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AOGCC, Cook Inlet Energy agree on fines
Resolution reached on violations at Sword No. 1 well dating from 2013, 2014; commission agrees to reduction in civil penalties
Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation Commission and Cook Inlet Energy have reached a resolution “without the necessity of additional litigation,” the commission said in an April 18 amended decision and order on violations at the Sword No. 1 well. The violations occurred in 2013 and 2014; the well was completed and placed on production in late 2013.
After a final commission decision in February 2017, Cook Inlet Energy appealed in Alaska Superior Court; it is that appeal that the commission referenced in its April 18 amended decision and order.
The process began in late 2014 when the commission issued a notice of proposed enforcement action, proposing corrective actions and civil penalties totaling $806,000, citing “numerous regulatory violations pertaining” to the safety valve system on the Sword No. 1 well, “and CIE’s failure to provide requested information about CIE’s SVS compliance policies,” the commission said in its April 18 amended order.
Cook Inlet Energy requested an informal review and in May 2015 the commission reduced the civil penalty to $446,000. The commission’s final decision and order, in February 2017, was for that amount.
Basis of objections In a September 2016 hearing and in statements to the commission prior to the hearing, CIE told the commission it had made changes since the Sword well was drilled, acknowledged problems with the company’s communication with the commission and said key personnel responsible for the communication breakdown between CIE and the commission over the Sword No. 1 SVS had been replaced.
The company said in an early 2015 letter to the commission that it had updated its processes and its new production manager was using “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.” It also said it was implementing “a rigorous training program with the help of a third-party consultant experience with AOGCC regulations.”
CIE argued that the fines were excessive based on a lack of harm to the environment or individuals, and on a comparison to earlier smaller fines imposed on other operators.
The company also disagreed with how the commission figured the fines, arguing that the violations were related to a single incident and should not be broken out into separate violations and fines.
The reduced fines in the 2015 order, a total of $446,000, was based - as was the amount in the proposed enforcement action - on separate violations and per-day fines for each day the violation was maintained. The daily fines were $5,000 per day for three violations and $1,000 per day for failure to provide information.
In a pre-hearing brief for the 2016 hearing, attorney Jonathan Katchen of Crowell & Moring said a fine of $5,000 per day was inconsistent with prior commission actions, citing examples of fines against other operators from 2004, 2005 and 2006.
Commissioner Cathy Foerster asked in the hearing if Katchen was aware that the commission updated its regulations after those fines; Katchen said he was aware of the 2007 changes.
Those changes raised the fine for an incident to $100,000 and the maximum fine per day to $10,000.
Amended order In its amended decision and order the commission said that based on the agreement reached with CIE it had reconsidered its final 2017 order and was replacing it with an amended order.
The commission reviewed CIE’s actions in the amended order and concluded: “The violations at issue here depict CIE’s lack of understanding of AOGCC regulatory requirements, incomplete applications, and a lack of communication. CIE’s documented history of regulatory noncompliance, acknowledged violations, and need to deter similar behavior warrant proceeding with the enforcement.
“Regarding the need to deter, CIE has a history of noncompliance involving various parts of its operation that fall under AOGCC jurisdiction,” the commission said, referring to an attached history of compliance issues from 2011 through 2014.
The commission also noted an issue which arose in 2015 at the Redoubt Unit No. 9 well, concluding: “Even after commencement of this enforcement action, CIE continues to demonstrate that regulatory compliance remains a challenge.”
The commission acknowledged “developing efforts” which CIE discussed with the commission in the informal 2015 review, “including improvement to CIE’s Regulatory Compliance Tracking Program, revised Management of Change procedure that includes a Chain of Command for production practices, and a Well SVS Training Program for personnel responsible for SVS installations.”
Mitigating circumstances Citing mitigating circumstances, the commission said it has reduced but not eliminated the monetary penalty.
“The proposed corrective actions are deemed appropriate to address and prevent recurrence of the well safety valve system violations,” with a total of $116,500 in civil penalties. That includes $66,000 for the defeated and non-operable safety valve system ($25,000 for the initial violation and $1,000 per day for 41 days of operation after the initial violation); $40,000 for continued production after subsurface safety valve failure ($25,000 for the initial violation and $1,000 per day for 15 days of operation after the initial violation) and $10,500 for failure to respond to the commission’s request for information (zero for the initial violation and $500 per day for 21 days for failure to respond after the initial violation).
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