Liberty Oil Co. - Decision and Order, December 23, 1997
Decision and Order, December 23, 1997
STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION
In the Matter of Alleged Violations of Article 23 of the Environmental Conservation Law of the State of New York and Parts 551 and 555 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York by
LIBERTY OIL COMPANY
HOGAN ENERGY, INC.,
WILLIAM F. HOGAN, and
CARL H. ROBERTS,
DECISION and ORDER
DEC No. D9-A113-94-12
- Pursuant to the Notice of Hearing and Notice of Motion for Order Without Hearing dated December 9, 1994, the Amended Complaint dated March 21, 1996, and the July 14, 1997 Interim Decision in this matter, an administrative enforcement hearing was held before Administrative Law Judge (ALJ) Helene G. Goldberger on July 22-24, 1997 at Jamestown Community College in Olean, New York. Respondents Liberty Oil Company (Liberty), Hogan Energy, Inc.(Hogan Energy), and William F. Hogan (Hogan) appeared by their attorney, G. William Gunner III, Esq. Respondent Carl H. Roberts appeared by his attorney D. Bruce Cahilly, Esq. Staff appeared by its attorney Joseph Kowalczyk, Esq.
- By notice of motion dated August 29, 1997, staff moved for summary order relating to additional alleged violations of Article 23 and its implementing regulations by these respondents.
- Pursuant to the request of staff, the ALJ's hearing report was circulated as a recommended decision on November 14, 1997. The parties submitted briefs and reply briefs that raise a number of exceptions and comments to the recommended decision. The recommended decision by ALJ Goldberger is adopted as my decision in this matter concerning wells on the Burger and Nichols leases in the Town of Clarksville, Allegany County, New York (hereinafter "the Liberty leasehold")except as noted below.
- In this proceeding, staff seeks an order imposing civil penalties and injunctive relief on respondents for alleged violations of the law and regulations concerning the operation of oil production facilities pursuant to Environmental Conservation Law (ECL), Article 23 and its implementing regulations contained in Parts 551, 552 and 555 of Title 6 of the New York Compilation of Codes, Rules and Regulations (NYCRR). As set forth in the Commissioner's Order in Farrell and Williams (July 30, 1996), the intent of Article 23 is to ensure that there is optimal oil and gas recovery subject to the rights of owners and the public. ECL 23-0301. To ensure that goal, the Department administers the oil and gas program which requires, inter alia, that owners/operators properly plug non-producing wells to prevent the migration of oil and gas, file annual reports with the Department, and post financial security to secure the proper plugging of non-productive wells. ECL 23-0305.8(d), (e); 6 NYCRR Parts 551, 552, and 555.
The Amended Complaint
- The staff allege that all of the respondents except Hogan failed to file a new organizational report with the Department within thirty days after changes in organization and to report termination of activities and file a list of all wells that have not been plugged and abandoned in violation of 6 NYCRR 551.1. Staff also alleges that all respondents except Hogan failed to file annual well reports for the years 1967-1981 and to file accurate well reports from 1982-1994. All respondents are charged with failure to post with the Department financial security for the proper plugging of the five "new" wells drilled by Roberts in addition to the two gas-injected wells in violation of ECL 23-0305(8)(e) and 6 NYCRR 551.4. All respondents are alleged to have abandoned numerous wells on the Liberty lease without having plugged them in accordance with 6 NYCRR 555.1. Roberts is alleged to have violated 6 NYCRR 552.1(a) for failure to apply for a permit to convert wells from production wells to injection wells. Roberts, Hogan Energy and Hogan are alleged to have violated 6 NYCRR 557.1(a) for failure to obtain Department approval to initiate secondary recovery or pressure maintenance operations. And, staff alleges that Roberts, Hogan Energy, and Hogan failed to provide annual reports for secondary recovery and pressure maintenance operations in violation of 6 NYCRR 557.4.
- Staff seeks an order finding respondents liable for violations of the aforementioned provisions and that directs respondents to file current organizational reports, to submit financial security, to search, with DEC staff, the property to locate the abandoned wells, map them, and properly plug all abandoned wells. In addition, the staff seeks substantial penalties against all the respondents.
ALJ's Recommended Decision
- The ALJ's recommended decision, issued pursuant to 6 NYCRR 622.18(a)(2), is based upon the interim decision of July 14, 1997, the record of the July 22-24, 1997 adjudicatory hearing including all pleadings and exhibits, the staff's letter of August 7, 1997 that provides for the withdrawal of certain charges, and the staff's motion for summary order dated August 29, 1997. In the recommended decision, the ALJ concluded that Roberts violated 6 NYCRR 551.1, 551.4, 555.1, 552.1(a), 557.1(a), 557.4, and ECL 23-0308.8(e). The ALJ did not find that Roberts violated 6 NYCRR 551.2 and 551.1(d). ALJ Goldberger determined that Roberts did not have an ownership interest in the older wells. Because the requirement to submit a list of wells to the Department that had been abandoned was the responsibility of the owner based upon the language in 6 NYCRR 551.1(d) that references "owner", she concluded this requirement did not apply to Roberts. With respect to 6 NYCRR 551.2, the ALJ found that because Roberts submitted well reports for the five wells he operated and the evidence indicated that the other wells were not producing during his tenure, he had no responsibility to submit wells reports for them. The ALJ recommended a penalty of $47,500 with 50% suspended pending compliance with the remedial measures requested by staff.
- With respect to William F. Hogan, the ALJ provided in the recommended decision that Hogan violated ECL 23-0305.8(e) and 6 NYCRR 551.4 and 555.1. The ALJ determined no penalty was appropriate because Hogan acted through Liberty or Hogan Energy but concluded also that Hogan should be personally liable for the monetary and injunctive remedies ordered against Liberty and Hogan Energy in the event that these entities do not comply. The AlJ found in the recommended decision that Hogan Energy, Inc. violated ECL 23-0305.8(e) and 6 NYCRR 551.4, 551.1, 551.2, and 555.1. The ALJ determined that a penalty of $89,838 was appropriate with 50% suspended pending compliance with the remedial measures. And, the recommended decision provides that Liberty Oil Co. violated ECL 23-0305.8(e) and 6 NYCRR 551.4., 551.1., 551.2, and 555.1. The penalty recommended for Liberty was $90,000 with 50% suspended based upon compliance with remedial requirements.
- Because Hogan presented facts adverse to the staff's presentation in its motion for order without hearing of August 29, 1997, the ALJ did not find summarily that Hogan and Hogan Energy violated 6 NYCRR 557.1(a) and 557.4.
- Based upon the staff's withdrawal of allegations concerning violations of 6 NYCRR 555.3 and 555.4 with respect to all respondents and 6 NYCRR 551.1 and 551.2. with respect to Hogan individually, those causes of action were dropped from consideration.
Exceptions by Staff and Respondents
- The staff argues that Hogan is independently liable for the alleged violations for the period from 1946-1986 before Hogan Energy was incorporated. Staff also maintains that the recommended decision was erroneous for concluding that Roberts was not an owner because he had the right to drill into the lease and appropriate the product for himself and others. ECL 23-0101(11); 6 NYCRR 550.3(ad). Staff argues additionally that the reporting requirements contained in 6 NYCRR 551.2 pertain to all wells on the lease whether producing or not. And, the staff also present that the ALJ erred by not determining that 80 or more abandoned wells existed on the lease including the Ferrington parcel based upon the map presented at the hearing.
- On behalf of Hogan, counsel argues that it is inappropriate to hold him personally liable because he always acted in the capacity of partner, shareholder, director or officer. With respect to the three respondents, Liberty, Hogan Energy and Hogan, counsel Gunner states that the fines are duplicative. As for Hogan Energy and Liberty, attorney Gunner challenges all the findings with respect to liability. As for financial security, counsel claims that the penalty should be limited to requiring Hogan Energy to post the appropriate bond at this time. And, Gunner argues that Liberty had no obligation to post financial security which pertains only to the newer wells drilled by Roberts. Counsel also argues that there was no evidence of abandonment of wells. Gunner maintains further that the remedial relief recommended by the AlJ is improper because a survey would be too costly and Hogan Energy already provided a map. Finally, Gunner argues that the status of the two gas-injected wells is unclear.
- Roberts argues in his responses that he has no responsibility for the old abandoned wells because he did not own or operate these wells.
- Based upon my review of the record in this proceeding, I have adopted the ALJ's recommended decision subject to the following. With respect to the liability of Hogan, I have examined the exhibits related to the chain of title to the Liberty lease as referenced by staff. However, despite the evidence that indicates that Hogan has personally owned at least 50% of the lease since the mid-1940's, for the periods relevant to this proceeding, it is not clear when, if ever, he operated indepedently from Liberty or Hogan Energy, Inc. However, because Hogan directly managed the activities at the lease, he must be held accountable for the violations of Liberty and Hogan Energy, Inc. in the event that these entities do not comply with the requirements as set forth below. It is also clear that Hogan is in control of whether or not Liberty and/or Hogan Energy comply with this order and thus, he is able to limit the penalties sustained through his own actions.
