WHEREFORE, based on the foregoing Findings of Fact, the Natural Resources Commission issues the following order: The Notice of Violation written in connection with permit P2753 is affirmed. A civil penalty of $1,000 is imposed. The Notice of Violation written in connection with permit number 19075 is affirmed. The following civil penalties are imposed:
(a) Failure to plug $5,000
(b) Failure to permit the pit - $1,000.
(c) Fire hazard-$500
(d) Failure to post sign-$500
(e) No mechanical Integrity test-$7,500 TOTAL - $14,500.
The two part Notice of Violation written in connection with permit number 26203 is affirmed. the following civil penalties are imposed:
(a) Failure to plug $5,000
(b) Failure to post sign - $500 TOTAL - $5,500.
The Notice of Violation written in connection with permit number 28157 is affirmed. The following civil penalties are imposed:
(a) Failure to post sign $500
(b) Failure to plug $5,000
(c) No Mechanical Integrity Test - $5,000
(d) No quarterly reports - $500 TOTAL - $11,000.
The Notice of Violation written in connection with permit number 36723 is affirmed. The following civil penalties are imposed:
(a) Pit violation $1,000.
(b) No Mechanical Integrity Test - $7,500 TOTAL - $8,500.
The Notice of Violation written connection with permit number 45489 is affirmed. The following civil penalties are imposed:
(a) Failure to post sign-$500
(b) Failure to plug-$5,000
(c) No Mechanical Integrity Test $7,500
(d) No quarterly reports $500 TOTAL $13,500.
The Notice of violation written in connection with permit number 46728 is affirmed. The following civil penalties are imposed:
(a) Failure to post sign- $500
(b) Failure to plug - $5,000
(c) No Mechanical Integrity Test - $7,500
(d) No quarterly reports - $500 TOTAL - $13,500.
Claimant, Integrity Energy Systems, Inc., SHALL abate each and every violation cited in this ORDER for the wells under permit numbers P2753, 19075, 26203, 28157, 36723, 45489, and 46728 within sixty (60) days of issuance of this ORDER. Should Claimant abate a violation to the satisfaction of the Division within 30 days of issuance of this ORDER, the Department of Natural Resources shall reduce the imposed civil penalty assessed for that violation by 80%. Should Claimant abate a violation to the satisfaction of the Division more than 30 days after issuance of this ORDER, but less than 45 days after issuance of this ORDER, the Department of Natural Resources shall reduce the imposed civil penalty assessed for that violation by 60%. Should Claimant abate a violation to the satisfaction of the Division more than 45 days after issuance of this ORDER, but less than 60 days after issuance of this ORDER, the Department of Natural Resources shall reduce the imposed civil penalty assessed for that violation by 40%.
FINDINGS OF FACT
1. The Indiana Department of Natural Resources ("DNR") is an agency within the meaning of IC 4-21.5.
2. The DNR is the state agency charged with the regulation of oil and gas production in the State of Indiana.
3. IC 4-21.5, IC 13-8, and 310 IAC 7 apply to these proceedings.
4. At all times relevant to these proceedings, Integrity Energy Systems, Inc. ("Integrity") held permits P2753, 19075, 26203, 28157, 36723, 43140, and 46728 issued by the DNR which allow Integrity to operate eight oil wells in Gibson, Pike, and Knox Counties in Indiana.
5. Between September 1, 1993, and October 1, 1993, the Director of the Division of Oil and Gas of the DNR wrote notices of violation ("NOVs") to Integrity for violations on the wells whose permits are listed in paragraph four.[FOOTNOTE 1]
6. on October 4, 1993, Integrity filed a petition for administrative review of the NOVs.
7. At the hearing on these matters, Integrity stipulated that all eight violations had occurred, and that the only issue remaining involved the amount of the fines to be imposed.
8. The DNR is seeking a total of $97,500.00 in civil penalties for the violations.
9. In all contested matters under IC 4-21.5 involving the Division of Oil and Gas, the Natural Resources Commission is the ultimate authority for the agency.
10. The notice of violation written on well P 2753 ("NOV 1") was written for operating a pit in violation of 310 IAC 7-1-38.
11. 310 IAC 7-1-38 provides standards for disposal of fluids and construction of pits.
12. NOV 1 requires the filling and leveling of an improperly placed pit.
13. Integrity admits the pit is in violation of the applicable rule.
14. The only other evidence presented was a photograph of the pit which shows a large amount of fluid in the pit, but the pit does not appear to be in imminent danger of over flowing.
15. IC 13-8-15-3 grants the authority to the NRC to impose a civil penalty of up to $10,000.00 for violations of 310 IAC 7, and each day can be considered a separate violation.
