the subject matter and the parties to this action.
3. The Department issued to Eagle Exploration, Inc. ("Eagle") permits 42661 (administrative cause 84-276G) and 43050 (administrative cause 84-277G) pursuant to IC 13-4-7.
4. Permit 42661 was issued to Eagle to drill or deepen an oil and gas well in section 34, township 7 north, range 1 east (Polk Township, Monroe County).
5. Permit 43050 was issued to Eagle to drill or deepen an oil and gas well in section 20, township 17 north, range 6 east (Vernon Township, Hancock County) on January 6, 1983.
6. When permit 42661 and permit 43050 (the "permits") were issued, the Commission was authorized under IC 13-4-7-19 to require by rule that a bond be sumitted (sic) "not exceeding two thousand dollars ($2,000) for each such well drilled or produced to provide for compliance with the provisions of this chapter (IC 13-4-7) and the valid rules. . .of the Commission adopted. . .with respect to. . .plugging all concrete bases, discarded machinery and material, the cutting off of all surface casing not less than eighteen inches (18") under surface level, and for the restoration of the surface as nearly as possible to its former condition prior to drilling. . . ."
7. 310 IAC 7-1-13 provided in pertinent part that: "Every person prior to the commencement of drilling or deepening a well for oil or gas purposes. . shall execute and file with the Commission a bond of two thousand dollars ($2,000) for each of such wells.[FOOTNOTE i]
8. Eagle secured a separate bond for both permits from Allied Fidelity Insurance Company ("Allied").
9. 310 IAC 7-1-19 provided in pertinent part that: The surety may notify the Commission and principal of its desire to terminate liability. Within thirty (30) days after receipt of notice, the Commission shall require the principal to file a new bond or discontinue all operations and may require the plugging and abandoning of the well in accordance with 310 IAC 7-1. . . .If a new bond is not filed within the thirty (30) day period specified in this section, the Commission shall after notice and hearing revoke the principal's permit and may require the principal to plug and abandon the well. . . ."[FOOTNOTE ii]
10. Allied notified the Commission and Eagle of its intention to cancel the bond securing permit 42661 on October 24, 1983 and to cancel the bond securing permit 43050 on March 29, 1984.
11. More than 30 days expired after notification by Allied of its intent to cancel the bonds on the permits, and Eagle did not secure a new bond for either of the permits.
12. As a result of an investigation and hearing held under IC 13-4-7, Gary M. Fricke, director of the Department's division of oil and gas ( the "Division Director"), recommended to the Commission that the permits be revoked. He also recommended that the well drilled pursuant to the permits be plugged and abandoned as provided in IC 13-4-7 and 310 IAC 7-1.
13. The Commission accepted the recommendations by the Division Director and entered the following initial determination under IC 4-22-1: "Permits. . .#42661. . .and #43050 are revoked.
[VOLUME 2, PAGE 67]
Eagle exploration is now ordered to plug and abandon the wells drilled pursuant to this permit [these permits] on or before November 1, 1984" (the "initial determination").
14. The initial determination was set forth in a written Notice of Permit Revocation and Order to Plug and Abandon entered for the Commission by the Division Director on September 26, 1984. The notice was served upon Eagle be certified mail with the receipt of service dated October 18, 1984.
15. On October 29, 1984 Eagle filed its written Objection and Request for Informal Hearing with respect to the initial determination.
16. As stipulated by Eagle and the Department during a hearing held on May 14, 1985, "there is no issue concerning the timeliness of this appeal [request for administrative review] nor the proper forum, service or other procedural matters concerning these notices.
17. With respect to both permits, Eagle is in violation of the requirements that an operator (permit holder) post a bond as specified under 310 IAC 7.
18. On August 26, 1984, Eagle petitioned for reorganization under Chapter 11 of the United States Bankruptcy Code (11 U.S.C. 1101, et seq.).[FOOTNOTE iii]
19. As applicable to Chapter 11 reorganizations, 11 U.S.C. 362(a) provides: "Except as provided in subsection (b) of this section, a petition [for relief under the Bankruptcy Code]. . operates as a stay, applicable to all entities, of-- (1) the commencement or continuation, including the issuance or employment of process, of. . .[an] administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. . ."
20. As provided under 11 U.S.C. 362(b), the filing of a petition for relief under the Bankruptcy Code "does not operate as a stay--. . .(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's policy or regulatory power. . ."
21. A primary purpose of the surety bond requirement for permits issued under IC 13-4-7 is to provide for the reclamation of a well site in a manner which is environmentally sound and protective of natural resources. Those functions affect public health, welfare or safety as opposed to a pecuniary interest in property.
22. In revoking an oil and gas permit issued under IC 13-4-7 because of the failure of an operator to maintain a surety bond, the Department is enforcing its policy or regulatory power.
23. The automatic stay provisions of 11 U.S.C. 362 are inapplicable to the revocation of the permits by the Commission.
24. The portion of the initial determination which would order Eagle to plug and abandon the well drilled pursuant to the permits us automatically stayed. That obligation would constitute a debt owed by Eagle to the Department and must properly be pursued in the Bankruptcy Court.
25. No evidence was presented to indicate that either of the permits were transferred by the Department to Kesler Oil Exploration, Inc. or to Continental Financial Group, Inc.
26. Neither Kesler Oil Exploration, Inc. nor Continental Financial Group, Inc. Has demonstrated that they have standing, jointly or severally, to contest the revocation of the permits.
27. The permits should be revoked, but the portion of the initial determination requiring plugging and abandonment of the wells should be deleted.
FOOTNOTES
i. On October 31, 1985, 310 IAC 7-1-13 was repealed and substituted by 310 IAC 7-1-13.1. Subsection (a) of the new section specifies: "No person shall drill, deepen or convert a well for oil or gas purposes until the person has filed and the [D]epartment has accepted a bond as provided in 310 IAC 7-1-14.1." One type of bond approved under section 14.1 will be a "surety bond in the amount of two thousand dollars ($2,000) for each well drilled or produced."
ii. On October 31, 1985, 310 IAC 7-1-19 was amended to provide:
(a) a surety may in writing notify the [C]ommission and principal of its intention to terminate liability under the bond. . . . (b) within thirty (30) days after receipt of a notice under subsection (a), the principal must discontinue operations and plug and abandon the well in accordance with 310 IAC 7-1.
(c) If a substitute bond is not filed and the well is not plugged and abandoned in accordance with 310 IAC 7-1 within the thirty (30) day period specified in subsection (b), the [C]ommission shall revoke the permit in accordance with IC 4-22-1.
iii. Counsel have indicated that the Eagle proceeding has recently been converted to Chapter 7, although there is no evidence in the record on this point. Conversion to a Chapter 7 proceeding would not materially change these findings.