- With respect to the identification of Roberts as owner, I agree with staff that the definition of owner in the statute and regulations implicates Roberts as an owner of the Liberty lease during the period from 1981-1990. He had the right to drill into the lease and to appropriate the product for himself and others. ECL 23-0101(11); 6 NYCRR 550.3(ad). During his tenure, Roberts directed the activities on the lease by paying the pumper, filing well reports with the Department, and selecting the drilling sites. Moreover, when he decided to conclude his efforts, he sold his interest to Hogan Energy, Inc. rather than merely walking away.
- As set forth in Farrell and Williams (Commissioner's Order, July 30, 1996) and Allegro Oil and Gas, Inc. (Commissioner's Order, November 1, 1993), an owner or operator has responsiblity for reporting all wells not permanently plugged, whether in production or not. While Roberts did not drill the abandoned wells in question, he was responsible as an owner and operator of the lease for the reporting of these wells and his failure to do so is a violation of 6 NYCRR 551.1(d) and 551.2. Similarly, the ALJ found correctly that Roberts was responsible for the plugging of the abandoned wells pursuant to 6 NYCRR 555.1.
- Because the Interim Decision of July 14, 1997 determined that Hogan, Hogan Energy and Liberty were liable for the violations cited in the amended complaint (with the exception of the sixth cause of action which staff has since withdrawn), it is not necessary to revisit those allegations.
- There are clearly a great number of abandoned wells on the lease based upon Roberts' written statement of September 16, 1991, Grover's testimony and the map produced by Hogan Energy. None of these wells were reported as producing to DEC and therefore, I must conclude that they are abandoned. See, Farrell and Williams, p.3 (Commissioner's Decision, July 30, 1996). And, I find that all the respondents must bear the responsibility of proper plugging. However, it is not clear how many abandoned wells exist. The key on the map provided to staff by Hogan indicates that some of the 80 abandoned wells are plugged. Therefore, it is essential that the respondents survey the lease to determine the exact location of each abandoned well in order to prepare a plugging plan. Survey in this context means a search rather than a boundary determination conducted by a licensed surveyor. See, Farrell and Williams, supra, p. 8.
- With respect to penalties, I adopt the reasoning of the ALJ in her recommended decision. The penalty amounts are revised below to reflect my findings as set forth herein.
- There was no evidence produced regarding activities on the Ferrington parcel. Therefore, I cannot make any determinations regarding respective liabilities with regard to any abandoned wells on that location.
- Counsel for Hogan Energy questions the status of the gas-injected wells. Because these wells were utilized subsequent to the establishment of the security requirements, they are subject to the requirements contained in 6 NYCRR 551.4.
NOW, THEREFORE, having considered this matter and being duly advised, it is ORDERED that:
- William F. Hogan is liable for violations of: ECL 23-0305.8(e)and 6 NYCRR 551.4, and 555.1.
- Liberty Oil Company is liable for violations of ECL 23-0305.8(e), 6 NYCRR 551.1, 551.2, 551.4, and 555.1.
- Hogan Energy Inc. is liable for violations of ECL 23-0305.8(e), 6 NYCRR 551.1, 551.2, 551.4, and 555.1.
- Carl Roberts is liable for violations of ECL 23-0305.8(e), 6 NYCRR 551.1, 551.2, 551.4, 555.1, 557.1(a), and 557.4.
- In the event that staff seeks to pursue its allegations with respect to violations of 6 NYCRR 557.1(a) and 557.4 against Hogan Energy and Hogan, it shall make application to the Office of Hearings and Mediation Services within thirty (30) from the date of this order.
- The alleged violations of 6 NYCRR 555.2 and 555.4 by respondent Roberts are dismissed.
- The alleged violations of 6 NYCRR 551.1, 551.2, 555.2 and 555.4 by respondent Hogan are dismissed.
- The alleged violations of 6 NYCRR 555.3 and 555.4 by respondent Liberty are dismissed.
- The alleged violations of 6 NYCRR 555.3 and 555.4 by respondent Hogan Energy are dismissed.
- Liberty shall pay a penalty of $90,000.
- Hogan Energy shall pay a penalty of $89,838.
- Roberts shall pay a penalty of $55,500 to the Department which includes a penalty of $8,000 for violations of 6 NYCRR 551.2 for failure to submit accurate annual well reports for each of the eight years (1982-1990) that he operated the lease.
- Each respondent shall pay fifty percent (50%) of the assessed penalties to the Department by no later than sixty (60) days from the date of this order. The remainder shall be suspended contingent upon respondents' compliance with the schedule of compliance as set forth below. In the event that any respondent does not adhere to these requirements, the full penalty shall be due within thirty (30) days from notification by Department staff.
- In accordance with the hearing report of ALJ Goldberger, respondent Hogan is personally liable for the costs, penalties and remedial requirements assessed of Hogan Energy and Liberty as set forth herein.
- a. Respondents are to submit current organizational forms within thirty (30) days of the date of this order.
- Respondents Roberts and Hogan Energy are to submit the required financial security in proper form by no later than thirty (30) days from the date of this order.
- Respondents or their designated representatives are to survey, with Department personnel present, the Liberty lease to locate by any and all means the abandoned wells. Respondents are to submit an accurate map of all wells found and a list of all unplugged wells to the Department by no later than April 1, 1998.
- Respondents are to properly plug and abandon all non-producing wells found during the survey by a schedule to be determined by Department staff. In the event that the abandoned wells are not plugged in accordance with this schedule, all wells on the Liberty Oil lease, including the Nichols and Burger leases, are to be shut-in and production ceased until the plugging and restoration is complete.
- The provisions, terms and conditions of this order and the attached ruling shall bind the respondents, their officers, directors, agents, servants, employees, successors and assigns and all persons, firms and corporations acting for or on behalf of the respondents.
- All communications between the respondents and the Department in this matter shall be made to the Department's Region 9 Director, 270 Michigan Avenue, Buffalo, New York 14203-2999.
For the New York State Department of Environmental Conservation
By: Carl Johnson, Deputy Commissioner
Albany, New York
December , 1997
TO: D. Bruce Cahilly, Esq.
12 East Second Street
Coudersport, PA 16915
G. William Gunner, Esq.
Embser & Woltag, P.C.
164 North Main Street
Wellsville, NY 14895-1152
Joseph M. Kowalczyk, Esq.
New York State Department of Environmental Conservation
50 Wolf Road, Room 410A
Albany, NY 12233-5550
STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION
50 Wolf Road
Albany, New York 12233-1550
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 New York Compilation of Codes, Rules and Regulations by
LIBERTY OIL COMPANY,
HOGAN ENERGY, INC.,
WILLIAM F. HOGAN, and
CARL H. ROBERTS,
Case No. D9-A113-94-12
- by -
Helene G. Goldberger
Administrative Law Judge
The staff of the New York State Department of Environmental Conservation ("the Department or DEC") served a notice of hearing and motion for order without hearing by personal service, on January 20, 1995, upon Liberty Oil Company ("Liberty"), Hogan Energy, Inc. ("Hogan Energy") and William F. Hogan ("Hogan"), and upon Carl H. Roberts ("Roberts"), by certified mail on December 15, 1994. The staff alleged that the respondents had violated various provisions of Article 23 of the Environmental Conservation Law ("ECL") and its implementing regulations, Parts 551 and 555 of Title 6 of the New York Compilation of Codes, Rules and Regulations ("6 NYCRR"), in connection with their operation and ownership of oil wells and related oil production in the Town of Clarksville, Allegany County known as the "Liberty leasehold." Now-retired Administrative Law Judge William J. Dickerson denied the staff's motion by ruling dated March 14, 1995 and subsequently, this ALJ was assigned to this matter.
As set forth in the ALJ Rulings on Staff's Motion for Summary Order dated July 11, 1997, a period of motion practice and discovery followed the Dickerson ruling. In the July 11, 1997 ruling, I found the respondents Liberty, Hogan Energy and Hogan liable for the violations alleged in staff's amended complaint dated March 21, 1996 with the exception of the sixth cause of action (plugging of wells without permit) for which staff had presented no support in its motion papers.
As to respondent Roberts, I recommended that staff's motion should be granted as to the first and third causes of action (failure to file organizational reports and failure to post financial security) limited to the five wells that Roberts admits having operated from 1982-1990. With respect to the second, fourth, fifth and sixth causes of action and to the extent that staff alleged Roberts was responsible for other wells on the Liberty lease, I determined a hearing was necessary. By Interim Decision dated July 14, 1997, Deputy Commissioner David Sterman adopted my rulings and remanded the matter for hearing on the following:
- the allegations that respondents violated 6 NYCRR 555.4 for failure to notify the Department prior to plugging of abandoned wells on the Liberty leasehold;
- the allegations that respondent Roberts violated 6 NYCRR 551.1 for failure to notify the Department within thirty days of cessation of activities and to report the production/plugging status of wells;
- the allegations that respondent Roberts violated 6 NYCRR 551.2 for failure to file well reports and
- the allegations that Respondent Roberts failed to post financial security for wells on the Liberty leasehold in addition to the five wells Roberts admits to have operated;
- the allegations that respondent Roberts violated 555.1 and 555.3 by temporarily or permanently abandoning wells on the Liberty leasehold without Department permission and without proper plugging; and
- the appropriate payable penalty and/or other relief to be assessed respondents for all violations found.
