Petro-Canada Resources (USA) Inc. fined $20,000 - Complaint regarding trucks dumping drilling wastes near the Cache La Poudre River

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES AND REGULATIONS OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION BY PETRO-CANADA RESOURCES (USA) INC., WELD COUNTY, COLORADO

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CAUSE NO. 1V ORDER NO. 1V-356

ADMINISTRATIVE ORDER BY CONSENT

(Pursuant to Rule 522.b.(3) of the Rules and Regulations of the

Colorado Oil and Gas Conservation Commission, 2 CCR 404-1)

FINDINGS

1. On June 6, 2006, the Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”) approved an Application for Permit-to-Drill (“APD”) submitted by Petro-Canada Resources (USA) Inc. (“Petro-Canada”) for the Deshazo #24-41 Well (API No. 05-123-23922) (the “Well”), located in the NE¼ SE¼ of Section 24, Township 6 North, Range 67 West, 6^th P.M.

2. On April 11, 2007, Weld County Environmental Health Services received a complaint regarding trucks dumping drilling wastes at a location in the SW¼ NE¼ of Section 33, Township 6 North, Range 66 West, 6^th P.M., which at the time was owned by Mr. Buxman. The location is adjacent to the Cache la Poudre River.

3. On April 12, 2007, Weld County Staff conducted a site inspection and observed an area of approximately 300,000 ft² adjacent to the river where water-based bentonitic drilling mud had been disposed. Weld County Staff referred the matter to COGCC Staff (“Staff”) for investigation (COGCC Complaint No. 1175595).

4. On April 13, 2007, Staff inspected the mud disposal site. Staff identified Petro-Canada as one of two parties responsible for the drilling mud disposal. Staff directed Petro-Canada and Noble Energy Production, Inc. (“Noble”), the other responsible operator, to cease drilling mud disposal at the site and take immediate steps to prevent drilling mud from migrating into the Cache la Poudre River. At Staff’s direction, Noble and Petro-Canada constructed earthen berms along portions of the river to prevent additional drilling mud from entering the river.

5. During the April 13, 2007 inspection, Staff collected a representative sample of the drilling mud for organic analysis. The sample had a total petroleum hydrocarbon (“TPH”) concentration of 115 mg/kg, which is below the concentration level found in Table 910-1 in effect at the time of 1,000 mg/kg for soil in sensitive areas, and a benzene concentration of 88 µg/kg, which is below the benzene concentration level of 0.17 mg/kg² found in Table 910-1.

6. The landowners at the disposal site told Staff they had agreed to the disposal but did not have a written disposal agreement with any party. The landowners also told Staff they did not intend to till the mud into their land, in that trees and brush piles made much of the disposal area unsuitable for tilling.

7. On April 20, 2007, Staff conducted a second site inspection. During this inspection, the Staff observed an area where it appeared that drilling mud may have previously entered the river. Staff estimated that less than five gallons of waste mud had migrated to the river. Corrective actions taken by Noble and Petro-Canada prevented more mud from reaching the river. A surface water sample taken at the point where the mud entered the river contained concentrations of benzene, toluene, ethylbenzene, and xylenes (“BTEX”) below the laboratory detection limit. Concentrations of BTEX compounds were trace or non-detect in a drilling fluid sample taken near the point of entry had trace amounts. Acting upon the assessment that site remediation had not yet begun, Staff instructed Noble and Petro-Canada to immediately remove all free liquids from the disposal site for off-site disposal.

8. On April 23, 2007, Petro-Canada notified the National Response Center of a release of drilling fluids.

9. On April 26, 2007, Staff issued a Notice of Alleged Violation (“NOAV”) #1175599 to Petro-Canada, which include alleged violations of the following COGCC rules:

a. Rule 324A.a., which requires operators to take precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources to the extent necessary to protect public health, safety and welfare and to prevent the unauthorized discharge of gas;

b. Rule 907.a.(1), which provided at the time of the discharge that operators ensure that exploration and production (“E&P”) waste is properly stored, handled, transported, treated, recycled, or disposed to prevent threatened or actual significant adverse environmental impacts to air, water, soil or biological resources or to the extent necessary to ensure compliance with allowable concentration levels in Table 910-1, with consideration to WQCC ground water standards and classifications;

c. Rule 907.d.(3).b., which requires operators to dispose of water-based bentonitic drilling fluids by acceptable methods of land application, such as production facility construction and maintenance, and lease road maintenance. Additionally, operators are required to obtain written authorization from the surface owner prior to land application of water-based bentonitic drilling fluids and to retain records about the disposal.

