BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

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1 F ILE D OF THE STATE OF OKLAHOMA JUN BEFORE THE CORPORATION COMMISSION APPLICANT: RESPONDENTS: Ron Dunkin, Acting Director, Oil and Gas Conservation Division Oklahoma Corporation Commission Fredda Ganer, dba Ganer Oil Co. RELIEF SOUGHT: Contempt for Violation of Commission Rules & Regulations COURT CLERK'S OFFICE. TULSA CORPORATION COMMISSION OF OKLAHOMA CAUSE No. EN T ITN: REPORT OF THE ADMINISTRATIVE LAW JUDGE This cause came on for hearing before Kathleen M. McKeown, Administrative Law Judge (AU, in the Oklahoma Corporation Commission's (Commission courtroom, Kerr Building, Tulsa, Oklahoma, pursuant to notice given as required by law and the rules of the Commission for the purpose of taking testimony and reporting to the Commissioners. LEGAL DESCRIPTION Harms #5 SE/4 5W14, Section 31, T25N, RO1W Kay County, OK CASE SUMMARY The Harms #5 well was drilled by Ganer Oil Co. (Ganer pursuant to a Commission permit to drill approving an alternate casing plan but requesting a cement bond log be submitted for approval by the Commission technical staff before the well was completed. The cement bond log showed that the top of the cement had dropped to approximately 114' below the surface but Ganer circulated a cement mix to the surface, completed the well and the bond log, showing the fallback, was submitted with the completion report. As a result of the unsatisfactory bond log the well was shut in and red-tagged by the Commission; Ganer was told to 1 submit a new bond log for approval; 2 drill out and re-cement the well with proper Commission personnel witnessing the recementing; or 3 after drilling out and re-cementing, submit a new bond log for approval. When no remedial actions were taken and/or communicated to the Commission within 30 days after the well was shut in, the Commission recommended this contempt action be filed and a $5000 fine be levied for violations of Commission rules and regulations. Ganer asserts that the only driller who could drill Out the well was unavoidably delayed but the matter was taken care of as soon as possible. Through oversight, the Commission was not kept informed of the remedial efforts being made by Ganer. Regardless, the well is now in compliance and there has never been any proof of ongoing pollution caused by the poor cementing job therefore Garter believes no fine should be assessed at this time.

2 Fredda Ganer, dba Caner Oil Co., Respondent RECOMMENDATION Garter has been an operator for several decades and is the party responsible for many wells in Oklahoma. The Commission never received any notice about the insufficient bond log from Garter until the completion report was filed. The well was red-tagged after it had been illegally completed and put on line. The recommended $5000 penalty is authorized by OCC-OGR 165:10-3-4(c(2 and should be enforced against Garter. HEARING DATE June 19, 2013 APPEARANCES Commission represented by Connie Moore; Fredda Ganer dba Ganer Oil Co. represented by William Bowles SUMMARY OF EVIDENCE EN T seeks compliance with Commission rules as to casing, cementing, wellhead equipment and cementing reports in connection with the Harms #5 well located at the subject legal description. It also reserves the right to request the maximum amount of five thousand dollars ($ per violation as authorized by law. 2. Exhibits were marked and accepted into evidence as follows (sponsor name in parentheses: 1. Harms #5 Intent to Drill requesting alternate casing procedure (Commission 2. Permit to Drill allowing alternate casing procedure (Commission 3. Harms #5 Cement Bond Log (Commission 4. Harms #5 Completion Report (Commission 5. Harms #5 Cementing Report (Commission 6. Photograph of Harms #5 when red-tagged by Field Inspector Schwarz (Commission 7. Commission letter to Garter warning about violations of Spudding Notice (Ganer 3. On behalf of the Commission testimony was presented through Mark Ganer, field representative for Ganer; Dennis Niskern, Commission Manager of Document Handling; George Schwarz, Commission Oil and Gas Field Inspector; and Ron Dunkin, Commission Manager of Technical Services and Acting Director of the Commission Oil and Gas Division. A. The Harms #5 well was drilled by Ganer to approximately 700' total depth in October 2012 pursuant to a Commission permit to drill that approved an alternate casing plan but requested a cement bond log be reviewed and approved by the Commission technical staff prior to completion of the well. When the cement bond log was run on the well on Oct. 25, 2012 it showed that the top of the cement had dropped back to about 114' below the surface. Garter attempted to "fix" the problem by circulating a 50/50 cement mixture (Reddi-Mix from the fallback of the first cementing to the surface. No bond log was run on this second cementing because Ganer was told that the Reddi-Mix cement may/may not show up as a good bond on 2