As a result of this interim decision, I convened an adjudicatory hearing on July 22-24, 1997 at Jamestown Community College in Olean, New York. Joseph Kowalczyk, Compliance Counsel represented staff. Assisting Mr. Kowalczyk at the hearing were Donald Drazan and Charles Gilchrist of the Division of Mineral Resources in Albany and John Hoffman of the Division's offices in Olean. William Gunner, Esq. appeared on behalf of Liberty, Hogan Energy and Hogan with Mr. Hogan attending. In addition, Mr. Hungerford and Mr. John Hogan were present at certain times. Bruce Cahilly, Esq. represented Mr. Roberts and respondent Roberts was present at the hearing. At the outset of the hearing, I agreed that staff could bifurcate the hearing to address liability first and relief, second. However, at the conclusion of the liability phase, staff announced its intention to address those issues in its closing brief.
The staff called three witnesses, Donald Drazan, Chief of the Technical Assistance Section, Bureau of Oil and Gas Regulation of the Division of Mineral Resources, Leslie T. Grover, and John Hoffman of DEC's Region 8 office. Respondent Roberts testified on his own behalf and Mr. Cahilly also examined Mr. Thomas Hungerford, an engineer, as part of this respondent's case. Mr. Gunner did not call any witnesses although he cross-examined most of the witnesses that were called.At the conclusion of testimony, Mr. Gunner requested that Mr. Hogan's advanced age be noted. While I stated that I did not believe anyone would contest this fact, its relevance was not clear. Staff argued that it was not germane to the issues and I agree. The parties decided not to give closing statements and opted for submitting briefs instead.
After completion of staff's direct case, Mr. Gunner moved for dismissal of the sixth cause of action against his clients. Staff agreed to withdraw this claim against all parties. At the conclusion of the hearing, the staff requested an opportunity to amend its complaint to conform the pleadings to the proof adduced at the hearing with respect to the alleged unpermitted injection of gas into wells. I concluded that Mr. Kowalczyk was to send a letter to all parties describing the proposed changes to the amended complaint. I ruled that any charges that the staff sought to add would have to be set forth in an amended complaint to be served upon the parties by no later than September 2, 1997. The respondents were to submit answers to any such pleading within twenty days of its receipt.
By letter dated August 7, 1997, Mr. Kowalczyk conveyed the staff's determination to withdraw the fifth and sixth causes of action that related to alleged violations of 555.3 and 555.4 respectively. In addition, staff withdrew allegations concerning violations of 551.1 and 551.2 against Hogan individually. Not surprisingly, at the hearing, respondents stated that they would have no objection to staff's withdrawal of any allegations.
Staff also served a notice of motion for order without hearing dated August 29, 1997. This motion pertains to staff's allegations, based upon the testimony of Leslie Grover and respondent Roberts at the July 1997 hearing, with respect to alleged unpermitted gas injection on the Liberty lease. In response to staff's motion, William F. Hogan submitted an affidavit in opposition dated September 8, 1997. Staff submitted a letter reply dated September 18, 1997. Attorney Gunner submitted another letter in response dated September 22, 1997. Respondent Roberts submitted his reply dated September 24, 1997.
Respondent Roberts served his post-hearing briefs on or about September 16, 1997. Liberty, Hogan Energy and Hogan submitted a memorandum signed by attorney Gunner and an affidavit by William F. Hogan both dated September 19, 1997. A period of settlement discussions ensued between staff and Roberts as noted in a letter dated October 15, 1997 from Mr. Kowalczyk to Attorney Cahilly. However, the parties did not resolve their disagreements and by letter dated October 23, 1997, staff submitted its closing papers which contain the basis for staff's penalty demands. In this closing submission, staff requests that the ALJ's report be circulated to the parties as a recommended decision pursuant to 6 NYCRR 622.18.
Attached to this hearing report as Appendix A is a copy of the July 14 Interim Decision and the July 11 Ruling. Except as altered by the staff's withdrawal of certain charges as set forth above or as otherwise indicated in this report, the facts and findings of liability as noted in the Interim Decision and prior ruling are adopted herein.
Alleged Violations and Relief Sought
The Amended Complaint as modified by staff's withdrawal of certain allegations set forth in its August 7, 1997 letter and by the notice of motion for order without hearing dated August 29, 1997, charges the respondents with the following violations:
- All the respondents except Hogan are alleged to have failed to file a new organizational report with the Department staff within thirty days after the changes in organization and to report termination of activities and to file a list of all wells that have not been plugged and abandoned pursuant to 6 NYCRR 551.1. Respondents Liberty and Hogan Energy were found liable for violation of this regulation in the Interim Decision dated July 14, 1997. In addition, in the July 14 decision, the Deputy Commissioner found respondent Roberts liable for violation of 551.1 limited to the five wells, CR1, CR2, CR3, CR4 and CR5 (hereinafter "five wells"). Staff also alleges that Roberts failed to file organizational reports for all the other wells located on the Liberty lease.
- All respondents except Hogan are alleged to have failed to file annual well reports for the years 1967-1981 and to properly identify active or inactive wells in reports filed from 1982-1994 pursuant to 551.2. In his Interim Decision dated July 14, 1997, Deputy Commissioner Sterman found respondents Liberty and Hogan Energy liable for violation of 6 NYCRR 551.2. Staff seeks a finding of liability against respondent Roberts for violation of 551.2 with respect to wells other than the five wells for which he did submit reports.
- All respondents are alleged to have failed to file with DEC and keep in force, financial security payable to the Department to guarantee the performance of the respondents' well plugging and abandonment obligations pursuant to ECL 23-0305(8)(e) and 6 NYCRR 551.4. In the July 14, 1997 Interim Decision, the Deputy Commissioner found respondents Liberty, Hogan Energy and Hogan liable for violation of these provisions. However, based upon its analysis of the regulations, staff stated at the hearing that financial security was not required for the older wells but only for the five new wells drilled by Roberts.
In its August 29, 1997 motion for summary order, the staff alleged that Hogan Energy and Hogan failed to provide financial security for the two injection wells. Because the staff alleges that these wells had been converted from production to injection wells, the respondents lost the benefit of any grandfathering that would exempt these two older wells from the requirements of financial security. In addition, in the July 14 decision, Roberts was also found liable for failure to post financial security for the five wells. Staff also seeks to find Roberts liable for failure to post security for the two injection wells.
- All respondents are alleged to have abandoned numerous wells on the Liberty lease without having them plugged and abandoned in accordance with 6 NYCRR 555.1. In the July 14 Interim Decision, Deputy Commissioner Sterman found respondents Liberty and Hogan Energy liable for failure to properly plug and abandon the wells on the Liberty lease. Staff seeks to find respondent Roberts liable for this violation with respect to all the wells on the Liberty lease including the five wells.
- Roberts is alleged to have violated 6 NYCRR 552.1(a) for failure to apply for a permit to convert wells from production wells to injection wells.
- Roberts, Hogan Energy and Hogan are alleged to have violated 6 NYCRR 557.1(a) for failure to obtain Department approval to initiate secondary recovery or pressure maintenance operations.
- Staff also alleges that Hogan Energy and Hogan failed to provide annual reports for secondary recovery and pressure maintenance operations in violation of 6 NYCRR 557.4.
Staff seeks an order finding respondents liable for violations of the aforementioned provisions and which directs respondents:
- to file current organizational reports within thirty days of the order;
- to submit financial security in proper form no later than thirty days of the order;
- to search, with DEC staff, the property to locate the abandoned wells and to map them and to file a map of all wells found and a list of unplugged wells with staff within sixty days of the order;
- to properly plug and abandon all abandoned wells found by a schedule determined by the Department and if they do not plug the wells in accordance with the schedule, to cease production of all wells on the Liberty lease until plugging and restoration is complete; and
- to pay a fine in the amount of four hundred fifty thousand dollars ($450,000), two hundred thousand dollars ($200,000) of which may be suspended if all the abandoned wells are properly plugged and abandoned in accordance with Part 550 within two years of the order. In its submission of October 23, 1997, the staff has altered the penalty requested. (See, Staff's Civil Penalty Calculation annexed hereto as Appendix B.) Staff requests that Liberty Oil Company be fined $1,276,226, suspending all but $250,000 for so long as Hogan Energy/Hogan remains in compliance with all applicable environmental requirements and adheres to a plugging or production schedule for 36 wells a year until all wells are producing or properly plugged and abandoned.
With respect to Roberts, staff requests a penalty of $412,033, reduced by 25% for violator cooperation for a subtotal of $309,024 with all but $50,000 suspended upon condition that Roberts contributes $50,000 to the Oil & Gas Account to be used solely for the proper plugging of abandoned wells.