16. The DNR sought to impose a fine of $1,000.00 for this violation.
17. The Notice of Violation written on well 19075 ("NOV 211) was written for several violations. They are as follows:
(a) Failure to operate or plug and abandon in violation of 310 IAC 7-1-33.
(b) Failure to obtain a permit to operate a pit in violation of 310 IAC 7-1-38.
(c) Creating a fire hazard in violation of 310 IAC 7-1-37.
(d) Failure to maintain well identification in violation of 310 IAC 7-1-35.
(e) Failure to perform or pass a mechanical integrity test ("MIT") in violation of 310 IAC 7-1.5-5.
18. 310 IAC 7-1-33 provides standards for plugging abandoned wells.
19. 310 IAC 7-1-38 requires DNR approval of all on-site fluid storage pits. The abatement action would be either obtain a permit or fill the pit.
20. 310 IAC 7-1-37 sets forth standards for fire prevention and inspection.
21. 310 IAC 7-1-35 requires an operator to maintain a permanent sign at the site identifying the lease, owner, emergency telephone number, and other information.
22. 310 IAC 7-1.5-5 requires a mechanical integrity test ("MIT") of all Class II wells.
23. Integrity admits that the above five violations occurred and had not been abated as of the date of the hearing.
24. The only other evidence presented was a series of photographs (Exhibits A through F) which illustrate conditions at the site.
25. The
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photographs show a site in a state of some disrepair. There is vegetation close enough to the pit to create a fire hazard. The lack of a sign with an emergency phone number can be a serious problem.
26. Class II wells are licensed to operate under pressure. Failure to show that the well is capable of handling pressure without leaking (MIT) can lead to environmental problems.
27. The notice of violation written on well 26203 ("NOV3") included two violations, those being the failure to operate, or plug and abandon, or temporarily abandon a well in violation of 310 IAC 7-1-33.[FOOTNOTE 2]
28. No photographs were introduced so the only evidence about violation is the stipulated exhibit and Integrity's admission that the violation occurred and was not yet abated.
29. The Notice of violation written on well 28157 ("NOV 4") contained four violations. They are as follows:
(a) Failure to perform or pass MIT in violation of 310 IAC 7-1.5-5.
(b) Failure to operate or plug and abandon in violation of 310 IAC 7-133.
(c) Failure to submit a quarterly monitoring report, no IAC code section listed.
(d) Failure to post an identification sign in violation of 310 IAC 7-1-35.
30. IC 13-8-14-2 lists the requirements "for the contents of the notice of violation. All the DNR is required to do is state the nature of the violation, abatement action, and date by which the violation must be abated. A code section is not specifically required. Part (c) of NOV 4 (Exhibit Q) meets the above criteria, therefore, it can be considered as being validly issued as long as there is some reference in the code to quarterly reports.
31. 310 IAC 7-1.5-6 requires quarterly reports for Class II wells and this well is a Class II well.
32. Integrity admitted that all violations in NOV 4 occurred and had not been abated, except that the well is ready for the MIT. (Exhibit 1).
33. The only other evidence introduced into the record, a photograph identified as Exhibit G, which shows the site.
34. The Notice of Violation written on well 36723 ("NOV 5") contained violations involving an improper pit in violation of 310 IAC 7-1-38, and failure to perform or pass MIT in violation of 310 IAC 7-1.5-5.
35. Integrity admitted the violations, and that they had not been abated.
36. The only other evidence introduced at the hearing were photographs of the site labeled Exhibits H, I, J, and K.
37. The appropriate abatement action for the pit is to fill the pit.
38. The Notice of Violation written on well 43140 ("NOV 6") involved the failure to perform or pass MIT in violation of 310 IAC 7-1.5-5.
39. Integrity admitted the violation. No further evidence was introduced.
40. The Notice of Violation written on well 45894 ("NOV 7") involved no MIT in violation of 310 IAC 7-1.5-5, failure to submit quarterly reports in violation of 310 IAC 7-1.5-6, failure to post proper identification signs in violation of 310 IAC 7-1-35, and failure to plug and abandon in violation of 310 IAC 7-1-33.
41. Integrity admitted the violations at hearing. No further evidence was introduced.
42. The Notice of Violation on well 46728 ("NOV8") involved identical circumstances to NOV 7.
43. Integrity admitted the violation, and no further evidence was introduced.
44. This matter represents the first case the NRC has considered where it must impose (or waive) a penalty in an oil and gas case.
45. There are no rules or published guidelines that deal with the amount of civil penalty to be imposed in any violation. By statute, the maximum fine is $10,000.00 and the minimum is $0.0 per violation.
46. Integrity introduced evidence that it has been losing large sums of money annually in connection with its oil business, and therefore, its failure to comply is not willful or malicious.
