CADDNAR

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[CITE: DNR v. Claybridge Energy, LLC, 15 CADDNAR 72 (2019)]

[VOLUME 15, PAGE 72]

Cause #: 18-032W

Caption: DNR v. Claybridge Energy, LLC

Administrative Law Judge: Jensen

Attorneys: DNR (Boyko); Claybridge (Brinkman) 

Date: May 29, 2019

[See Editor’s note at end of this document regarding change in the decision’s original format.]

FINAL ORDER

34.  The Permits, issued to Claybridge, are revoked.

35.  Claybridge is ordered to properly plug and abandon the wells authorized by the Permits as well as perform site restoration required by 312 IAC 29-33-24.

36.  The Department may elect to plug and abandon the wells authorized by the Permits.

37.   A statutory lien is foreclosed in favor of the Department on the casing and all equipment    

located on or removed from the well sites associated with the Permits as well as upon the leasehold of the land upon which the wells are located and upon any crude oil stored on the well sites or recovered at the time the wells are plugged and abandoned.

38.   Claybridge is hereby enjoined from removing equipment or stored oil identified herein that

has been foreclosed in favor of the Department.

39.  If the Department elects to plug and abandon the wells associated with the Permits,

Claybridge remains liable for the costs of plugging and abandoning the wells.

40.  If the Department elects to plug and abandon the wells associated with the Permits, its

agents, employees, or contractors shall dispose of all casing and equipment located on or removed from the well sites and any crude oil stored on the well sites or recovered at the time the wells are plugged and abandoned.  An inventory of the casing and all equipment and any crude oil shall be made, and the salvage or other reasonable market value of the casing, all equipment and any crude oil shall be applied as a credit to offset the actual costs incurred in plugging and abandoning the wells.

41.  Claybridge remains liable for and is hereby order to pay the $2,500 CPA issued by the

Department on August 31, 2018 relating to Permit numbered 30278.

42.  The two, $2,500 cash bonds posted by Claybridge by checks numbered 27741441 and

27650930 in relation to the Permits are hereby forfeited in favor of the Department.

FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH FINAL ORDER

Case Summary and Jurisdiction:

1. On December 7, 2018, the Claimant, Department of Natural Resources (Department), through its Division of Oil and Gas, by Counsel, Ihor N. Boyko, filed with the Natural Resources Commission (Commission) its “Complaint for the Issuance of an Order to Revoke Permits and Forfeit Cash Bonds” (Complaint) against the Respondent, Claybridge Energy, LLC. (Claybridge).

2. The Department’s complaint sought the revocation of 2 permits, identified by numbers 30278 and 50226, (collectively referred to as “the Permits”) for the reason that Claybridge had failed to comply with a Notices of Violation (NOV) issued by the Department on June 25, 2018 and July 10, 2018, respectively, seek an extension of time to abate the violations or to request timely administrative review in accordance with Indiana Code § 4-21.5-3-6.

3. The Department’s Complaint further alleged that Claybridge had failed to pay a Civil Penalty Assessment (CPA) issued to it on August 31, 2018 in the amount of $2,500.

4. The Department is responsible for administering Indiana Code §§ 14-37 et seq. and 312 IAC 29 et seq. pertaining to the regulation of wells for oil and gas purposes.

5. Procedurally this matter is governed by the Administrative Orders and Procedures Act, Indiana Code §§ 4-21.5 et seq. and administrative rules adopted by the Commission at 312 IAC 3 et seq.

6. The Commission is the “ultimate authority” with respect to substantive matters controlled by Indiana Code §§ 14-37 et seq. and 312 IAC 29 et seq. Indiana Code § 4-21.5-1-15; 312 IAC 3-1-2.

7. Following her appointment as the Commission’s Administrative Law Judge (ALJ), on December 10, 2018, ALJ Sandra L Jensen, issued a “Notice of Prehearing Conference” scheduling the Prehearing Conference to occur on January 3, 2019. 

8. Stephen Brinkman (Brinkman) and Michael Kavanaugh (Kavanaugh), who identified themselves as Principals of Claybridge, appeared for the Prehearing Conference and for two additional Status Conferences conducted on February 5, 2019 and March 13, 2019.  During the Prehearing Conference and the Status Conferences, Claybridge represented that it was without financial resources to address the violations but was attempting to identify funding sources or sell its interests and transfer the Permits.  See “Report of Prehearing Conference”, January 4, 2019; “Report of Status Conference”, February 5, 2019; “Report of Status Conference”, March 13, 2019.  Continuances were granted to accommodate Claybridge’s efforts.

9. The Commission possesses jurisdiction over the persons of the parties and the subject matter of this proceeding.

10. During the March 13, 2019, Status Conference, an Administrative Hearing was scheduled to occur on May 9, 2019.  Written notice of the Administrative Hearing was also issued March 14, 2019 clearly indicating that parties were to appear in person.

11. Claybridge failed to appear in person for the Administrative Hearing, although Kavanaugh called the Commission on the morning of the Hearing.  Kavanaugh and Brinkman were engaged in the Administrative Hearing by teleconference.

Findings of Fact and Conclusions of Law:

12. During the Administrative Hearing, Brinkman was placed under oath or affirmation and the following exchange occurred:

ALJ Jensen:     Do I understand from the representations made previously that, on behalf of Claybridge, you are in agreement, or not contesting the allegations that are contained within the Complaint for Issuance of an Order to Revoke Permits and Forfeit Cash Bonds that was filed by the Department of Natural Resources on December 7, 2018?

Brinkman: That is correct.

