STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION 333 West Seventh Avenue, Suite 100 Anchorage Alaska 99501-3539 Re: Failure to Notify of Changes to an Approved Permit; and Failure to Test Other Order No. 80 Blowout Prevention Equipment April 10, 2013 Soldotna Creek Unit 44-33 Hilcorp Alaska LLC. DECISION AND ORDER On October 23, 2012, the Alaska Oil and Gas Conservation Commission (AOGCC) issued a Notice of Proposed Enforcement Action (Notice) stating that Hilcorp Alaska, LLC (Hilcorp) failed to notify AOGCC of changes to an approved permit to drill (PTD) and failed to test blowout prevention equipment (BOPE) in its operation of Soldotna Creek Unit 44-33 (SCU 44-33). The Notice proposed speci?c corrective actions and a $l 15,500 civil penalty under AS On November 2, 2012, Hilcorp requested informal review with the AOGCC to discuss the proposed enforcement. Summing: of Proposed Enforcement Action Hilcorp was granted approval to drill well set; 44-33 in PTD 2121430 dated October 3, 2012'. Drilling commenced October 1 I, 2012 using Dayan Rig 1 (also known as the Dayan Arctic Fox). The Notice identi?ed violations of the provisions of 20 AAC 25.015 (?Changes to a program in a permit to drill?) and 20 AAC 25.035 (?Secondary well control for primary drilling and completion?). The violations occurred when (I) Hilcorp commenced sidetrack drilling of SCU 44-33 at a depth shallower than approved; (2) drilling encountered an over-pressured zone that caused the well to flow which required closure of and (3) Hilcorp tripped its drilling assembly to surface to change out equipment and returned to continued drilling operations without testing the BOPE used for well control. The Notice proposed the following corrective actions by Hilcorp: (1) Within 2 weeks following the date of receipt of final decision, Hilcorp shall provide a detailed description of its regulatory compliance program and a copy of its written management-of?change procedures; (2) Within 2 weeks following the date of receipt of ?nal decision, Hilcorp shall complete and provide AOGCC with the results of a root cause analysis addressing the violations. (3) Within 4 weeks following the date of receipt of AOGCC ?nal decision, Hilcorp shall provide evidence that personnel responsible for drilling and workover rig management, and staff involved with permitting well Operations (drilling and workovers) have been SCU 44-33 is an approved sidetrack from suspended well SCU 24-33. The Application for Sundry Approvals. Form 10-403, was approved by AOGCC allowing the well to be con?gured for sidetrack drilling of ECU 44-33. Other Order No. 80 April 2013 Page 2 of 5 trained in AOGCC drilling and workover regulatory requirements, including the process for making changes to approved activities, testing, and reporting requirements; (4) Beginning immediately upon receipt of AOGCC's ?nal decision, BOPE testing on all drilling and workover operations must be performed when installed, repaired, or changed and at intervals not to exceed seven (7) days between tests unless otherwise approved by AOGCC. When used for well control or other equivalent purposes, or routine use may have compromised equipment effectiveness, BOPE used must be tested before the next wellbore entry. The Notice also proposed a civil penalty under AS 31 .05.150(a) in the amount of $l15,500 as follows: - $75,000 for the initial violation failure to maintain the wellbore in an overbalanced condition by increasing the drilling fluid weight prior to milling the casing window as required in the - $7,500 for failure to notify AOGCC of change in well plans; speci?cally, using a lighter weight drilling fluid for milling and initial drilling operations than approved in the - $3,000 for failure to notify AOGCC of a change in well plans; speci?cally, milling the casing window at a shallower depth than approved in the - $7,500 for each day October 14 through October 2012 for failure to test BOPE used in well control Operations. Rguirement to Notify of Changes; Reguirement t9 Test BOPE after l_Jse Regulation 20 AAC 25.01 5(b) establishes requirements to change an approved PTD and states in relevant part: ?To change a program approved in 0 Permit to DrillT or to change information under 20 MC 25.005(c) g?er drilling operations start. the operator submit and obtain the