The NOAV required certain abatement or corrective actions to be taken by the operator by May 10, 2007. The actions required Petro-Canada to submit a Spill/Release Report Form 19 and a Site Investigation and Remediation Workplan, Form 27 to: describe the corrective actions previously taken by Noble, the other responsible operator; remove the remaining drilling mud; determine the approximate thickness of the mud; determine if shallow ground water at the disposal site was impacted; and provide COGCC copies of the written landowner disposal authorizations.

10. On April 30, 2007, Noble submitted a Form 19 to the COGCC. Noble determined that approximately 4,900 barrels of waste mud from the Well were disposed of by third-party contractors at the site. The disposed mud covered an area approximately 300,000 ft² in a layer 3-to-5 inches deep. Petro-Canada and Noble removed approximately 1,540 barrels of free liquid from the disposal area after April 20, 2007 and before April 27, 2007.

11. On April 30, 3007, Noble submitted a Form 27 to the COGCC. Staff approved the Form 27 work plan with additional conditions on May 17, 2007. Pursuant to the approved Form 27 work plan, Petro-Canada and Noble removed the remaining drilling mud for disposal at their respective land farms. Noble also sampled soil and groundwater in the disposal area. Concentrations of BTEX, total volatile hydrocarbons including gasoline range organics, total extractable hydrocarbons and diesel range organics were all below regulatory standards in the soil. BTEX compounds were not detected in the sampled groundwater.

12. On May 8, 2007, Noble provided Staff with copies of Authorization Forms for Land Treatment of Water Based Betonitic Drilling Fluids between Rocky Mountain Energy Solutions and the landowners dated April 9, 2007.

13. Rule 523. specifies a base fine of One Thousand dollars ($1,000) for each day of violation of Rules 324A.a., 907.a.(1), and 907.d.(3)B. Rule 523.a.(3) specifies that “the maximum penalty for any single violation shall not exceed Ten Thousand dollars ($10,000) regardless of the number of days of such violation,” unless the violation results in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment.

14. For purposes of this Administrative Order by Consent (“AOC”) only, Staff consider each violation to have occurred for a minimum of ten days, April 11, 2007 through April 20, 2007, inclusive. Further, Staff reserve the right to present evidence that any and all violations resulted in significant waste of oil and gas resources, damage to correlative rights, or a significant adverse impact on public health, safety or welfare or the environment, and, that as result of that impact, the maximum penalty of Ten Thousand dollars ($10,000), under Rule 523.a.(3), should not apply.

15. Petro-Canada violated Rule 324A.a. because it failed to take precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources to the extent necessary to protect public health, safety and welfare by allowing water based bentonitic drilling mud to be improperly disposed of. A base fine of Ten Thousand dollars ($10,000) has been calculated for the violation of Rule 324A.a.

16. Petro-Canada violated Rule 907.a.(1) because it failed to ensure that E&P waste, including water based bentonitic drilling mud, was properly stored, handled, transported, treated, recycled, or disposed to prevent threatened or actual significant adverse environmental impacts to air, water, soil or biological resources or to the extent necessary to ensure compliance with allowable concentration levels in Table 910-1, with consideration to WQCC ground water standards and classifications. A base fine of Ten Thousand dollars ($10,000) has been calculated for the violation of Rule 907.a.(1).

17. Petro-Canada violated Rule 907.d.(3)B. because it failed to dispose of water-based bentonitic drilling fluids by acceptable methods of land application, such as production facility construction and maintenance or lease road maintenance. Additionally, it failed to obtain written authorization from the surface owner prior to land application of water-based bentonitic drilling fluids and failed to retain records about the disposal. A base fine of Ten Thousand dollars ($10,000) has been calculated for the violation of Rule 907.d.(3)B.

