Providing coverage of Alaska and northern Canada's oil and gas industry
September 2017

Vol. 22, No. 38 Week of September 17, 2017

Tolsona recounts communication failure

Describes to AOGCC commissioners circumstances surrounding the failure to comply with orders over exploration well suspension

Alan Bailey

Petroleum News

During a Sept. 12 Alaska Oil and Gas Conservation Commission hearing Tolsona Oil and Gas Exploration LLC recounted the events that had led to regulatory violations resulting in the commission proposing $380,000 in fines. Tolsona, expressing contrition for unintended failures to comply with AOGCC orders, is arguing for a lower penalty. The violations at issue relate to the suspension of the Tolsona No. 1 gas exploration well, which Tolsona Oil and Gas Exploration drilled some 11.5 miles west of Glennallen towards the end of last year.

Tolsona Oil and Gas Exploration, a wholly owned subsidiary of Ahtna Inc., the regional Native corporation for the Copper River Valley region, completed the drilling of the Tolsona well in early December. After some initial flow testing, operations at the well ended in early January. Tolsona suspended the well, pending decisions on further well work.

The well was drilled as part of an Ahtna strategy to find a viable source of natural gas in the Copper River region, to help address the high cost of energy in the region.

Notice of violation

The AOGCC violations relate to commission mandated reporting of pressures in the outer annulus of the well, and the required installation of an additional pressure gauge. Apparently orders from AOGCC to the Tolsona oil and gas operations and development manager were not acted on to AOGCC’s satisfaction and were not communicated to senior Tolsona management. Tolsona management only discovered the problem after the eventual issue by AOGCC on May 24 of a notice of violation with the fine proposals.

During the Sept. 12 hearing Tom Maloney, CEO of Tolsona Oil and Gas Exploration, said that on May 25, upon hearing of the AOGGC notice, he had directed immediate action to address the commission’s concerns and had ordered a review into how the communications failure had happened.

“We are deeply sorry that this has occurred,” Maloney told the commissioners. “It’s been a black eye for all of us in the corporation to have this occur. We’re committed that it will never happen again.”

Maloney said the company had “taken every conceivable step,” including the obtaining of advice from leading industry experts, to rectify the shortcomings in the corporation’s internal communications.

Chain of events

Ahtna in-house council Nicolas Ostrovsky reviewed the chain of events. Ostrovsky said that on Dec. 15, after the start of work on suspending the well, Tolsona’s drilling manager had notified AOGCC that the pressure in the outer annulus had increased from zero to 895 pounds per square inch. Four weeks of continuing monitoring indicated that the pressure then remained between 895 and 1,100 psi.

On Jan. 25 the AOGCC had stipulated the need to continue to monitor the pressure in the well’s outer annulus and to install an extra pressure gauge on the annulus. But the commission did not set a specific deadline for having the gauge fitted. In the event, because of technical issues relating to the well cellar configuration and an invoice dispute with the well head manufacturer, the required gauge was not installed until 126 days after AOGCC issued its order, Ostrovsky said. He said that Tolsona now realizes that it had failed to communicate with AOGCC over the issues involved in installing the gauge, communications that could have resulted in some mutually acceptable resolution of the problem.

In the event, after a visit to the well site by an AOGCC inspector on March 3, AOGCC issued a notice of violation on March 6 for the absence of the mandated pressure gauge and for the lack of reporting of annulus pressures for February.

“The notice of violation was received by Tolsona’s oil and gas operations and development manager but was not forwarded to upper management,” Ostrovsky said.

On March 20 the operations and development manager responded to AOGCC over the notice of violation, providing pressure readings for Feb. 22 and March 2, and believing that these readings satisfied the pressure reporting requirements. On April 11 AOGCC proposed an enforcement action because it had not received pressure data due on March 20, and because the required pressure gauge had still not been installed. Again, the operations and development manager received the order but did not forward the order to senior management. On April 25 the manager sent AOGCC pressure readings for April 13, together with a note that he would call the commission to discuss potential fines. There is no evidence that this call happened, Ostrovsky said.

Ultimately, this chain of events led to the May 24 notice of violation.

Communications failure

Ostrovsky said that Tolsona has concluded that the debacle resulted from a complete failure of communications in the company, in particular because critical communications with AOGCC were channeled through a single person in the company, with no redundant communications route for ensuring wider awareness of what was happening. The company has subsequently implemented procedures to prevent this type of problem in the future, he said.

Brewster Jamieson, external counsel for Tolsona Oil and Gas Exploration, presented Tolsona’s arguments for reducing the size of the fine. One of the fines, a $260,000 fine, is based on the use of a regulation that applies to a producing well and not a suspended well, he said. Moreover, the level of the fines seems high when compared with similar cases - this was an accidental mistake by Tolsona and not a deliberate attempt to blow off or ignore the commission’s requirements, he said.

Commissioner Cathy Foerster asked several technical questions which Tolsona will respond to subsequently. She said that the commission had been told that Tolsona may try fracture stimulation of the well to overcome some perceived near well bore formation damage. Ahtna Corporate Communications Director Shannon Blue has told Petroleum News that Ahtna cannot currently comment on any potential stimulation of the well. However, Blue commented that Ahtna has yet to receive state tax credit payments that it are due for the drilling of the well.

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