As for Hogan Energy, staff requests a fine of $424,151 with all but $150,000 suspended based upon the same conditions stated above for Liberty Oil and also Hogan Energy discloses all other interests and activities subject to ECL Article 23 or 6 NYCRR Part 550.
With respect to William Hogan, staff requests a fine of $561,895.00, of which all but $200,000 is suspended pending compliance with the same conditions set forth for Hogan Energy.
Staff's August 29, 1997 Motion for Order Without Hearing
As noted above, pursuant to my determination at the hearing for staff to amend its complaint by September 2 to include any additional allegations, staff made a motion for order without hearing dated August 29, 1997. Attached to the Notice of Motion is an affidavit by Charles R. Gilchrist, Chief of DEC's Compliance/Enforcement Section, Bureau of Oil and Gas, Division of Mineral Resources. Mr. Gilchrist states in his affidavit that he was present at the enforcement hearing and has completed a review of the hearing record and the staff's files regarding this matter.
Based upon this review, Gilchrist concludes that the respondent Roberts violated 6 NYCRR 552.1(a) for failure to apply for a permit to drill and convert the two wells for gas injection; 6 NYCRR 557.1(a) for failure to obtain Department approval to initiate any secondary recovery or pressure maintenance operations; 6 NYCRR 557.4 for failure to submit annual reports for secondary recovery and pressure maintenance operations; 6 NYCRR 551.1(d) for failure to provide a list of unplugged wells upon termination of operations; and 6 NYCRR 551.4(a) for failure to post financial security for the two injection wells.
In addition, the Gilchrist affidavit sets forth that Hogan and Hogan Energy violated 6 NYCRR 557.1(a) for failure to obtain Department approval to initiate any secondary recovery or pressure maintenance operations; and 6 NYCRR 557.4 for failure to provide annual reports for secondary recovery and pressure maintenance operations; and 6 NYCRR 551.4(a) for failure to post financial security for the two injection wells.
In response, respondent Roberts argues that he did not convert the wells within the meaning of 6 NYCRR 550.3 because that regulation defines converting to occur when "the status of a well is changed from producing to input or vice versa." Because Roberts alleges that the two wells were not producing at the time it is alleged that they were used for introduction of gas, there was no conversion in violation of 6 NYCRR 550.3(1). With respect to staff's allegation that Roberts improperly used a pressure maintenance system to increase recovery of oil in violation of 6 NYCRR 557.1(a), he maintains that he has an expert witness to demonstrate that the re-injection was not a pressure maintenance or recovery program. Because Roberts alleges that it is not established that he maintained such a program, he argues that he was not required to keep the records mandated by 6 NYCRR 557.4. As for alleged violations of 6 NYCRR 551.1(d) with respect to the two wells, Roberts argues that until it is established that he maintained a pressure maintenance program, he had no obligation to list them. And similarly, unless there is such a determination, he argues that he had no obligation to post financial security for these wells pursuant to 6 NYCRR 551.4.
Respondents Hogan, Hogan Energy and Liberty argue that after Hogan Energy, Inc. acquired the interests in the Liberty lease from Roberts the gas compressor was never again utilized on the lease for any purpose. In his affidavit in opposition, William F. Hogan suggests that staff subpoena utility records in order to confirm this fact. In staff's reply letter of September 18, counsel argues that this affidavit is self-serving and that Leslie Grover, who was subpoenaed to the hearing and testified regarding the use of the gas compressor, had no interest in the outcome. In his letter dated September 22, attorney Gunner replies that the staff should search the utility records to compare the levels of use of electrical service before and after Hogan Energy acquired the mineral rights from Roberts. It is Hogan's contention that because the compressor was never used after Hogan Energy took over the lease, the utility bill would reflect that status. By letter dated October 11, 1997, Mr. Gunner submitted copies of utility bills from 1990 and 1996 that he stated were submitted by Mr. Hogan and were for the Liberty lease.
Based upon the affidavit of Mr. Gilchrist and the testimony adduced at the hearing from Roberts and Grover, I recommend granting the staff's motion against the respondent Roberts except for the allegations concerning Roberts' alleged violation of 6 NYCRR 551.1(d) as there is no proof that these two wells were not in use at the time Roberts terminated his activities at the field. If these wells were in operation at the time Roberts ceased his involvement, they would not be subject to the plugging and/or abandonment requirements in Part 551.
Because Hogan has submitted an affidavit that raises facts that contrast with the testimony of Leslie Grover concerning the use by Hogan and Hogan Energy of the gas compressor, I cannot find summarily that Hogan Energy or Hogan violated 6 NYCRR 557.1(a), and 557.4.I have considered the arguments of staff and attorney Gunner regarding the credibility of the Hogan affidavit. As stated by Mr. Gunner regarding Grover, it is not necessary to find any motivation to lie, he may be mistaken or confused on this matter as he was on other issues such as dates. In any event, without exploring the facts presented further at a hearing, I cannot make a determination on these allegations. However, because the two injection wells remain unplugged on the property, these parties are responsible for financial security. In the event that staff seeks to pursue the other alleged violations against these respondents, it will be necessary to conduct a hearing on those charges. In the interest of economy, I have included the findings of fact and conclusions regarding these allegations in those respective sections below.In staff's submission of October 23, 1997, staff does not address these violations in its penalty calculation.
The Root Affidavit
By letter dated July 18, 1997, staff counsel, Mr. Kowalczyk wrote to Mr. Cahilly (with copies to attorney Gunner and me) regarding his intention to offer into evidence at the hearing the affidavit of Francis R. Root, the owner of a drilling company, Francis Root, Inc. The affidavit was attached to the cover letter. In the letter, Mr. Kowalczyk explained that because staff's motion for summary order against Roberts was denied insofar as it sought liability beyond the five wells, it was necessary to include Mr. Root's affidavit. The affidavit speaks to activities of Mr. Roberts on the Liberty lease. Counsel also represented that by personal service of a subpoena, staff attempted to have Mr. Root testify in person at the hearing but Root informed staff that he would be unavailable.
At the hearing, after hearing argument from all parties, I determined that I could not accept the affidavit as evidence because Mr. Root would not be available for cross-examination pursuant to the State Administrative Procedure Act 306. Mr. Kowalczyk presented headnotes of Court of Appeals cases in which the court decided not to overturn administrative decisions that were, in part, based upon affidavits taken in lieu of testimony subject to cross-examination as part of a cumulative record. Without having the opinions before me, I could not determine the nature of these decisions.However, I have now reviewed the case cited by DEC staff counsel, NBA v. New York State Division of Human Rights, 68 NY2d 644 (1986). In this case and precedent cited in the decision, Eagle v. Patterson, 57 NY2d 831 (1982), the court found that the ALJ's determination to allow an affidavit or letter in without the presence of the author or recipient respectively, was allowable because there was other evidence in the record to consider that supported the result. However, in both cases the court noted that the opposing party did not request cross-examination of the missing individuals. That was not the case here where counsel for Roberts objected strongly, inter alia, on the grounds that there was no opportunity for confrontation. While hearsay is admissible in administrative hearings, the right of cross-examination is fundamental to fairness and I could see no reason to deny the respondents that right in this context. Despite staff's late decision to include this witness as part of its case, I did offer to schedule an additional day of hearing when Mr. Root could be presented but staff declined this invitation.
Position of Respondents
Respondent Roberts admits that he owned an interest in five wells on the Liberty lease. However, Mr. Cahilly argues that the Department staff seeks to equate drilling rights with ownership of the entire leasehold. Further, numerous wells on the leasehold were abandoned prior to Roberts' involvement and the drilling agreement with Root was the sole document to link him to the lease. Counsel argues that because there is no formal record designating Roberts as a holder of ownership rights, he cannot be found responsible for the multitude of abandoned wells that preceded his tenure at the lease. Attorney Cahilly points to staff's courthouse research that shows the history of the Liberty mineral rights with respect to Hogan and other individuals, but not Roberts. And, counsel also argues while the lease between Liberty and Root imposed certain performance requirements on Root that Roberts later assumed, the Root-Roberts agreement did not create any ownership interest in the lease. Nor was this agreement formalized.
Attorney Cahilly posits that Roberts' only interest was in the five wells that he drilled and that at the point that he decided to utilize one of the older wells (T-1), he first sought the permission of Hogan. Any other work that Roberts performed on the lease was not a demonstration of development rights but rather activity in satisfaction of his continuing obligation to drill new wells as set forth in his agreement with Root. Counsel also stated that when Roberts ended his involvement by selling his equipment and interest on the five wells, these wells were still producing and thus, Roberts did not improperly abandon them.
On behalf of Roberts, counsel also points to the specific provisions of 551.1(d) regarding the provision of a list of wells upon termination of activities. Counsel notes while this regulation requires a party who is a principal or acts for another with respect to drilling to be bound by the organizational report requirements, it requires such person to provide a list of unplugged wells in which the person "had an interest as owner. . ." Since, Cahilly argues, Roberts had no possessory interest in these older wells, he was not required to file the well list.