13. Neither Brinkman, nor Kavanaugh offered anything further on behalf of Claybridge.

14. Mr. Boyko moved for ALJ Jensen take official notice of the exhibits attached to the Department’s Complaint, identified by Exhibit numbers A-1, A-2, B-1, B-2, C-1, C-1a, and C-2.  The motion was granted.

15. No further evidence was received from the parties.

16. The evidence establishes that Claybridge is a person to whom the Permits were issued for the purpose of drilling and constructing wells for oil and gas purposes.  Exhibit A1 and A2.

17. The Department issued an NOV to Claybridge associated with Permit 30278 on June 25, 2018.  Exhibit C-1.  The Department also issued Claybridge an NOV associated with Permit 50226 on July 10, 2018.  Exhibit C-2.

18. After allowing over 60 days for Claybridge to abate the NOV associated with Permit 30278, the Department issued Claybridge a CPA on August 31, 2019.  Exhibit C-1a.

[VOLUME 15, PAGE 73]

19. The Department alleged, and Claybridge agreed, that the NOV’s have not been abated, and further that Claybridge did not seek administrative review of the NOVs or seek appropriate extension of time to address the NOVs. Complaint ¶6, Testimony of Brinkman.

20. Further, the evidence establishes that the CPA has not be paid.  Id.

21. Claybridge also agreed with the Department’s allegation that it posted one $2,500 cash bond for each of the Permits as check numbers 27741441 and 27650930, respectively.

Conclusions of Law:

22. In accordance with Indiana Code § 14-37-13-1(2) a permit for oil and gas purposes may be revoked if the “owner or operator has violated” Indiana Code §§ 14-37 et seq. or 312 IAC 29 et seq.

23. A permit for oil and gas purposes may also be revoked if:

Sec. 1…

(5) The owner or operator has been issued a notice of violation under IC 14-37-12 and has failed to do at least one (1) of the following:

(A) Abate the violation within the prescribed period.

(B) Secure in writing from the division an extension of time in which to abate the violation before the expiration of the period established for abatement.

(C) Request a proceeding under IC 4-21.5-3-6 within:

(i) thirty (30) days after receipt of the notification; or

(ii) the period provided by the division for abatement;

whichever is longer.

Indiana Code § 14-37-13-1(5)

24. Indiana Code § 14-37-12-5 specifies that an owner or operator may be liable for a civil penalty if it fails to timely abate a violation.

25. Indiana Code § 14-37-13-2 specifies as follows:

Sec. 2. (a) If a permit is revoked under this chapter, the commission may do either of the following:

  (1) Order the owner or operator to plug and abandon the well.

  (2) Plug and abandon the well.

(b) The revocation of a permit under this chapter does not relieve the owner or operator of the well to which the permit relates of the responsibility imposed by IC 14-37-8 for the plugging and abandonment of the well.

(c) If the commission elects to plug and abandon a well under subsection (a)(2), the commission may apply the bond or other security provided under:

  (1) IC 14-37-6; or

  (2) IC 13-8-8 (before its repeal);

to the costs of plugging and abandoning the well.

(d) If the commission elects to plug and abandon a well under subsection (a)(2), the owner or operator of the well remains liable for the costs of plugging and abandoning the well.

(e) The state has a lien on:

  (1) the casing and all equipment located on or removed from the well site;

  (2) the leasehold of the land upon which the well is located; and

(3) any crude oil stored on the well site or recovered at the time the well is      plugged and abandoned;

to secure the cost of plugging and abandoning. Except as provided in subsection

(f), the lien may be foreclosed on order of the commission in the name of the state of Indiana by the attorney general in a circuit or superior court having jurisdiction in any county where the land is located.

(f) If the commission elects to plug and abandon a well under subsection (a)(2), the commission may also enter an order authorizing its agents, employees, or contractors to dispose of:

  (1) casing and all equipment located on or removed from the well site; and

  (2) any crude oil stored on the well site or recovered;

at the time the well is plugged and abandoned. An inventory of the casing and all equipment and any crude oil shall be made, and the salvage or other reasonable market value of the casing and all equipment and any crude oil shall be applied as a credit to offset the actual cost incurred by the commission to plug and abandon the well.

26. If a permit is revoked under Indiana Code §§ 14-37-13 et seq, a related bond or alternative security shall be forfeited in favor of the Department.  Indiana Code § 14-37-6-5.

27. Claybridge, is a person that engaged in activity for which the Permits were required under Indiana Code §§ 14-37 et seq. and 312 IAC 29 et seq.

28. Claybridge, as a person who has the right to drill into and produce from a pool of oil, is an “owner” as defined at 312 IAC 29-2-95.

29. As person to whom the Permits were issued, Claybridge is also an “operator” within the meaning of 312 IAC 29-2-94. 

30. The evidence establishes that, as authorized at Indiana Code § 14-37-12-2, the Department issued NOVs to Claybridge with respect to the Permits. 

31. The evidence further substantiates that Claybridge did not address the NOVs in accordance with Indiana Code § 14-37-13-1(5).

32. Indiana Code § 14-37-4-2(a)(2) expressly prohibits the consideration of “economic hardship” as a defense to an owner’s or operator’s failure to comply with the conditions of a permit.

33. The Department’s issuance of the CPA related to Permit 30278 approximately 60 days after the NOV was issued on June 25, 2018 is authorized by Indiana Code § 14-37-12-5.   

[EDITOR’S NOTE: The original format of the Administrative Law Judge’s Findings of Fact, Conclusions of Law, and Final Order has been modified to correspond with CADDNAR format.  The Final Order, Paragraphs 34 through 42, has been relocated to the “Final Order” section at the beginning of this document.]