The civil penalty assessed against Mega Oil for the notice of violation issued May 24, 1994, for violations of the Burgdorf W-1 injection well, permit number 18368, is reduced from Twenty Five Hundred ($2500) Dollars to One Thousand ($1000) Dollars.
FINDINGS OF FACT
1. The Indiana Department of Natural Resources ("DNR") is a state agency within the meaning of IC 4-21.5.
2. IC 4-21.5, IC 14-37[FOOTNOTE 1] , and 310 IAC 7 apply to these proceedings.
3. The DNR is the state agency responsible for the regulation of oil wells found within the State of Indiana.
4. The Natural Resources Commission ("NRC") is the ultimate authority within the meaning of IC 4-21.5 over enforcement actions brought by the DNR against oil well operators.
5. At all times relevant to these proceedings, Mega Oil, Inc. ("Mega") was the holder of permit 18368 issued by the DNR which allowed the operation of oil well W-1 ("well") on the A.J. Burgdorf lease in Vanderburg County, Indiana.
6. On May 6, 1995, two members of the DNR's Division of Oil and Gas and one member of the DNR's Division of Law Enforcement were inspecting wells in the Bayou Creek and Sander's Creek area of Vanderburg County in an effort to find the source of crude oil entering one of the creeks.
7. While looking for the oil leak, the three DNR employees discovered salt water leaking from the Mega well and flowing into a drainage ditch.[FOOTNOTE 2]
8. The DNR inspectors notified Mega of the problem and on May 24, 1994, issued a notice of violation for failing to contain injection fluids and imposition of civil penalty ("NOV").
9. The well is a Class II injection well.
10. Mega filed a timely appeal of the NOV and is contesting only the $2500 fine imposed by the DNR. Mega does not contest the violation.
11. Abatement of the NOV required Mega to repair the tubing and/or casing and perform a mechanical integrity test ("MIT") or in the alternative, abandon the well.
12. On or about May 12, 1994, Mega performed repairs to the casing and tubing and stopped the leaking.
13. The DNR inspector agreed that Mega performed the temporary repair as quickly as possible given the existing weather conditions.
14. Future inspections showed no problems with the well but the NOV could not be terminated until the MIT was successfully completed.
15. Mega and the inspector remained in touch with each other and the DNR was aware that Mega had contracted with a crew to do the final repair work but the crew did not show up to perform the work until early October.
16. Following completion of the final repairs the well passed its MIT and the NOV was abated.
17. Mega shut down the well upon being notified of the leakage and did not commence any pumping until after the MIT was performed.
18. The DNR considers fluid leaks as serious violations and always imposes a fine.
19. The reason for considering the violation as serious is the potential for pollution of ground and surface water.
20. There is no evidence of actual environmental damage in this case so any penalty to be assessed must reflect the fact that the extent of damage was slight even though the potential for moderate to serious harm was high.
21. Any penalty must also reflect that the operator ceased pumping on notification of the problem and promptly undertook temporary repairs.
22. Class II wells are inspected a minimum of twice a year by the DNR and the operator is required to submit quarterly reports. Further, the pumper for Mega was present in the area because of the number of wells in the well field and checked the well on the average of once a week, weather permitting.
23. The conclusion that can be drawn from paragraph 22 is that the leak was not present for an excessive period of time.
24. IC 14-37-13-3 provides for a maximum fine of $10,000 per day for a violation.
25. There is no minimum fine provided.
26. The DNR has never adopted rules dealing with penalty assessments.
27. Apparently in 1994, the Division of Oil and Gas adopted a penalty policy and relied on this policy to set the fine at $2500.
28. The policy
[VOLUME 7, PAGE 130]
was not introduced at the hearing and the first time it became available to the trier of fact was as an attachment to the post-hearing brief of the department.
29. There is no evidence that this "policy" has ever been distributed to operators.
30. There is no evidence that this "policy" has ever been subjected to public comment.
32.[sic] Most importantly, there is no evidence in the record that the NRC has ever put its seal of approval on the policy. This is extremely important since the NRC is the policy making body for the DNR.
33. One thing that is certain is that this policy has never gone through the rule making process of IC 4-22 and thus cannot be relied upon as a rule.
34. In fact, since the NRC, acting as the ultimate authority will not consider this matter until after July 1, 1996, the NRC is specifically prohibited by IC 4-22-7-7 from relying on the penalty policy until it is published in the Indiana Register. See Attachment A [attachment not included in CADDNAR].
35. Absent any rule governing the appropriate amount of a penalty or published a non-rule policy statement which has been approved by the NRC, the only standard which can be considered by the NRC is prior case history.
36. The NRC has tackled the imposition of penalties in one prior matter involving MITs. In the case of Integrity Energy Systems v. DNR, 7 Caddnar 30 (1994), the NRC imposed $10,000 fines on wells which needed MIT but none was ever done during the pendancy of the action.
37. The NRC imposed a $5000 fine on the one well the operator did prepare for the MIT but never tested.
38. Further, the NRC included a penalty reduction clause which automatically reduced the penalties for any violation abated within 60 days after issuance of the NRC order.
39. In the Mega case, the operator has acted much more responsibly than Integrity and abated all violations long before hearing, let alone the NRC's order on the matter. Additionally, Mega remained in touch with the inspector and kept the DNR advised of the progress whereas the Integrity management generally avoided contact with the DNR during the pendancy of the action.
40. While the final repairs were not completed with the speed desired by the DNR, temporary measures were taken almost immediately and completed prior to the issuance of the NOV and the penalty assessment.
41. Based on the fact that a $5000 fine was imposed in Integrity, supra, when Integrity prepared the well for MIT but never ran it, $2500 is the maximum fine that should be considered in this case.
42. Given the fact that Mega took prompt action to stop the leaks and straighten out the site, the actual penalty should be even less.
43. There are a few more mitigating than aggravating circumstances here.
44. Additionally, there were no significant costs to the DNR above and beyond normal inspection costs and the unchallenged testimony of Mega is that about $3000 was spent to correct the problem.
45. Under all the above circumstances, a fine of $1000 would appear to be more appropriate and more or less consistent with the prior NRC penalty assessment.
46. Because of the potential for serious harm, the civil penalty assessment should not be waived.
FOOTNOTES
1. When these proceedings were commenced, Oil and Gas matters were governed by IC 13-8. On July 1, 1995, IC 13-8 was recodified as IC 14-37. The recodification made no substantive changes.
2. It should be pointed out that no one has ever alleged that the well in question here was responsible for the oil pollution in the creek.