|
Cook Inlet Energy argues case to AOGCC Company objecting to amount of fine levied by Alaska Oil and Gas Conservation Commission for regulatory violations at Sword well KRISTEN NELSON Petroleum News
In a brief hearing Sept. 13 representatives of Cook Inlet Energy summarized the company’s objections to a large fine levied by the Alaska Oil and Gas Conservation Commission for regulatory violations in drilling and production at the Sword well.
The commission had issued a notice of proposed enforcement action in December 2014 for issues at the Sword well, drilled in 2013. The action was based on what AOGCC described as “numerous regulatory violations” related to the well’s safety valve system during drilling and after production began, and Cook Inlet Energy’s failure to provide requested information about its safety valve system compliance policies.
The commission originally proposed a civil penalty of $806,000.
AOGCC held an informal review, at Cook Inlet Energy’s request, in February 2015.
The commission issued Other Order No. 102 on May 1, 2015, imposing a civil penalty of $446,000, an amount that included fines for initial violations and daily fines for the various violations ranging from $1,000 to $5,000 per day.
Company response In statements to the commission prior to the 2015 informal review and this September’s formal hearing, Cook Inlet Energy told the commission that it has made changes since the Sword well was drilled.
In a Feb. 9, 2015, letter to the commission, David Kumar, CIE’s production manager, said the company recognized there had been problems with effective communication with the commission and said the production manager and the production foreman, the key personnel responsible for the communications breakdown between CIE and the commission over the Sword No. 1 safety valve system, have been replaced.
“CIE is committed to ensuring compliance with AOGCC regulations related to production practices and company policies,” Kumar said.
He said the company has “implemented a decision matrix describing processes and responsibilities for use as a guidance tool for personnel when it comes to SVS matters,” said the new production manager “utilizes an in-house regulatory compliance-tracking program, which highlights the status of compliance activities ... and provides email alerts to the responsible party for incoming actions required to maintain compliance.”
“CIE is also in the process of implementing a rigorous training program with the help of a third party consultant experienced with AOGCC regulations,” Kumar said.
Commission concerns Both commission Chair Cathy Foerster and Commissioner Hollis French addressed concerns that in a continuing string of what Foerster characterized as “noncompliance events” cited in the commission’s May 2015 Other Order No. 102, CIE had said it was addressing the issue of lack of training for its employees on regulatory requirements. The order cites noncompliance events beginning in 2011 and continuing through the Sword well issues.
The commission, Foerster said, had been repeatedly assured that the apparent lack of training was being addressed, and said the commission is confused that it never got fixed.
French noted that part of the back and forth between the commission and CIE was the commission asking CIE to improve regulatory compliance.
Foerster said the hearing record would be held open for 10 days to allow CIE to address the question of a required safety program.
Commissioner Dan Seamount asked Bill Van Dyke, a petroleum engineer with Petrotechnical Resources Alaska testifying on behalf of CIE, about initial penetrations into the Hemlock formation at the Sword well. Van Dyke said as part of prepared testimony that while CIE never requested a no-flow designation for the well, it never flowed on its own.
There was certainly flow into the well after it was perforated, Van Dyke said, but not to the surface. He also said there was a little bit of gas, but said that would be expected.
Conrad Perry of CIE told the commission that he wanted to clarify that. Perry said he was at the well site when the Hemlock formation at the Sword well was perforated, and said the well did initially flow to the surface but it was a trickle and it stopped. He said he did not remember if the Tyonek flowed to the surface with it was perforated.
Foerster noted that there is gas associated with production, and asked why that did not flow.
She noted that to pass the no-flow test requires no flow for both oil and gas.
Fines excessive? Cook Inlet Energy has argued that the fines are excessive based on a lack of harm to the environment or individuals from the violations and on a comparison of earlier smaller fines imposed by the commission on other operators. The company has also argued that the violations included in the fine are related to a single incident and should not be broken out into separate violations and fines.
Attorney Jonathan Katchen of Crowell & Moring said CIE was not disputing reasons for the fine, but was questioning the amount of the fine since no one was hurt and there was no waste.
In a pre-hearing brief Katchen said the commission failed to consider mitigating factors. The company did not act in bad faith, took corrective action in replacing personnel, put a regulatory compliance tracking program in place and instituted new training programs.
He said a fine of $5,000 per day is inconsistent with prior commission actions.
He cited a number of examples, such as 2006 fines against Unocal for operation of 17 wells on the Steelhead platform where the safety valve system was not tested for 277 days and operations continued for 123 days after discovery of a failed subsurface safety value. The commission fined the company $1,000 a day for the violations, resulting in a $123,000 fine, plus $1,000 a day for failing to test the automatic shut-in equipment on 17 wells for 277 days, a $277,000 fine, totaling $400,000.
Katchen said CIE’s violations were less severe, but the commission fined the company $5,000 per day.
In contrast, the commission imposed no fine on BP Exploration (Alaska) in 2005 for failure to ensure proper working condition of well safety valves systems on six Prudhoe Bay pads.
And it only fined BP $2,500 per day in 2004 for an incident which resulted in an explosion, fire and severely injured a pad operator.
Foerster asked Katchen if he was aware that the commission’s regulations had been updated after those fines were imposed. Katchen said he was aware of the 2007 changes.
Those statutory changes raised the fine for an incident to $100,000 and the maximum fine per day to $10,000.
| 