commission ?s approval' of an Application for Sundry Approvals (Form must set out the approved program, the current conditions of the we?, and the proposed changes." (emphasis added) Regulation 20 AAC establishes requirements when BOPE use is required for well control or other equivalent purposes and states in relevant part: ?if any BOP equipment components have been used for well components used must be @nction pressgre-tested before the next wgitbore entgg. to the required working pressure speci?ed in the approve Permit to Drill (emphasis added) Violations Hilcorp provided a Notice of BOPE Use to AOGCC on October 12, 2012 after closing the upper pipe rams to control the ?ow of formation ?uids. Receipt of Hilcorp?s notice initiated a review of the approved drilling permit and a request for additional information, including daily drilling reports. In response, Hilcorp revealed that the SCU 44-33 sidetrack was started at a depth approximately 500 feet shallower than approved and the drilling mud weight was not increased Other Order No. 80 April 10, 2013 Page 3 of 5 prior to commencing sidetrack drilling operations as required. Hilcorp drilling reports also indicate that the drilling assembly was tripped to surface on October 13, 2012 after BOPE was used to control SCU 44-33 and re-run in the well on October 14. 2012 without testing the used BOPE components. Hilcorp?s failure to comply was the result of either a lack of attention paid to the regulations or a lack of understanding regarding AOGCC expectations; in this particular case regulations with clearly worded expectations. The evidence shows that Hilcorp violated AOGCC regulations governing changes to an approved PTD and required BOPE testing. Mitigating Circumstances Mitigating factors considered by the AOGCC included (1) Hilcorp did not act in a willful or knowing manner; (2) the lack of injury to the public; (3) the absence of tangible benefits derived from the violations; and (4) I-lilcorp?s stated commitment to correct regulatory de?ciencies. During the informal review. Hilcorp's explanation for why no notice was given regarding the changes to the approved permit was that the changes were not deemed by Hilcorp to be signi?cant enough to warrant noti?cation to AOGCC. No eXplanation was offered for failure to test BOPE as required. Hilcorp accepted responsibility for the violations and has initiated corrective actions, including - updating its management of change procedures (Facility Change Request) to incorporate AOGCC regulatory requirements; - developing and implementing a regulatory compliance tracking spreadsheet; - training and orientation; improving communications from Hilcorp including more detailed permit applications, timely noti?cation of changes to approved permits by phone with proper written follow-up, and inquiries regarding regulatory requirements. Findings and Conclus?ns The aggressiveness with which Hilcorp is moving forward with operations appears to be contributing to regulatory compliance issues. Since Hilcorp commenced rig work in Alaska in April 2012, AOGCC inspectors have observed rig crews unable to perform required BOPE component tests, rig crews not trained in use of well control equipment, and rigs with missing required equipment. Hilcorp?s compliance history from April through December 2012 including this enforcement action - shows 13 separate enforcement actions of varying severity since April 2012. Many of these actions were due to a failure to understand regulatory requirements. Strong evidence indicates that Hilcorp has not adequately prepared its personnel for operations in compliance with AOGCC regulatory requirements. Left unaddressed and uncorrected these and similar violations will be repeated. For the reasons stated above, the AOGCC ?nds that Hilcorp violated regulations governing changes to an approved PTD and required BOPE testing. The seriousness of these violations, the number of prior violations, the need to deter similar behavior, and the need to trigger a Other Order No. 80 April 10, 2013 Page 4 of 5 substantial change in Hilcorp?s approach toward regulatory compliance warrant proceeding with these enforcement actions as proposed. However, BOPE installed on rigs engaged in development drilling will be allowed to continue testing at intervals not to exceed 14 days