47. Integrity also introduced evidence (Exhibit 1) showing it had corrected or attempted to correct numerous violation and problems on a large number of wells in Indiana.
48. Both of the above paragraphs can be considered mitigating circumstances by the trier of fact.
49. Both lead to a conclusion that Integrity is not intentionally destroying the environment or completely indifferent to its responsibilities.
50. The Department points out that with one exception, (Well 28157), no abatement action had taken place between the issuance of the NOVs (September and October, 1993) and January 25, 1994, the date of the hearing. This includes performing such simple (and inexpensive) items as preparing and placing proper identification signs; and it includes either starting to fill pits or preparing paper work to permit them.
51. The above facts can certainly lead to a finding that aggravating circumstances exist.
52. The evidence that was submitted does not allow a conclusion that actual environmental harm is occurring or that such harm is imminent. This is somewhat mitigating.
53. On
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the other hand, failure to operate or properly abandon a well and MIT violations can lead to foreseeable environmental harm and a lengthy failure to plug or guarantee mechanical integrity, particularly after being ordered to do so is clearly an aggravating circumstances
54. The DNR in some instances is seeking the maximum fine.
55. The maximum fine should be reserved for those cases involving the worst of all possible scenarios.[FOOTNOTE 3]
56. None of the current cases involves the worst of all possible scenarios since the operator has made a number of improvements to wells he owns (although not the ones involved in these proceedings). The operator is a small operator with financial exigencies so he is not just "blowing off" the problems, and there is no evidence of significant environmental harm or the imminent threat of such harm.
57. Because of the length of time with no abatement action, and the relative ease of abating or commencing abatement actions for some of the violations, civil penalties in some amount should be imposed for all of the violations and not waived.
58. For NOV 1, (improper pit) the violation does not appear to be particularly serious. The DNR proposed a civil penalty of $1,000.00 and this appears to be an appropriate penalty.
59. For NOV 2, the DNR proposed civil penalties as follows:
(a) Failure to plug - $5,000
(b) Failure to permit pit $1,000
(c) Fire hazard - $500
(d) Failure to post ID sign - $500 (e) MIT violation - $10,000.
60. The failure to plug a well can be a serious problem. It appears that the aggravating and mitigating circumstances discussed above are more or less equal. Because of the failure to begin any plugging (or operating) activities, over a length of time, the $5,000 civil penalty is appropriate.
61. The second, third, and fourth violations in NOV 2 are relatively minor, and the proposed penalties are appropriate.
62. The MIT portion of the NOV is clearly the most serious. Because of the fact there appears to be no environmental harm occurring, the $10,000 proposed penalty is excessive. There are, however, more aggravating factors then mitigating factors and a civil penalty of $7,500 should be imposed.
63. For NOV 3, civil penalties should be imposed for failure to plug and failure to post an identification sign. There is no reason to impose different civil penalties than in NOV 2, so penalties of $5,000 and $500, respectively, are imposed.
64. For NOV 4, the DNR proposed the following penalties:
(a) No posted ID - $500
(b) Failure to plug - $5,000
(c) MIT violation - $10,000
(d) Quarterly reports $500.
65. This is the one well under discussion where some effort towards abatement was taken prior to hearing. The civil penalty for the MIT violation should be $5,000 in this case. Otherwise, the proposed penalties are appropriate.
66. For NOV 5, for reasons expressed above, the pit violation should involve a civil penalty of $1,000, and the MIT violation should be $7,500.
67. For NOV 6, the MIT violation civil penalty should be $7,500.
68. For NOV 7 and 8, the civil penalties should be as follows:
(a) Mine ID sign - $500
(b) Failure to plug - $5,000
(c) MIT violation - $7,500
(d) Quarterly report violation - $500.
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FOOTNOTES
1. There was no evidence introduced as to when the NOVs were received, but since no claim is made that Integrity's review request was not timely, the date of receipt is immaterial.
2. The DNR's post-hearing brief identifies four violations, and corresponding fines, however, Exhibit X, the only exhibit discussing this well does not have four parts. Since the burden of proof on enforcement matters is on the DNR and there has been no evidence introduced at the hearing to document the other two violations, the administrative law judge and NRC cannot consider them in assessing fines.
3. While it is true that the NRC has not considered penalties in connection with oil and gas cases, it has imposed penalties in cases involving the Division of Water. In these cases, the NRC has looked at the actual or potential harm to the environment, willfulness of the violation, and length of time the violation has existed. The NRC has stated in these cases that the maximum fines should be imposed only in the worst of all possible cases. See DNR v. Bardonner, 5 Caddnar 211, and cases cited therein.