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Daggett Oil Co. - Ruling 1, February 3, 1995

Ruling - February 3, 1995

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of

the Alleged Violations of Article 23 of
the New York State Environmental Conservation Law and Parts 551 and 555 of Title 6 of
the Official Compilation of Codes, Rules and Regulations of the State of New York,

- by -

DAGGETT OIL COMPANY,
HOGAN ENERGY, INC.
WILLIAM F. HOGAN, and
LESLIE T. GROVER,

Respondents

RULING ON MOTION FOR ORDER WITHOUT HEARING

DEC No. D9-B113-94-12

Summary

The Department's Motion for Order without Hearing is patently defective because the documents offered to support the motion provide no information about the number, identity, depth and location of the wells in question. The Department's motion is denied.

Proceedings

Staff of the Department of Environmental Conservation, by Carl G. Dworkin, Associate Counsel, served a Motion for Order Without Hearing pursuant to 6 NYCRR 622.12 on Respondents Daggett Oil Company ("Daggett Oil"), Hogan Energy, Inc. ("Hogan Energy"), William F. Hogan ("Mr. Hogan") and Leslie T. Grover ("Mr. Grover"). The Motion, dated December 9, 1994, consists of a Notice of Motion, Motion, Affidavit of Richard Arieda in support of the Motion, together with exhibits "A" through "O" attached. Mr. Arieda is a Mineral Resources Specialist III with the Department's Bureau of Oil and Gas Regulation.

The Motion seeks a determination from the Commissioner that no hearing is required and that the Respondents have violated ECL 23-0305.8(e), 6 NYCRR 551.1, 551.4, 555.2, and 555.3. The Department requested an Order directing the Respondents to: a) submit an Organizational Report form no later than thirty (30) days following the effective date of the Order; b) submit the required financial security in proper form no later than thirty (30) days following the effective date of the Order; c) to search the property, with Department Staff present, to locate the abandoned wells and map them, and to submit a proper map of all wells found and a list of unplugged wells within forty-five (45) days of the Order; d) plug all abandoned wells found, by a schedule to be established by the Department, and, in the event such schedule is not met, shut-in all wells on the Daggett Oil and Nichols and Burger leases. The Department's papers make no mention of the Nichols and Burger leases other than in the prayer for relief. Because there has been no showing that these leases are in any way relevant to this case, they will not be considered in the hearing. until plugging and restoration is complete. The Department requested a civil penalty of $150,000 to be assessed jointly and severally upon the Respondents. The Department wants the discretion to reduce or cancel the civil penalty if all the abandoned wells found are properly plugged.

The Respondents, Daggett Oil, Hogan Energy, and Mr. Hogan, represented by G. William Gunner III of Embser & Woltag, PC, and Leslie T. Grover, appearing pro se, have timely filed Responding Affidavits.

The Office of Hearings received the Department's Motion and the Respondents' Answers on January 6, 1995. With a cover letter dated January 26, 1995, the Department provided copies of proof of service upon the Respondents.

Ruling

The documents offered to support the motion provide no information about the number, identity, depth and location of the wells allegedly owned and operated by the Respondents. All of the charges alleged in the Department's motion depend on this information about the wells. This lack of information makes it impossible, therefore, to determine whether the Respondents committed any violations with respect to these wells. Accordingly, I deny the Department's Motion for an Order without Hearing.

However, to assist the Parties, I have provided my interpretation of the causes of action asserted in the Department's Motion for Order without Hearing and their elements.

The Causes of Action

The First Cause of Action

The Department asserted that the Respondents violated ECL 23-0305.8(e) and its implementing regulatory provision, 6 NYCRR 551.4. ECL 23-0305.8(e) primarily applies to operators while 6 NYCRR 551.4 applies to owners.

Before drilling any well, ECL 23-0305.8(e) requires the operator to provide the Department with a bond or other form of security acceptable to the Department to guarantee that the operator will properly perform his plugging responsibilities. According to ECL 23-0305.8(e), the bonding requirements will remain the original operator's obligation regardless of any changes in operators unless a subsequent operator has furnished the appropriate bond, and the Department has approved the transfer of the well plugging responsibilities to the subsequent operator. According to ECL 23-0305.8(e), the operator is primarily liable for plugging expenses; however, in certain circumstances, the owner can be held liable.

Section 551.4 requires oil well owners to file and maintain a financial security that is acceptable to the Department to guarantee the owners' plugging and abandoning obligations under 6 NYCRR Part 555. Pursuant to 551.4, the owner must maintain the financial security until a subsequent owner has filed a financial security and the Department has approved the transfer to the subsequent owner, or until the wells requiring the financial security have been plugged according to the provisions of Part 555.