Roberts' counsel also notes that there was no evidence presented at the hearing that these older wells were producing and so the well reports required by 6 NYCRR 551.2 were not required.
Hogan, Hogan Energy and Liberty
On behalf of the other respondents, Mr. Gunner stated at the hearing that the evidence will show Mr. Hogan's acquisition of interests in Liberty during certain periods commencing in the 1960's and his conveyance of his interest to Hogan Energy in 1986. Mr. Gunner represented that Hogan Energy was a valid New York corporation. In addition, counsel Gunner stated that from 1982-1990 the lease rights were designated to Root who contracted them to Roberts.
In the memorandum submitted by attorney Gunner dated September 19, 1997, respondents argue, among other things, that as owners, these parties are not liable for financial security, that it is possible that annual well reports were lost by the Department, that Liberty's filing of an organizational report in 1980 cures any other defect related to this type of filing, that Roberts was responsible for plugging the five wells and that the Department had no proof of the abandonment of wells.
In the affidavit of September 19, 1997, Mr. Hogan provides his age (92 years) and a description of his financial status. He indicates that he has few assets or income. In the accompanying memorandum, Mr. Gunner argues that in the event violations are determined, the good faith efforts of Liberty, Hogan Energy and Hogan should mitigate any penalties.
FINDINGS OF FACT
- William F. Hogan ("Hogan") is a natural person residing at 130 Plum Street, Bolivar, New York. Hogan is or has been an owner of mineral rights on a parcel in the Town of Clarksville, Allegany County, New York known as the "Liberty lease" comprised of the Nichols and Burger fields.In some records, there is mention of the Ferrington lease. This area was not the subject of these proceedings.
- Liberty Oil Co. ("Liberty") is registered as a New York State partnership engaged in activities regulated by ECL Article 23. An organizational report dated January 17, 1980 is signed by William F. Hogan as part owner of Liberty.
- Liberty is or has been an owner of mineral rights on the Liberty lease.
- Hogan Energy, Inc. is a New York State corporation engaged in activities regulated by ECL Article 23. An organizational report dated September 14, 1994 and signed by Hogan lists him as the sole director, sole officer and the only person authorized to sign submissions to the Department. Hogan Energy is an owner of mineral rights on the Liberty lease.
- Annual well reports that are submitted to DEC demonstrate well status and amount of production. Well reports submitted by Hogan Energy and signed by William F. Hogan for production years 1990-1993 identify wells: "Nichols" CR1-4 and 18N and "Burger" 6B, 12B, 48B, CR5 and T2.
- Carl H. Roberts is a natural person residing at 2 Southeast Street, Coudersport, Pennsylvania who is registered as an individual engaged in activities regulated by ECL Article 23. In August 1981, Roberts submitted to DEC an organizational report for oil, gas, and solution mining activities.
- In 1983, Roberts submitted to DEC an annual production report for 1982 dated January 13, 1983 that identified three active wells on the Liberty Oil Co. lease. Carl Roberts is identified as the owner on this form. For production years 1982-89, Roberts submitted annual production reports to the Department that identify five wells on the Liberty Oil lease -- CR1-5. All of these forms indicate Roberts as owner and are signed by him.
- An agreement entitled "Oil and Gas Lease" between Liberty Oil Co. (signed by William F. Hogan, Winston L. Davis, Mary H. Sullivan, Sylvia F. Matson) and Francis R. Root, Inc. (signed by Francis R. Root) was made in the spring of 1982. In this agreement, Liberty leased to Root the oil and gas rights for a period of five years. In consideration, Root agreed to pay a portion of the petroleum proceeds and to pay the sum of one hundred fifty dollars for each well plugged in. Root was also obligated to drill a well within six months from the date of the agreement and to drill two additional wells within six months thereafter.
- By amendment dated June 4, 1982, Liberty and Root modified the lease to provide for the drilling of three wells within six months of the lease and if these produced satisfactorily, Root was to drill five wells in the next year and each year thereafter for the next five years.
- By letter dated June 18, 1982, Roberts and Root agreed that Roberts would assume the drilling obligations Root had entered into with Liberty but Roberts was not required to continue to drill five wells per year for an indefinite period. Root was to do all the actual drilling on the lease. Upon completing and testing of the first three wells, it was agreed that these parties would enter into a formal agreement transferring the Liberty lease to Roberts or he would notify Root in writing that he was not interested in continuing the lease arrangement.
- Roberts arranged for the drilling of five wells on the Liberty lease on the Burger and Nichols fields for which he obtained drilling permits from the Department. Francis Root, Inc. performed this drilling on the Liberty lease. In addition, with the permission of Hogan, Roberts re-worked a pre-existing well known as T1. He also injected gas produced in wells CR1-5 into two other existing wells without a permit.
- Leslie Grover performed pumping and maintenance work on the Liberty lease for respondent Roberts after a Mr. Barnes ceased that work. Subsequently, Mr. Grover also performed these duties for Hogan and Hogan Energy, Inc. but is no longer working in this capacity.
- Roberts and Root never entered into a formal agreement to transfer the Liberty lease to Roberts and instead, at some time prior to Hogan Energy's takeover of his interest in 1990, Roberts informed Root verbally that he was not interested in continuing.
- In a bill of sale dated May 14, 1990, Roberts conveyed to Hogan Energy, Inc. his interest in the five wells along with assorted other equipment and the associated documentation including drilling records, logs and maps related to Liberty Oil and new wells drilled by him.
- According to purchaser/taker records delivered to the Department, from the years 1983-1990, Roberts received the majority of revenues generated on the Liberty lease.
- During the years 1983-1994, Roberts received approximately $181,539.03 from the Liberty lease. During these same years, Hogan received approximately $8,398.34 and Hogan Energy received approximately $86,233.69 from the lease. These amounts reflect gross income and do not include expenses incurred in generating the revenue.
- Prior to 1980, when DEC staff was alerted to the presence of unplugged wells on the Liberty lease, it was not aware of the Liberty leasehold because the Department had not received any registration or filing of any reports. In response to a January 10, 1980 letter from staff alerting him to complaints by a surface landowner and tenant of the presence of open holes, Hogan stated that he would have a crew check the lease. He also filed an organizational report for Liberty with the Department at this time.
- In 1984, the Legislature reinstated and increased the amounts of financial security required for wells drilled after June 5, 1973. The Department promulgated regulations that same year, requiring well owners to file this security.
- In 1984, the Department sent form letters to all well owners who had submitted organizational reports, annual reports or other regulatory filings, including respondent Roberts, advising them of the new financial security requirements. In response, Roberts sent a completed Declaration of Active, and Inactive Unplugged Oil, Gas and Solution Mining Wells Subject to Financial Security in New York State dated December 19, 1984. The Declaration is signed by Roberts as owner and lists five wells requiring financial security in the amount of $12,500. A letter of credit for this amount would cost approximately 1% on an annual basis.
- By letter dated March 25, 1991, DEC staff requested that Roberts submit to the agency the annual report for 1990. In response, Roberts advised staff that he had transferred his rights to Hogan Energy. By letter dated September 16, 1991, DEC staff advised Roberts that the agency could not change the owner of record until a Notice of Transfer form (enclosed with that letter) was completed and until the proposed owner files a completed Organizational Report form and submitted adequate financial security to the Department. In response, Roberts advised staff that he was not aware of any bonding requirement and the property was sold to Hogan Energy in May 1990. In referring staff to William Hogan, Roberts also stated that there were "40 or 50 inactive wells on the lease in addition to the 5 new wells."
- On or about September 20, 1993, the Department received the notice of transfer signed by Hogan and Roberts.
- None of the respondents ever filed financial security with the Department to ensure the plugging of any of the wells on the Liberty lease. Accordingly, DEC never approved the transfer from Roberts to Hogan Energy.
- During the time that Roberts operated the lease, he retained Leslie T. Grover to pump the lease for about one year. During that time, Mr. Grover pumped five wells. When Hogan took the lease over, the five wells that Roberts worked continued to produce and in addition, a few older wells were put back into production.
- Roberts did not submit annual reports to the Department with respect to the two gas injection wells nor did he post financial security for these two wells with the Department. In addition, when he terminated his activities at the Liberty lease, Roberts did not submit to the Department a list of wells that had not been plugged and abandoned.
- Hogan Energy did not plug the gas injection wells or post financial security to ensure their proper closure.
- There are over sixty wells on the Liberty lease including wells on the Nichols and Burger parcels. While many of these wells have casings intact, any inactive well has potential to contaminate groundwater due to movement of fluid between the earth strata in the well boring. There have never been any Department shut-in orders or consent orders that permit the temporary abandonment of these wells.
- While casings remain intact in wells, the diameter of the well openings is about seven inches. In the event that the casings are removed, wells may collapse resulting in openings as large as three feet. Such holes can result in injury to livestock, children and others who use the property where the wells are located.
- Injection of gas into existing wells can result in damage to integrity of the casing/tubing of wells that can allow the invasion of gas into an aquifer.
