American Oil and Gas Reporter - February 2015 - 146

Colorado Approves Penalty Structure
DENVER-New rules on enforcement
and penalties for violations of Colorado's
oil and natural gas regulations were finalized in January.
The Colorado Oil & Gas Conservation
Commission met Jan. 5 to conclude a
rule-making process that began in June
2014, following passage of legislation.
The meeting saw commissioners approve
revisions to Sections 522 and 523 of the
state's regulations, which apply primarily
to enforcement and penalties for violations.
In May 2013, Governor John Hickenlooper issued Executive Order D 2013004, directing the COGCC to conduct a
review of its enforcement and penalty
regulations. This was followed by HB
14-1356, which passed near the end of
the 2014 legislative session and called
for strengthening the state's enforcement
rules and raising the maximum daily
penalty for violations to $15,000 (AOGR,
June 2014, pg. 36).
As passed, HB 1356 did not specify
how penalties should be applied, the
COGCC notes. It says the revisions approved by the commission include new
rules on enforcement and a penalty matrix
that integrates the type of violation with
its impact on the public and environment.
While the commission raised the cap
on penalties to $15,000 from $1,000 a
day, the agency points out that it did not
mandate a penalty for all violations, as
sought by some environmental organiza-

tions. The director also was given additional discretion in applying penalty
amounts, depending on the type and
severity of the violation.
The revisions include factors to be
used when determining how many days
a violation took place. They also detail
the "appropriate corrective action" an operator must take to control and contain a
spill or release, and how those actions
are to be considered when penalties are
assessed.
Penalty Matrix
The COGCC's ruling divides violations
into three classes (see Table 1). The first
is for violations of paperwork or other
"ministerial rules" that do not present a
direct threat to the public or environment.
Class 2 rules indirectly protect the public
and environment, and a violation presents
"possible threat of adverse impacts," the
new rules state. Class 3 rules directly
protect the public and environment, and a
violation has an actual, significant impact
or threatens to impact those interests.
The other determinant in penalties is
the degree of violation. The rules define
those as:
* Major violations where adverse impacts have occurred;
* Moderate violations that threaten
to have adverse impacts or are less significant impacts; and
* Minor violations that do not actually
impact the public or environment, or
present little threat of an impact.

TABLE 1

SM Energy Completes
Powder River Basin Well

COGCC Penalty Matrix
Rule Classification

Degree of threatened or actual impact
to public or environment

Class 1:
Paperwork or
other
adminstrative
violation.

Class 2:
Rules indirectly
related to possible
threat to public or
environment.

Class 3:
Rules directly
related to
protecting public or
environment.

Major:
Actual impacts to
public or
environment

$5,000

$10,000

$15,000

Moderate:
Threat of adverse
impact, or
moderate actual
impacts

$1,500

$5,000

$10,000

Minor:
No actual impact
or little threat of
impact

$200

$2,500

$5,000

Source: COGCC

146 THE AMERICAN OIL & GAS REPORTER

Concerns were raised by industry during promulgation of the rules whether
they would allow persons with complaints
a hearing before the commission in instances where the COGCC director did
not issue a notice of violation, or when
complainants disagreed with the terms
of a settlement.
Industry also raised concerns over
misapplication of penalties that were out
of proportion to the alleged violation.
"We are looking for clarity and certainty
as to how the new rules will be enforced
and applied," Tisha Schuller, president
of the Colorado Oil & Gas Association,
stated on the day of the COGCC meeting.
"We are on the same page with the same
goal: promulgating rules that provide certainty, clarity and consistency to all stakeholders, not just industry.
"COGA has consistently made it clear
that we support the underlining law and
the COGCC's authority to implement its
mandate," Schuller added, expressing the
belief that Colorado "leads the nation
with strong rules that protect stakeholders
while supporting a predictable business
environment."
The Colorado Petroleum Association
took a neutral position on HB 1356 and
rule rewrite. At the COGCC's December
hearing, President Stan Dempsey testified
that his members were "not motivated
by fines and penalties to be in compliance.
They see compliance as a corporate responsibility and consider violations unacceptable."
Ì

DENVER-SM Energy Co. has completed the Dynamite St 3975-16-21-1FH
well in the Powder River Basin of
Wyoming. The company says the well,
with a 7,500-foot effectively stimulated
lateral length, had a peak 30-day initial
production rate of 890 barrels of oil
equivalent a day, with 54 percent oil.
The well is in the center of the company's Powder River Basin position and
SM Energy says it continues the successful delineation of the Frontier interval on
its acreage.
It adds the well's IP numbers are consistent with the nearby Blackjack and
Rush State exploration wells completed
in the first half of 2014.
SM Energy also reports it closed on
two transactions to acquire Powder River
acreage, bringing its total regional holdings to 171,000 net acres.
r
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