Sections 551.5 and 551.6 sets limits on the amount of financial security an owner needs to provide.

To establish that the Respondents violated ECL 23-0305.8(e) and 6 NYCRR 551.4, the Department must show that:

  1. The Respondents either operate [ECL 23-0503.8(e)], or in the alternative, own (6 NYCRR 551.4) oil wells; and
  2. The Respondents did not provide the Department with a bond or other form of security acceptable to the Department that guarantees the Respondents' plugging responsibilities for the wells in question.

The Second Cause of Action

The Department asserted that the Respondent violated 6 NYCRR 551.1. This regulatory provision requires principals or agents who drill or produce oil in NY to file organizational reports with the Department. If a fact made on the organizational report changes, 551.1 requires the organization to file a new organizational report with the Department within 30 calendar days.

To establish that the Respondents violated 551.1, the Department must show that:

  1. The Respondents are principals or agents who drill or produce oil in NY;
  2. The facts reported in the Respondents' organizational reports have changed; and
  3. Thirty days have passed since any facts made on the organizational reports changed.

The Third Cause of Action

The Department asserted that the Respondents violated 555.2. This provision prohibits owners and operators from shutting-in wells which are capable of being produced on a commercial basis for more than one year without the Department's authorization. Pursuant to 555.2, the Department may extend the shut-in period for up to a year at a time if the owner demonstrates sufficient good cause. After the shut-in period ends, 555.2 requires the owner or operator to begin producing the well, or to plug it permanently as provided by the regulations.

To establish that the Respondents violated 6 NYCRR 555.2, the Department must show that:

  1. The Respondents own or operate the subject wells;
  2. The subject oil wells are capable of being produced on a commercial basis; and
  3. The Respondents shut-in the subject wells for more than one year without the Department's authorization.

At the hearing, the Parties will have an opportunity to address the meaning of the phrase "capable of being produced on a commercial basis."

The Fourth Cause of Action

The Department asserted that the Respondents violated 555.3. This provision prohibits owners and operators from temporarily abandoning wells for more than 90 days without the Department's authorization. Pursuant to 555.3, the Department may extend the temporary abandonment period for reasonable time periods if the owner demonstrates sufficient good cause. After the temporary abandonment ends, 555.3 requires the owner or operator to begin producing the wells, or to plug the wells permanently as provided by the regulations.

To establish that the Respondents violated 6 NYCRR 555.3, the Department must show that:

  1. The Respondents own or operate the oil wells in question;
  2. The Respondents abandoned wells for more than 90 days without the Department's authorization; and

The terms "shut-in" and "abandon" are not defined in the statute or regulations. At the hearing, the Parties will have an opportunity to discuss the meaning of these terms and explain how these terms represent different states of well production.

Mr. Arieda stated in his affidavit that the Respondents did not submit Annual Well Reports for the years 1987 through 1992 as required by 551.2. However, the Respondents were not charged with violating 551.2 (Production and Purchase Reports) in the Motion for Order without Hearing. Since the Respondents have not been specifically charged, these allegations will not be considered part of a cause of action in this proceeding.

Further Proceedings

At this point, there is an obvious need for discovery.

Before this enforcement action can go forward, the Department must make an offer of proof about the number, identity, depth and location of the wells in question. In addition, I have provided the Parties with my understanding of what the causes of action are, and the proof that will be required to establish the alleged violations. Finally, I have identified issues concerning the meaning of some of the terms used in the regulations.

The Parties may use the discovery devices authorized by 662.7 to gather information about the wells in question and the allegations. Alternatively, the Department may use its investigatory powers, as provided elsewhere in the ECL and regulations, to gather this essential factual information. I expect the Parties' full cooperation on discovery matters. If there are any disputes, however, they should be brought to my attention.

When discovery is complete and before the hearing is scheduled, the Department must also provide the Respondents and me with a specific civil penalty request with the details outlined on page 4 of 15 of the Commissioner's Civil Penalty Policy, date June 20, 1990.

_____________/s/_____________
Daniel P. O'Connell
Administrative Law Judge

Dated: Albany, New York
February , 1995

To: Leslie T. Grover
7763 Jordan Hill Road
Bolivar, NY 14715

G. William Gunner, Esq.
Embser and Woltag, P.C.
164 North Main Street
Wellsville, NY 14895

Carl G. Dworkin, Esq.
Principal Administrative Litigator
NYS Department of Environmental Conservation
50 Wolf Road
Albany, NY 12233-5500

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