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Liberty Oil Co. - Ruling, March 14, 1995

Ruling, March 14, 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

LIBERTY OIL CO.,
HOGAN ENERGY, INC.,
WILLIAM F. HOGAN, and
CARL H. ROBERTS,

Respondents

DEC Index No. D9-A113-94-12

RULING ON MOTION FOR ORDER WITHOUT HEARING

PROCEEDINGS

Staff of the Department of Environmental Conservation, by Carl G. Dworkin, Associate Counsel, served a Notice of Hearing, a Motion for Order Without Hearing, an affidavit of Richard Arieda in support of the Motion, along with accompanying exhibits on Respondents Liberty Oil Co., Hogan Energy, Inc., William F. Hogan, and Carl H. Roberts. Mr. Arieda is a Mineral Resources Specialist III with the Department's Bureau of Oil and Gas Regulation.

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

The Respondents, Liberty Oil Co., Hogan Energy, Inc. and William F. Hogan are represented by G. William Gunner III, Esq. of the law firm of Embser & Woltag, PC, who timely filed Responding Affidavits on their behalf. Respondent Carl H. Roberts timely filed an Answer on his own behalf.

MOTION

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 Staff request an Order directing the Respondents to:

a) submit the required financial security in proper form no later than thirty (30) days following the effective date of the Order; b) 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; c) 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 Nichols and Burger leases 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.

STATUTORY AND REGULATORY REQUIREMENTS

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.

6 NYCRR 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.

6 NYCRR 551.1 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.

6 NYCRR 555.2 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.

6 NYCRR 555.3 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.

ALLEGED VIOLATIONS

The Department Staff allege that the Respondents violated ECL 23-0305.8(e) and its implementing regulatory provision, 6 NYCRR 551.4 pertaining to financial security requirements; that the Respondents violated 6 NYCRR 551.1 pertaining to the filing of organizational reports with the Department; that the Respondents violated 555.2 which 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; and that the Respondents violated 555.3 which prohibits owners and operators from temporarily abandoning wells for more than 90 days without the Department's authorization.

The Department Staff allege that Respondent Carl Roberts is the registered owner of certain wells (not identified); that he has not submitted proper financial security; that he, along with Respondents Liberty Oil Co., Hogan Energy, Inc. and William F. Hogan, have abandoned 79 or more wells (not identified) in a manner not consistent with 6 NYCRR 555.2 and 555.3; and that he has conveyed and attempted to transfer to Respondent Hogan Energy, Inc. his interest in 5 wells identified as Nichols CR1, Nichols CR2, Nichols CR3, Nichols CR4 and Burger CR5 but 10 wells are being reported on the same property.

The Department Staff allege that Respondents Liberty Oil Co., Hogan Energy, Inc. and William F. Hogan have jointly and individually, at various times, been the owners of the well referred to above and other wells (not identified); that they, along with Respondent Carl Roberts, have abandoned 79 or more wells (not identified) in a manner not consistent with 6 NYCRR 555.2 and 555.3; and that Respondent Hogan Energy, Inc. has registered with the Department but has not submitted acceptable financial security for the wells sought to be transferred to it.

ANSWER OF CARL ROBERTS

Respondent Roberts filed an Answer in which he denied ownership of any wells in New York State during the relevant time period; admitted he had not submitted financial security but further claimed that when the wells were drilled in the early 1980's the drilling permits did not require financial security although the permits said that security may be required thereafter; denied that he had abandoned any wells in New York State; and admitted he had conveyed his royalty interest in 5 wells known as the Nichols CR1, Nichols CR2, Nichols CR3, Nichols CR4 and Burger CR5 wells but denied he has or ever had any interest in any other wells on the subject property.

Respondent Roberts further alleges that Liberty Oil Co. was the owner of the entire leasehold interest, that Liberty Oil Co. entered into an agreement (oil and gas lease) with Francis R. Root, Inc. on February 24, 1982; that agreement was amended on June 4, 1982; that Francis R. Root Inc. entered into an agreement with Respondent Roberts which delegated to Roberts the obligation to drill the three wells as required by the amended lease; that Respondent Roberts drilled the three wells and two more which are the 5 "newer" wells referred to in the Department Staff's Motion; that Respondent Roberts conveyed by Bill of Sale all of his interest which he had acquired by his agreement with Francis R. Root Inc. to Respondent Hogan Energy, Inc. on May 14, 1990; and that at no time relevant to the Department Staff's Motion did he own as registered owner or otherwise any of the wells referred to in the Motion. Respondent Roberts submitted copies of the lease, the amended lease and the Bill of Sale.