as currently authorized in 20 AAC 25.035 and 25.036 unless otherwise required by AOGCC in a PTD or based on BOPE performance. Since AOGCC issued the Notice, Hilcorp has provided the proper noti?cation for required bi-weekly BOPE tests on rigs involved in development drilling, performed those tests in an acceptable manner, and provided test results to AOGCC as required. Imposing a more frequent BOPE test interval is unnecessary. NOW THEREFORE IS ORDERED THAT: Hilcorp shall comply with the following corrective actions: 1) Within 2 weeks following the date of receipt of this ?nal decision, Hilcorp shall provide a detailed written description of its regulatory compliance program and a copy of its written management-of-change procedures, including but not limited to examples of regulatory compliance tracking sheets and similar evidence that supports Hilcorp?s compliance efforts speci?c to AOGCC regulations; 2) Within 2 weeks following the date of receipt of final decision, Hilcorp shall provide AOGCC with its complete root cause analysis and results addressing the violations outlined in this order. 3) By May 3, 20l3, Hilcorp shall provide evidence that personnel reSponsible for drilling and workover rig management, and staff involved with permitting well operations (drilling, workovers, and well operational oversight) have been trained in AOGCC regulatory requirements, including the process for making changes to approved activities, noti?cation procedures, testing, reporting, and record-keeping requirements. Records shall be maintained to substantiate completed training for Hilcorp and Hilcorp-contracted personnel. in addition, Hilcorp shall pay a civil penalty under AS 31 05.15001) in the amount of $1 15,500 as follows: - $75,000 for the initial violation failure to increase the drilling ?uid weight prior to milling the casing window as required in the - $7,500 for failing to notify AOGCC of change in well plans; speci?cally, using a lighter weight drilling ?uid for milling and initial drilling operations than approved in the $3,000 for failing to notify AOGCC of a change in well plans; Speci?cally, milling the casing window at a shallower depth than approved in the - $7,500 for each day October 14 through October 17, 2012 for failing to test BOPE used in well control operations. Done at Anchorage, Alaska and dated April 10, 2013. Cathy Hi Foerster Daniel Tgeamount, Jr. Chair, Commissioner Commissioner Utltut Urdu] Nu 80 April It] Ztlli Page with": 21} altet nultun nuucc nl Il?n: unlt}. u! older ut dentin? .n such I'uulw- unu- 4t [he Muit gtantx lm gum! muse shun" a pemm achcted by it mm ?le with the an applicant?: I?m tecumtdemtum ut the hy ll II the millet.- was mailed then the ul lmu: shall he 1] days An applicanun I'm mint nut the respect in which the dcetslm believed In he euunenus Ihc shall grant in utilise the applxatton tm in whole in If pan \thl? ItlI Jays altet II is tiled tatlme In act on II Ill-days Is a dental tilteconsmerauun It the t' d?lilh upon dental. this aide: in decisiun and the dental ur In: FINAL and may be appealed to tupenm mm The appeal MUST be ?led wathut 33 days met the dau- un which the ADUCC mails. OR 50 days if the AOGCC otherwise distributes. the ode: or decision denying teconsudetauun. UNLESS the denial is by inaction. In which case the appeal MIIST be ?led Within 40 days after the date on which the applicatiun rm reconsideration was ?led If the giants an applicahOn for this cute: or daemon does not become ?nal Raina. the aide! demion on will be the FINAL order or decision of the and it may be appealed to supetiw cunn That appeal MIIS1 he ?led within 33 day: after the date on which he mails. OR 30 days il'the AOGCC otherwise distnhutes. the bidet on tecomuletatton As pmwded "1 AS ll 05 080th). "ltlhe questions reviewed an appeal at: limited In the to the AOGCC hy the qaplieation f0! reconsidernion In computing a period cut time above. the date at the event or default anet which the designned petiod begins turun ts nut included In the petiod. the lat day the petiod is unless It falls on a weekend at state holichy. in which event the period rm: until 5 00 on the next day that does not fall on a weekend 01' suite hultday US. Postal Serwce CERTIFIED MAIL RECEIPT (Domestic Mail Onfy,? 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