18. Staff have calculated a base fine of Thirty Thousand ($30,000) dollars for those violations brought under this AOC.

19. Staff may reduce the fine amount if it finds mitigating circumstances as is provided for by Rule 523.d. Based on Petro-Canada’s cooperation with COGCC, its prompt response and thorough remediation efforts, evidence that the landowners had consented to the disposal operation, and Petro-Canada’s post-NOAV compliance history regarding waste drilling mud handling and disposal practices, Staff have reduced the fine amount from Fifty Thousand ($30,000) dollars to an adjusted fine of Twenty Thousand dollars ($20,000) for purposes of this AOC only. If the NOAV is not resolved by consent, Staff reserve the right seek the full amount of the base fine for each day for each violation without reduction for the factors described above or any other facts or circumstances.

20. Payment of the fine pursuant to this AOC does not relieve Petro-Canada from its obligations to complete abatement or corrective actions set forth in the NOAV, as may be amended or modified by Staff, or the approved Form 27.

21. Petro-Canada should execute this AOC no later than fourteen (14) days after the date it is executed by Staff for recommendation to the Commission for expedited approval. Fines may increase if this matter is not recommended for expedited approval.

22. Petro-Canada, or its successors or assigns, should be required to remain responsible for complying with this AOC, in the event of any subsequent sale of property.

23. Pursuant to Article IX, of the “Memorandum of Agreement” between the Water Quality Control Division (“WQCD”) and the COGCC, adopted February 15, 2000, Staff has conferred with WQCD enforcement staff in determining the monetary penalty against Petro-Canada for violations of WQCC standards for surface waters.

24. Petro-Canada agrees to the findings of this AOC only for the purpose of expeditiously resolving the matter without a contested hearing. Notwithstanding the above, Petro-Canada does not admit to any of the factual or legal determinations made by the Commission herein, and fully reserves its right to contest same in any future action or proceeding other than a proceeding to enforce this AOC.

25. On December 31, 2009, Noble Energy, Inc. (“NEI”) entered into a Purchase and Sale Agreement with Petro-Canada and Suncor Energy (Natural Gas) America Inc. (“SENGAI”) to purchase certain assets, and assigned certain of its rights under the Purchase and Sale Agreement (“PSA”) to Noble Energy WyCo, LLC, which agreed to be jointly and severally liable to Petro-Canada and SENGAI for the obligations and liabilities of NEI under the PSA and other transaction documents.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Petro-Canada Resources (USA) Inc. violated Rules 324A.a., 907.a.(1), and 907.d.(3)B., resulting from its oil and gas operations at the Deshazo #24-41 Well, located in the NE¼ SE¼ of Section 24, Township 6 North, Range 67 West, 6^th P.M., for those acts alleged in this AOC.

IT IS FURTHER ORDERED, that Petro-Canada Resources (USA) Inc. is hereby assessed an adjusted fine of Twenty Thousand dollars ($20,000) for the Rule violations set forth above.

IT IS FURTHER ORDERED, that this Administrative Order by Consent does not relieve the operator from undertaking and completing abatement or corrective actions that may be required by the Notice of Alleged Violation described in Finding No. 9, above, or any amendments or modifications thereto specified by the Staff, or the approved Form 27.

IT IS FURTHER ORDERED, that Petro-Canada Resources (USA) Inc. shall execute this Administrative Order by Consent no later than fourteen (14) days after the date it is executed by the Staff for recommendation of expedited approval by the Commission.

IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

IT IS FURTHER ORDERED, that the Commission expressly reserves its right after notice and hearing, to alter, amend, or repeal any and/or all of the above orders.

RECOMMENDED this day of____________, 2010.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By ____

Rob Willis, Enforcement Officer

Dated at Suite 801

1120 Lincoln St.

Denver, Colorado 80203

AGREED TO AND ACCEPTED this _________day of_______________, 2010.

PETRO-CANADA RESOURCES (USA) INC.

By __________________________________________

Signature of Authorized Company Representative

Noble Energy, Inc., sole member of Noble

Energy WyCo, LLC

____________________________________________ Print Signatory Name

____________________________________________

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