Respondent Roberts also alleges the request for well transfer (Department Staff's Exhibit N) which was accepted for filing on September 20, 1993 was never presented to him for his signature; that the transfer form was never received by him subsequent to filing; that in conducting the drilling operation for the 5 wells (Nichols CR1, Nichols CR2, Nichols CR3, Nichols CR4 and Burger CR5) he complied with all of the then existing rules and regulations of the Department; that in obtaining the permits for the 5 wells he was informed by Department personnel the posting of financial security was not necessary but "may be" required in the future; and that he was never informed of the necessity of providing a bond or surety with respect to the 5 "newer" wells until receipt and review of the Department Staff's Motion.

ANSWER OF LIBERTY OIL COMPANY

Respondent Liberty Oil Company states that it is a New York State partnership having its address at P.O. Box 265, Bolivar, New York 14715 and that it owns oil, gas and minerals on property located in the Town of Clarksville, Allegany County commonly known as the Burger, Nichols and Ferrington leases. Respondent Liberty Oil Company further states that it has never changed its "responsible parties and addresses without submitting a revised Organizational Report" and that it submitted an Organizational Report on January 17, 1980. Respondent Liberty Oil Company states that the only change has been that Hogan Energy, Inc. acquired the interests of William F. Hogan (including the interests willed by Winston L. Davis) and the Matson Estate and that it will furnish a new Organizational Report showing the substitution of Hogan Energy, Inc. as partner in place of William F. Hogan, the Matson Estate and Winston L. Davis.

Respondent Liberty Oil Company denies that Respondent Roberts is the registered owner of wells located on leases belonging to it; that it has ever owned property jointly with Respondents William F. Hogan or Hogan Energy, Inc; that Respondent Roberts is under an obligation to post bonding for wells located on leases it owns; and denies that any of the Respondents have abandoned any wells.

ANSWER OF WILLIAM F. HOGAN

Respondent William F. Hogan states that he resides at 130 Plum Street, Bolivar, New York and admits that Respondent Roberts conveyed any interest he previously owned in the Liberty Oil Company property by Bill of Sale to Hogan Energy, Inc. and Release of Lease to Liberty Oil Company, both under date of May 14, 1990.

Respondent William F. Hogan denies that Respondent Roberts is the registered owner of wells located on leases belonging to Respondent Liberty Oil Company; that he has ever owned property jointly with Respondents Liberty Oil Company or Hogan Energy, Inc; that Respondent Roberts is under an obligation to post bonding for wells located on leases owned by Respondent Liberty Oil Company; and denies that any of the Respondents have abandoned any wells.

ANSWER OF HOGAN ENERGY, INC.

Respondent Hogan Energy, Inc. states that it is a New York State Corporation with its address at P.O. Box 265, Bolivar, New York and admits that Respondent Roberts conveyed any interest he previously owned in the Liberty Oil Company property by Bill of Sale to Hogan Energy, Inc. and Release of Lease to Liberty Oil Company, both under date of May 14, 1990.

Respondent Hogan Energy denies that Respondent Roberts is the registered owner of wells located on leases belonging to Respondent Liberty Oil Company; that it has ever owned property jointly with Respondents Liberty Oil Company or William F. Hogan; that Respondent Roberts is under an obligation to post bonding for wells located on leases owned by Respondent Liberty Oil Company; and denies that any of the Respondents have abandoned any wells.

RULING

There is no information in the Department Staff's Affidavit In Support of the Motion concerning the 79 wells alleged to have been abandoned by the Respondents other than a statement that properties in the general area of the Nichols and Burger leases "may or may not contain abandoned wells". In the face of the affidavits of all the Respondents denying they had ever abandoned any wells, this is not sufficient to establish a violation of 6 NYCRR 555.3.

There is also no information in the Department Staff's Affidavit In Support of the Motion to show that any wells capable of commercial production have been shut-in for more than one year without Department authorization. Without such information, a violation of 6 NYCRR 555.2 cannot be established. Virtually all of the facts, except those specifically admitted in the Answers as set forth above, are in dispute. The Motion for Order Without Hearing is denied.

The following facts will be deemed established for all purposes in the hearing:

  1. Respondent Liberty Oil Company is a New York State partnership having its address at P.O. Box 265, Bolivar, New York 14715 and that it owns oil, gas and minerals on property located in the Town of Clarksville, Allegany County commonly known as the Burger, Nichols and Ferrington leases.
  2. Respondent William F. Hogan is a natural person who resides at 130 Plum Street, Bolivar, New York.
  3. Respondent Hogan Energy, Inc. is a New York State Corporation with its address at P.O. Box 265, Bolivar, New York.

Pursuant to 6 NYCRR 622.12(e) the moving and responsive papers will be deemed the complaint and answer respectively. Since I am denying the Motion for Order Without Hearing, The Department Staff will notify the Office of Hearings and the Respondents when they are ready to proceed with a pre-hearing conference and an adjudicatory hearing.

______________
William J. Dickerson
Administrative Law Judge
Dated: Albany, New York
March 14, 1995

To: Carl H. Roberts
2 South East Street
Coudersport, PA 16915

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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