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April 2017

Vol. 22, No. 16 Week of April 16, 2017

AOGCC confirms Cook Inlet Energy fine

On reconsideration agency says $446,000 fine for safety valve system violations at Sword No. 1 was warranted under circumstances

Kristen Nelson

Petroleum News

On April 11 the Alaska Oil and Gas Conservation Commission issued a decision on reconsideration of an enforcement action against Cook Inlet Energy LLC for long-term violations of the agency’s safety valve system regulations at the Sword No. 1 well. In the original decision, issued May 1, 2015, the commission cited “numerous regulatory violations” on the safety valve system, as well as the company’s failure to provide information requested on its safety valve system compliance policies. The agency originally proposed a civil penalty of $806,000, an amount it reduced to $446,000, based on mitigating circumstances.

Components of the original $806,000 penalty included: $235,000 for a noncompliant safety valve system at the Sword well - $25,000 for the initial event and $5,000 per day for operating the well in that condition for 42 days, $210,000 - for a total of $235,000; $420,000 for violating the requirement to install a subsurface safety valve in the Sword well - 84 days at $5,000 per day; $130,000 for violating the requirements to repair or replace and performance test the subsurface safety valve, $50,000 for the initial event and $80,000 for the 16 days Sword remained in production without a regulatory-compliant subsurface safety valve; and $21,000 for failing to comply with AOGCC’s request to provide a written explanation of the disparity between the company’s written safety valve system compliance program and its actions.

AOGCC considered mitigating circumstances and what it called a history of noncompliance, but said the company had admitted the need for improving its understanding of the agency’s regulatory requirements and its communications with the agency.

An informal review was held at the company’s request in February 2015 and AOGCC said efforts focused on improving the quality of the company’s regulatory compliance were discussed.

Based on mitigating circumstances the agency reduced the penalty to $446,000, an amount which included the full penalty for the noncompliant safety valve system, $60,000 for violating the requirement to maintain “an operable, tested subsurface safety valve” at the Sword well, $130,000 for failure to repair or replace and performance test the subsurface safety valve after it failed an initial performance test in February 2014 and $21,000 for failure to provide written explanations.

At a formal hearing Sept. 13, 2016, the company summarized its objections to the fine proposed. In statements to the commission prior to the informal review and the formal hearing Cook Inlet Energy said it had made changes since the Sword well was drilled, including the replacement of key personnel responsible for communications with AOGCC.

Decision on reconsideration

The commission said in its April 11 decision on reconsideration that Cook Inlet Energy does not dispute the violations, for which AOGCC ultimately imposed penalties of $446,000, and said the company argued it acted in good faith, that the violations were mitigated and that the fines the agency imposed were inconsistent with past fines imposed by the agency.

AOGCC said the company’s arguments that mitigating factors warranted a reduction in penalties “are contradicted by the record. Installation of a non-functional SVS and CIE’s significant history of regulatory compliance issues demonstrate its awareness and conscious disregard of the SVS requirements, and contradict CIE’s ‘good faith’ claim.” The commission cited the company’s awareness that the safety valve system was nonfunctional and said it “made no effort to bring the well into compliance until it received notice of this enforcement action,” continuing to produce from the well for 42 days with a nonfunctional safety valve system.

“The potential for harm was significant; that no harm occurred was simply luck,” the commission said.

The commission said many of the decisions the company cited which resulted in lower penalties took place more than a decade ago, before a substantial statutory increase in authorized penalties, while other examples “are cited without any articulation as to how the decision cited is inconsistent with the AOGCC’s decision here.”

The denial is the commission’s final decision and may be appealed to superior court; an appeal must be filed within 30 days of the decision.






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