In the July 14, 1997 Interim Decision, the Deputy Commissioner found the respondents liable as summarized above. Primarily, the allegations to be explored further at hearing focused around the staff's contention that Roberts was responsible for all of the wells on the Liberty lease in addition to the five wells that he had drilled. At the hearing, there were lengthy periods of questioning regarding the staff's interpretation of the responsibilities that the regulations impose on drillers, operators, owners and others in various scenarios. Unfortunately, this testimony did not lead to clearcut conclusions regarding the role of respondent Roberts with respect to the wells that he did not drill. Based on the facts developed in the record and the law, I conclude as follows:
The Environmental Conservation Law (ECL) provides that it is the responsibility of the owner or operator to assume costs for the plugging of abandoned wells. ECL 23-0305(8)(e). Section 555.1 of 6 NYCRR echoes this requirement by stating that "it shall be unlawful for any owner or operator to abandon any wells . . . without having plugged . . . in the manner prescribed herein." An owner is defined in the law and regulations as one who has the right to drill into and produce from a pool and appropriate the product for himself and others. ECL 23- 0101; 6 NYCRR 550.3(ad). An operator is defined as the person in charge of the development of a lease or the operation of a producing well. 6 NYCRR 550.3(ab). The Legislature's intent is to ensure that responsibility for old wells is taken by those who derive a benefit from the resource. In other words, those who drill for oil and derive profits from this commodity must plug the wells when they are no longer producing. Primarily, this is so the potential for pollution of ground water is reduced.
Roberts entered into an agreement with Francis Root, Inc. dated June 18, 1982 in which the parties agreed that Roberts would take over the drilling obligations Root had with Liberty Oil Co. on the Liberty lease. This agreement provided, among other things, that upon completion and testing of the first three wells called for by the Root-Liberty lease, the parties would either enter into a formal assignment of the lease to Roberts or Roberts would notify Root of his intention to decline thus terminating the obligations in the letter agreement.
Based upon this letter agreement, Roberts obtained permits to drill on the Liberty lease and he drilled 5 wells. He submitted annual reports to the Department concerning these wells. In addition, he re-worked a sixth well (known as "T-1") with the permission of Hogan and also converted two old wells to accept gas that was pumped out of the five new wells. Based upon the documentation and testimony adduced at the hearing from Mr. Grover as well as Roberts, Roberts was responsible for the operation of the wells during his tenure from 1982-1990. He retained Grover to pump and paid him for his services, he paid for any parts and equipment needed at the wells and he also selected the drilling sites on the Nichols and Burger fields. Roberts owned the equipment that was used in the six wells that he operated. Moreover, when the time came in 1990 when he no longer sought to pursue this operation, he transferred his interest to Hogan Energy, Inc.
A lease was executed between Francis Root, Inc. and Liberty Oil Co. including William F. Hogan on February 24, 1982 that conveyed to Root the drilling rights on the Liberty lease. The terms of the lease were amended by these same parties on June 4, 1982. Shortly thereafter, Root conveyed his interest by letter agreement to Carl H. Roberts.
Other than the letter dated June 18, 1982, there is no documentation in the record of a formal lease agreement between Root and Roberts nor was any writing produced that indicated Roberts' determination to decline the takeover of the lease. Roberts testified that he verbally informed Root of his decision to terminate his involvement on the Liberty lease at some time prior to the transfer of his interest to Hogan Energy.
Based upon these facts, respondent Roberts was the operator in charge of the lease during the period 1982-1990. Although he transferred his interest to Hogan Energy Inc. in 1990, because the transfer was not approved by the Department, his responsibilities with respect to financial security and plugging did not change. See, Lee Oil Company, Inc. v. Jorling, 190 AD2d 1072 (4th Dep't 1993). While Roberts was only involved for eight years and drilled five wells, his role as operator of the lease would appear to make him legally responsible for the entire lease including the abandoned or non-producing wells.
However, 6 NYCRR 551.1 (requirement to submit a list of wells to the Department that had not been plugged and abandoned in accordance with Part 555), provides that a person who had an interest as owner is required to submit a list of wells that had not been plugged. Since there is no evidence in the record that Roberts had an ownership interest in these sixty plus old wells, I conclude that Roberts is not in violation of this provision.
As to the staff's allegation that Roberts violated 6 NYCRR 551.2 by failing to submit annual well reports, I do not find a violation because he did submit reports for the five wells that he drilled and operated. With respect to T-1, the well he re-worked, there was no evidence adduced at the hearing that this well produced. With respect to other wells on the lease, because the testimony from Grover and Roberts support the view that these were not producing during Roberts' tenure, I conclude that well reports would not be required.
Staff testified at trial that the only wells that required financial security in accordance with 6 NYCRR 551.4 and ECL 23-0305(8)(e) were the five new wells. In addition, based upon the evidence and staff's motion for summary order, Roberts was also required to provide security for the two injection wells. Contrary to the arguments made by counsel Cahilly in his September 24 submission, pursuant to ECL 23-0305(8)(e), the operator is also responsible for posting financial security with the Department. Thus, in addition to the July 14 finding of liability for failure to post financial security for the five wells, Roberts violated the law by failing to post security for the two injection wells.
And, pursuant to 6 NYCRR 555.1, Roberts, as the operator, is liable for abandonment of wells on the lease other than the seven producing wells for which he failed to properly plug or shut-in. Failing to file the necessary reports to monitor oil and gas production is considered presumptive evidence of well abandonment. See, In the Matter of Farrell and Williams at pp.3-4 (Commissioner's Order, July 30, 1996).
There is no evidence in the record as to the exact number of abandoned wells on the property. A map was produced that shows more than sixty wells.During Mr. Hoffman's testimony, he stated that there were 104 wells noted on Exhibit 21, a map of the Burger, Nichols and Ferrington leases that was provided to Department staff by respondent Hogan. However, some of the notations appear on an area demarcated as the Ferrington lease which was not the subject of these proceedings. In addition, Mr. Grover testified to observing about sixty abandoned wells on the property. From the annual reports received by the Department, it appears that 10 wells are in production including the five drilled by Roberts, leaving the status of the other wells in question. This underlines the Department's interest in receiving accurate and timely reports in order to ensure that wells are not "lost" resulting in enhanced potential for groundwater contamination and other environmental and safety hazards.
In addition, with respect to the two gas-injection wells, Roberts is liable for violations of: 6 NYCRR 552.1(a) for failure to apply for a permit to convert the wells; 6 NYCRR 557.1(a) for failure to obtain Department approval to initiate any secondary recovery or pressure maintenance operations; and 6 NYCRR 557.4 for failure to submit annual reports for secondary recovery and pressure maintenance operations.
With respect to the two gas-injection wells, I reject Roberts' argument that the wells were not converted on the ground that conversion requires a producing well pursuant to the definition of "conversion." A "producing well" is defined in the regulations as "any well capable of producing oil or gas or both." 6 NYCRR 550.3(am). Therefore, although the wells that staff alleges to be converted may not have been active at the time they were converted to input wells, the regulations do not require that status. Accordingly, I find Roberts to have violated 6 NYCRR 552.1(a).
As for this respondent's claims in his reply to the staff's motion for summary order that he has an expert witness to demonstrate that there was not a pressure maintenance system in use in violation of 557.1(a), this is insufficient to overcome staff's motion. Roberts should have presented either an affidavit from his expert or one from himself to establish that there are facts in controversy. To simply argue in a brief that he has a witness does not overcome a motion for summary judgment -- more than conclusory allegations are required, the respondent must lay bare his proof. See, New York Practice, Siegel, 281 (2d ed. 1991). Therefore, his arguments regarding the alleged violations of 557.4 and 551.4(a) are also insufficient.Attorney Cahilly argued that the Department staff's reliance on testimony elicited at the hearing to formulate the additional allegations is unfair because respondent did not have an opportunity for a hearing on these charges. The staff elected to move for summary order on these allegations based upon the testimony of Messrs. Grover and Roberts at the hearing. Because respondent Roberts has not met staff's presentation of the facts with any information that would indicate a viable controversy on the allegations concerning 552.1(a), 557.1(a), 557.4 and 551.4(a), there is no reason to hold a hearing on those matters.
Liability of Liberty, Hogan Energy and Hogan
At the hearing at the conclusion of its direct case and in response to Mr. Gunner's motion, staff agreed to withdraw their then one remaining unresolved charge against Liberty, Hogan Energy and Hogan concerning allegations of unpermitted plugging of wells. In its letter of August 7, 1997, staff confirmed this decision, stated its intention to also withdraw the fifth cause of action, and advised the parties that it was withdrawing the first and second causes of actions against Hogan, individually.
In its motion for summary order of August 29, 1997, staff added additional charges against Hogan Energy and Hogan regarding the two converted wells. While staff presented evidence at the hearing by Mr. Grover that Hogan Energy and Hogan continued to use the gas compressor at the lease, the affidavit of William F. Hogan dated September 8, 1997, contradicts this testimony. Thus, I cannot make a determination on liability for violations of 6 NYCRR 557.1(a) and 557.4 based upon the motion papers. However, because there is no issue of fact presented with respect to these respondents' failure to post financial security for the two injection wells, I recommend a finding of liability for violation of 6 NYCRR 551.4(a).