3 EN Fredda Ganer, dba Ganer Oil Co., Respondent the log due to the "lighter" nature of the cement mixture. Instead, Ga.ner completed the well, put the well on line and filed the bond log with the completion report on Nov. 20, B. After reviewing the bond log showing the cement faliback, the Commission had the Harms #5 shut in and red-tagged by the field inspector on Dec. 12, At that time Ganer was given 30 days to drill out the second cementing and either 1 cement the well a third time with the Commission field inspector as a witness or 2 run a cement bond log on the third cementing and submit it for review by the Commission staff before the well would be allowed to produce. When the field inspector had not heard anything from Ganer and no work had been performed on the well within the 30 day period, the Commission initiated contempt proceedings. After discussions took place among field personnel, technical and legal staff the subject contempt was filed and a fine of $5000 was recommended. 4. On behalf of Ganer testimony was presented through Mark Ganer, field representative for Ganer; Steve Harter, cement bond logger; and Bill McPherson, well driller. Garter never saw the requirement on the approved Commission permit to drill that a cement bond log be submitted and approved before the Harms #5 was completed. Once Ganer became aware of the cement fallback on Oct. 25, 2012 and tried to "fix" it with the Reddi-Mix cement mixture, no cement bond log was run on the Reddi-Mix cementing but the well was completed and the first bond log submitted with the completion report. It was not until after the Commission red-tagged the Harms #5 (Dec. 12, 2012 and required a third cementing and submission of a new cement bond log or a field inspector to witness the re-cementing, was any attempt made by Ganer to have the second cement job logged. After learning that the second cementing might or might not be reflected as a good bond in a cement bond log, Garter tried to contact a drilling contractor to drill out the cement so the third cementing could take place. The only driller Ganer could find that would do this work had a 6 to 8 week delay before returning to the subject wellsite. Ganer did not make the Commission aware of any of the efforts made to correct the problem or subsequent delays that occurred until after the contempt application was filed. Ganer feels that there was never any intent to be out of compliance with the Commission rules and that many actions were taken as quickly as possible to solve the problem. Additionally, the well was shut-in until the third cementing could be witnessed by the field inspector, no ongoing pollution has occurred and the well is now in compliance therefore no fines should be assessed. RECOMMENDATIONS AND CONCLUSIONS 1. After taking into consideration all of the facts, circumstances, evidence and testimony presented in the cause, it is the recommendation of the ALJ that the application in EN T be granted and a $ fine be levied against Ganer.

4 Fredda Ganer, dba Ganer Oil Co. Respondent 2. The facts in this case are not at issue so much as is the question of whether or not a fine should now be imposed based on the actions of the respondent. The respondent has been an Oklahoma oil and gas operator for decades and is subject to the Commission rules and regulations as an operator. There was no allegation made that the Commission permit to drill notation requiring review and approval of a cement bond log by the Commission technical staff prior to completion was not on the copy of said permit when the operator received it. Rather, the witness for Ganer said he had never seen the notation. Similarly, Ganer was familiar with the other Commission rules requiring field inspector witnessing of spudding, cementing, etc. The facts are that the well was completed and placed on line after it was apparent that the first cementing job was faulty; the second cementing job was performed without a Commission witness and no bond log was ever attempted. In fact, it wasn't until the well was red-tagged that the possibility of logging the second cement job was investigated which led to Ganer's decision to drill out the second cement job and re-cement the well. For all of these actions, no communication was had with the field inspector or any other Commission personnel and the result was this contempt application and hearing. 3. 0CC-OUR 165:10-3-4(c(2 states as follows: "An operator setting less than the required amount of surface casing or failing to remediate uncirculated cement before resuming operations may be fined up to $ " (Emphasis added OCC-OGR 165:10-3-4(c(I and (J state as follows: "(I Within 24 hours after discovery ofaproblem with the surface casing or cement, the operator shall notify the appropriate Conservation Division District Office by telephone, facsimile or electronic mail of- (i Any mechanical failure of the surface casing or cement. (J An operator, failing to report a rupture, break or opening in the surface Casing, may be fined up to $1,00000 and the well shut down." (Emphasis added Under the above rules, it is clear that, given the facts presented in this cause, fines may be levied. In the subject cause, it is only a matter of what violation should be pursued and bow high the fine should be. While Ganer asserts that nothing here was done intentionally and now, since the well is in compliance, no fines should be assessed, the ALJ believes that intent does not need to be present under the rules to allow a fine to be levied for non-compliance. Further, despite the well now being in compliance, the delay in reporting the lack of a satisfactory cementing job followed by the blatant completion of the well without Commission approval of a cement bond log to say nothing of the delay in getting the well drilled out and properly re-cemented, completely negates any lenience this court may give to the current compliance of the well. It is apparent that compliance on this well only occurred after several violations of the rules and a single fine of $ does not seem extraordinarily harsh considering the amount of Commission time invested in getting the well and operator into a state of compliance. Therefore, the requested fine should be assessed and the operator reminded that the purpose of the rules

5 Fredda Ganer, dba Ganer Oil Co., Respondent and associated fines are to keep the industry n business while protecting the correlative rights of all those involved. Thus, in light of the aforementioned conclusions, it is the recommendation of the ALJ that the application in be granted and the $ fine levied against the respondent. Any order issuing out of the cause should contain the recommendations set forth above. Respectfully submitted this 24th day of June 2013, I --/ LL 4'24J THLEEN M. MCKEOWN Administrative Law Judge 5