Environmental and Energy Law Blog

Monday, August 8, 2016

Colorado Fines Texas Company Over Illegal Wells

What are the penalties for not complying with a state energy regulator?

In July, the Colorado Oil and Gas Conservation Commission fined Texas-based Atom Petroleum for continuing to operate an oil and gas well after being issued a Cease and Desist order. The commission slapped Atom with a $239, 496 fine, and is requiring the company to take a number of corrective actions.

Atom partnered with Hoshi Energy, LLC in the purchase of 40 wells in bankruptcy proceedings of the previous owner, Red Mesa Holdings in 2015. Prior to beginning operations, Atom and Hoshi also failed to pay Colorado $360,000 in financial assurances. Inspectors found drilling had begun in January, however, and the state determined the drilling activities posed a severe risk to public health and the environment.

Cease and Desist Order

In February, the commission demanded that all oil and gas activities cease immediately, citing the presence of crude oil and methane at the well head, and other knowing and willful violations. The order also demanded Atom and Hoshi to clean up any leaks and make necessary repairs to prevent future spills.  The operators ignored the Cease and Desist order and subsequent inspections in March revealed a well, not far from an elementary school, was still operating. Even though an inspector videotaped the drilling and emailed a copy to the company, the well continued pumping for a number of days afterward.

In addition to the fine, Atom must remove all trash from the site within 45 days, clean all oil-impacted soils and take other remedial measures. In addition the company must submit a Mechanical Integrity Test on the well in question. The company faces additional fines if it fails to comply including having its right to conduct drilling operations revoked. The state may also seize Atom's equipment. For its part, Atom argues they were not provided with reasonable notice, the Cease and Desist order did not clarify whether the well should be shut down, and that the violation should be dismissed.

Whether the companies will prevail in having the violation dismissed is unclear, but the video evidence and their failure to pay the financial assurances before commencing operations, do not bode well. In any event, this situation demonstrates that it is essential for oil and gas well operators to develop good relationships with state and federal regulators. By engaging the services of an experienced health, safety and environmental attorney, you can avoid costly mistakes and unnecessary fines.

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