With respect to liability of these respondents as to the other charges, these matters have already been settled against these respondents in the Interim Decision of July 14, 1997, and I will not reconsider their arguments now. Counsel for these respondents engaged in cross-examination of the witnesses at the hearing. Despite the July 14, 1997 Interim Decision, in the post-hearing submission dated September 19, 1997, attorney Gunner re-argued these respondents' innocence with respect to the violations contained in the amended complaint. During the hearing, counsel Gunner alluded to the transfer of assets to Hogan Energy, Inc. by Hogan in 1986. He also implied through questioning of a witness that many of the abandoned wells on the Liberty lease may have preceded Hogan's involvement. And, through other statements, counsel indicated Hogan's senior age and his pro bono representation of these clients.
In the post-hearing submissions, Hogan sets forth the state of his finances as poor and also notes his advanced age. Because the liability phase of this proceeding was concluded against these respondents before the hearing (except for the added charges staff has alleged since the hearing), the sole issue to resolve is one of penalty. Still, none of the information provided by these respondents is sufficient for penalty mitigation purposes.In fact, in Hogan's affidavit he admits to a transfer of assets to purposely avoid estate taxes. This admission does nothing to assure this administrative law judge that Hogan has few assets. Rather, it indicates that staff and/or the Attorney General may have to embark on an investigation of the respondent's assets after the execution of an order in this matter in the event that compliance is not had. Contrary to counsel Gunner's conclusory remarks about the "good faith" of his clients, there has been no such demonstration. And, the advanced years of Mr. Hogan, without further reasons, should not significantly diminish the penalty.
With respect to respondent Hogan's personal liability, in light of the transfer of assets to Hogan Energy, Inc. in 1986, I do not find such transfer a bona fide shield under the facts of this case. Hogan, individually, should be held responsible in addition to Liberty and Hogan Energy because of Mr. Hogan's direct personal involvement in the illegal activities for which Hogan Energy and Liberty are found to be in violation. In Matter of Jackson's Marina v. Jorling, 193 AD2d 863, 866 (3d Dep't 1993), the Appellate Division found that the president of the respondent marina was liable based upon his direct involvement in the Article 15 and 25 violations alleged by the Department staff. And, in State of New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1985), the Second Circuit found not only corporate liability, but also that a corporate officer was personally liable because of his participation in the conduct that gave rise to liability in that case.
Based upon the testimony at the hearing and the documents submitted by the parties, I find Mr. Hogan is the key player in Hogan Energy, Inc. After Mr. Roberts transferred his interest to Hogan Energy, Inc. in 1990, Mr. Grover testified that he received his payments from Hogan and he dealt exclusively with him with respect to the lease. In addition, every report and document concerning the lease, outside of the period that Roberts was operating on it, is signed by Hogan. The organizational report dated September 14, 1993 and signed by Hogan, lists him as the sole director, sole officer and the only person authorized to sign submissions to the Department. Since 1980, when the Department first received complaints concerning abandoned wells on the Liberty lease, staff made Hogan aware of the regulatory deficiencies on the property and yet, he failed to act. Thus, he should be held personally liable for the violations by Hogan Energy, Inc. set forth below. See also, In the Matter of Britestarr Homes, Inc., (Commissioner's Order, March 24, 1995 and ALJs' Hearing Report).
In sum, respondents Liberty and Hogan Energy are liable as owners of the Liberty lease: for failure to post and keep in force financial security to guarantee well plugging and abandonment obligations in violation of ECL 23-0305.8(e) and 6 NYCRR 551.4; and for failure to properly plug wells prior to abandonment in violation of 6 NYCRR 555.1. They are liable for the payment of penalties and initiation of the remedial measures established herein. Hogan, because of his direct personal involvement with Liberty and Hogan Energy is jointly liable with these respondents for the penalties and performance of the remedial measures established herein.
In addition, Liberty and Hogan Energy were found liable in the previous decision for violations of 6 NYCRR 551.1 for failure to file organizational reports and to notify the Department within thirty calendar days of cessation or termination of activities and failing to submit a list of all wells that have not been plugged and abandoned in accordance with Part 555. As set forth in the July 1997 Interim Decision, Liberty and Hogan Energy are also liable for violations of 6 NYCRR 551.2 for failure to submit annual well reports for the years 1967-1981 and for submitting insufficient annual well reports from 1982-1994. Hogan is also jointly liable to pay the penalties assessed against Liberty and Hogan Energy for these violations.
Penalties and Other Relief
In its October 23 submission, staff requests that Liberty Oil Company be fined $1,276,226 suspending all but $250,000 for so long as Hogan Energy/Hogan remains in compliance with all applicable environmental requirements and adheres to a plugging or production schedule for 36 wells a year until all wells are producing or properly plugged and abandoned.
With respect to Roberts, staff requests a penalty of $412,033, reduced by 25% for violator cooperation for a subtotal of $309,024 with all but $50,000 suspended upon condition that Roberts contributes $50,000 to the Oil & Gas Account to be used solely for the proper plugging of abandoned wells.
As for Hogan Energy, staff requests a fine of $424,151 with all but $150,000 suspended based upon the same conditions stated above for Liberty Oil. In addition, staff requests that Hogan Energy discloses all other interests and activities subject to ECL Article 23 or 6 NYCRR Part 550. With respect to Hogan, staff requests a fine of $561,895 with all but $200,000 suspended, and Hogan Energy/Hogan adheres to a schedule of plugging or producing 36 wells per year until all wells are producing or properly plugged and abandoned and Hogan Energy discloses all other interests and activities subject to ECL Article 23 or 6 NYCRR Part 550.
In the amended complaint, the staff had sought a penalty of $450,000 against all the respondents, jointly and severally, recommending a suspension of $200,000 if the abandoned wells are plugged properly within two years of the Commissioner's order.
At the hearing, while an opportunity for evidence to support the request for penalties in the amended complaint was provided by this ALJ, the staff declined to proceed on this issue. Instead, staff opted to support its latest request in its post-hearing brief. After the respondents had submitted their closing papers, in its October 23 submission, staff sets forth its formula for the penalties that it now seeks. (See, Appendix B annexed hereto).
With respect to the first cause of action in the amended complaint ( 551.1 - failure to file organizational reports), staff found no economic benefit to non-compliance and determined that the gravity should be calculated at $5000 per respondent.
As to the second cause of action in the amended complaint ( 551.2 - failure to file accurate annual well reports), the staff again found no economic benefit and calculated the gravity component by multiplying the number of wells that were not properly reported by $500 for an "initial penalty" adjusted to account for continuing violations by increasing the penalty by 10% for each additional year of non-compliance.
For the third cause of action in the amended complaint ( 551.4 - failure to file acceptable financial security), staff determined an economic benefit of $150/year and a 7% interest rate for the years that the financial security obligations pertained to each respondent. In addition, staff factored in an additional amount of $1000 per well that required security.
For the fourth cause of action in the amended complaint ( 555.1 - well abandonment), the staff calculated a plugging cost of $1,200 and a 7% interest rate over the applicable time period and a gravity component of $1,000 for each unplugged well.
In its October 23 submission, the staff reiterated its position that Roberts was liable not only for the wells that he worked but also for the other abandoned wells on the Liberty lease based upon his position as an owner and operator. Staff points to Roberts' testimony during the hearing with respect to the extent of his activities on the Nichols and Burger leases. In addition, staff bolsters its previous arguments with respect to Hogan's personal liability based upon his extensive control.
To guide the Department in assessing civil penalties, the Commissioner maintains a civil penalty policy (issued June 20, 1990) that propounds a policy of punishment and deterrence. The policy provides that a violator should not benefit economically from his actions and the penalty should account for the nature of environmental damage caused by the subject actions. In calculating its proposed penalties, staff addressed the economic benefit and gravity components. However, the penalties requested by staff appear to be somewhat out of proportion with penalties the Department has assessed previously in these matters.
For example, in Solomon's Resources (Commissioner's Decision, December 16, 1991), the respondent was found to have committed a series of violations including failure to address oil spills in addition to abandonment of over sixty wells. Yet, the penalty assessed was $50,000 with half suspended contingent upon respondent's appropriate remediation. In Francis Root Oil Co. (Commissioner's Decision, March 25, 1996), the Commissioner's Order provided for only a $10,000 payable penalty despite findings that the respondent failed to submit organizational reports, well reports, post financial security, and address the status of 39 wells that were not properly plugged.
In addition, in some instances, the calculations set forth by staff in Appendix B are not based upon facts that were adduced at the hearing. For example, the staff lists 104, 75 and 80 wells as the basis for calculations of penalties owed by Liberty, Hogan Energy, Roberts and Hogan. Yet, the evidence did not reveal an exact number of abandoned wells on the Liberty lease. The map introduced by staff into evidence (and accepted by the other respondents) (Exhibit 21) is not clear in delineating the wells that exist solely on the Liberty lease. Grover testified that there were over sixty abandoned wells. Accordingly, staff's use of the larger numbers to calculate penalties is not supported. I also find no explanation for staff's failure to include the allegations regarding the two gas-injection wells in its request for penalties. As staff has not withdrawn these charges regarding the gas-injection wells, I have made findings regarding liability however, since no penalty was requested I have not provided for one.
As noted by staff, the degree of culpability of the respondents is not equal. Hogan, Hogan Energy, Inc. and Liberty ignored the staff's requests for assistance in addressing the conditions on the lease as well as discovery requests. In addition, these respondents failed to submit any reports to the Department until staff made inquiries based upon complaints received. And, throughout these proceedings, these respondents have failed to make any real attempt to present a defense.
The regulatory performance of respondent Roberts is far from perfect; however, he did file timely his organizational report and his annual well reports on the five wells that he drilled. In addition, his involvement on the lease was limited to eight years in contrast to the lengthy relationship Hogan has had with this lease. I found Roberts to be a cooperative and credible witness at the hearing. And, as pointed out by counsel for Roberts, this respondent's actions, with respect to the wells he drilled, does not appear to have resulted in environmental damage. However, Roberts failed to report the two gas conversions and the status of these wells is unclear. With respect to the financial security requirement, counsel for Roberts notes that there is little economic benefit gained by not posting the bond given the availability of a letter of credit for 1% of the bonded amount. Counsel also indicates in his post-hearing submission on the penalty phase that Mr. Roberts is in his 70's, does not own any real estate and lives on modest means. I have considered all of these factors in mitigation of the penalty.
For violations prior to 1991, ECL 71-1307(1) provides for imposition of civil penalties after hearing for violations of Article 23 and its implementing regulations in the amount of up to $1000 per violation and an additional penalty of $500 for each day during which the violation continues.In 1991, the Legislature amended Article 71 of the ECL to provide for civil penalties up to five thousand dollars per offense and one thousand dollars for each day the violation continued for violations that took place on or after September 1, 1991. That law also gives the Commissioner the authority to "direct the violator to cease the violation and reclaim and repair the affected site to a condition acceptable to the commissioner . . ."
The respondents' most serious violation is the abandonment of some sixty plus wells on the lease without permission from the Department. The Department's program requires that abandoned wells be properly plugged in order to seal off fluids in strata penetrated by a well so that they do not escape to another strata or to the surface. See, Matter of Farrell and Williams (Commissioner's Decision, July 30, 1996). According to the research by staff of the history of the mineral rights on the Nichols and Burger leases, William F. Hogan and Liberty Oil Co. have owned the rights since the mid-1940's. Yet, it was not until 1980 that the staff was made aware of the Liberty lease.
While an aggressive calculation of penalties could exceed the amount proposed by staff, the interest of the State in seeing that the wells are properly plugged and accounted for is paramount since failure to identify and plug abandon wells may imperil water supplies. Thus, as proposed by staff, the penalty schedule should be devised to provide incentive for such remedial labor.
Based upon the above considerations, I propose the following penalty schedule which is summarized in the chart annexed hereto as Appendix C:
Liberty - for violations of 6 NYCRR 555.1 - a fine of $60,000 ($1000 for abandonment of each of the approximately 60 wells);
- for violations of 6 NYCRR 551.1 - a fine of $5,000 as proposed by staff;
- for violations of 6 NYCRR 551.2 - a fine of $14,000 ($1000 for each year that respondents failed to submit annual well reports for the years 1967-1981) plus a fine of $6000 ($500 for each year from 1982-1994 in which they failed to submit accurate well reports); - for violations of ECL 23-0305.8(e) and 6 NYCRR 551.4 - a fine of $5,000 ($1000 for each "new" well.)The staff does not include a calculation for Liberty's violation of 551.4, failure to maintain financial security, on the chart it submitted with the letter dated October 23, 1997. Because the October 23 letter mentions the finding of liability in the Interim Decision with respect to this violation, I thought it was appropriate to include a penalty. For Liberty, the total penalty recommended is $90,000.
Hogan Energy - for violations of 6 NYCRR 555.1 - a fine of $60,000 ($1000 for abandonment of each of the approximately 60 wells);
- for violations of 6 NYCRR 551.1 - a fine of $5,000 as requested by staff);
- for violations of 6 NYCRR 551.2 - a fine of $8000 ($1000 for each year from 1986-1994 in which it failed to submit accurate well reports.)
- for violations of ECL 23-0305.8(e) and 6 NYCRR 551.4 - a fine of $16,838 as requested by staff for a total penalty of $89,838.
Roberts - for violations of 6 NYCRR 551.1 - a fine of $5,000 as recommended by staff;
- for violations of 6 NYCRR 551.4 and ECL 23-0305.8(e) - a fine of $12,500 (based upon Robert's calculation with respect to the appropriate financial security owed in his 1984 declaration submitted to DEC staff);
- for violations of 6 NYCRR 555.1 - a fine of $30,000 ($500 for each of the approximately 60 abandoned wells) for a total of $47,500.Because staff does not include a request for relief with respect to the violations concerning the injection wells in its October 23 submission, I do not include a penalty for those violations. In its submission of October 23, staff requested that all but $50,000 of Roberts' penalty be suspended pending compliance with the remedial requirements and that the $50,000 be deposited in the Oil & Gas Account for plugging abandoned wells exclusively. While I am sympathetic with staff's motives, I find nothing in Article 71 that would allow for such a requirement. Rather, ECL 71-1307(5) provides that all fines collected pursuant to this section be deposited in the general fund.
Hogan - with respect to William F. Hogan individually, I did not find evidence in the record that clearly identified a period when he acted individually and not through either Liberty Oil Company and/or Hogan Energy. Therefore, while I continue to recommend that he be held personally liable for the violations as noted above, I do not find a basis to fine him separately. However, I must emphasize that Hogan should be held personally accountable for the violations of Liberty and Hogan Energy based upon his direct involvement. If necessary, he should have to pay both the penalties of these entities and implement the remediation schedule.
In addition, I recommend the adoption of staff's proposal regarding remedial relief contained in its amended complaint dated March 21, 1996. Staff's request requires the respondents to survey the Liberty lease with staff to identify all of the abandoned wells. After all the wells are identified, the respondents must submit to staff an approvable schedule for proper closure. To encourage compliance with the schedule, half of the penalty amounts should be suspended pending compliance. And, as suggested by staff, the portion of Roberts' penalty that is payable should be contributed to the Oil & Gas Account and used solely for the proper plugging of abandoned wells. In the event that the respondents violate the schedule, the full penalty should be required due within thirty days from notification by Department staff.
Conclusion and Recommendation
In enacting Article 23, the Legislature intended to guard against the abandonment of wells that could lead to environmental and safety hazards. Without adherence to the recordkeeping and financial security requirements mandated by law, the Department has no viable means of tracking wells and the responsible parties to ensure proper closure when the wells are no longer productive. Here, the respondents chose to largely ignore the regulatory scheme resulting in a very large number of "orphan" wells. Thus, it is imperative as a matter of both environmental protection as well as deterrence and civil enforcement, that those persons now be held accountable through injunctive requirements and payment of penalties.
In accordance with the evidence adduced at the hearing, the above facts and discussion, the Interim Decision of July 14, 1997, the staff's letter of August 7, 1997, and the staff's motion for summary order of August 29, 1997, I make the following recommendations: I find that Roberts violated 6 NYCRR 551.1, 551.4, 555.1, 552.1(a), 557.1(a), 557.4 and ECL 23-0308.8(e). I do not find that Roberts violated 6 NYCRR 551.2 or 551.1(d) with respect to the submission of a list of all abandoned wells.
I find that Hogan violated ECL 23-0305.8(e) and 6 NYCRR 551.4 and 555.1. I find that Hogan Energy, Inc. violated ECL 23-0305.8(e) and 6 NYCRR 551.4, 551.1, 551.2, and 555.1. And, I find that Liberty Oil Co. violated ECL 23-0305.8(e) and 6 NYCRR 551.4, 551.1, 551.2, and 555.1.
Because Hogan submitted an affidavit that presents facts adverse to the testimony of Leslie Grover regarding the gas-injection wells, I cannot summarily find liability against Hogan and Hogan Energy with respect to alleged violations of 6 NYCRR 557.1(a) and 557.4. In the event that staff seeks to pursue these violations, I recommend that it should have to make an application to this office to re-open the hearing.
With respect to staff's application of August 7, 1997 and October 23, 1997 regarding Hogan's personal liability for the obligations of Liberty Oil and Hogan Energy, I recommend finding such responsibility as set forth above based upon Hogan's personal involvement in the lease. And, because the staff withdrew the allegations concerning violations of 6 NYCRR 555.3 and 555.4 against all the respondents and 6 NYCRR 551.1 and 551.2 against Hogan individually, those causes of action were dropped from consideration.
Accordingly, I recommend that penalties be assessed as set forth above and that the staff's recommendations for a survey of the lease, proper plugging and a compliance schedule as set forth in the amended complaint and in the July 11, 1997 ruling be adopted.