HHilcorp Alaska, LLC Hileorp Alaska, Submission to the AOGCC for Informal Review of AOGCC Docket Nos. 0TH-15-25, and 0111-15-31 Submitted: January 29, 2016 Mr. David Wilkins Mr. Bo York Hileorp Alaska, LLC 3800 Centerpoint Drive, Suite 100 Anchorage AK 99503-5826 I Phone: (907) 777?8300 Email: dwilkins hilco Brewster Jamieson, Esq. Lane Powell PC 301 W. Northern Lights Blvd. Ste 301 Anchorage, AK 99503 Phone: (907) 277-9511 Email: jamiesonb@lanepowell.com I. INTRODUCTION On November 12 and I6, 2015, the Alaska Oil and Gas Conservation Commission issued four Notices of Proposed Enforcement Action (?the Notices") to Hilcorp Alaska, LLC Three of these Notices (Dockets OTH-15-030, and 5-031) involve the use of nitrogen gas in well cleanout operations at the Milne Point Unit on Alaska?s North Slope. The fourth Notice (0TH-15-029) concerns a different alleged failurel but it is cited in each of the other Notices as justi?cation for enhancing the penalties assessed against Hilcorp. Accordingly, Hilcorp requested, and the AOGCC agreed, that all four Notices would be consolidated for purposes of an lnfonnal Review, currently scheduled for February 18, 2015. Hilcorp concedes that certain operational conduct described in the Notices was not in accordance with its own or its contractors? well?established policies and procedures. Where this is true, Hilcorp has candidly acknowledged these deficiencies, and has taken appropriate remedial action to prevent such occurrences in the future. However, Hilcorp also respectfully believes that the proposed penalties are impennissively excessive, based on an incomplete understanding of the factual record, or arise from regulatory provisions that are ambiguous. Hilcorp also is concerned that in certain respects AOGCC is attempting to enforce its regulation in a manner beyond its statutory mandate, but within the statutory authority of other regulatory agencies. Of greatest concern to Hilcorp are comments in the Notices that are extreme2 and, to the extent based on incorrect assumptions of fact, unjusti?ed and unfair. Hilcorp?s highest priority is, and will continue to be, to conduct its operations in a safe and compliant manner, and it has worked diligently with AOGCC to understand and address its concerns. As demonstrated in this On Milne Point well 1-03 Commission alleges, incorrectly as demonstrated herein, that Hilcorp failed to notify the Commission regarding the use of ROPE upon isolation of a casing leak. and also failed to retest the BOPE after this operation. 9 big, In the Notice for Dl-tl. 011145-029, which concerns the alleged failure to notify the Commission regarding the use of HOPE on well and the concomitant failure to re-tcst the ROPE. the CommiSSion writes, ?The disregard for regulatory compliance is endemic to Hilcorp?s approach to its Alaska operation and virtually assured the occurrence of this violation.? As discussed inn-u at Section the alleged violation is not factually based, and therefore the extreme conclusion is unwarranted. Hilcorp Alaska, LLC Submission for Informal Review 5-25, and 0TH-l5-3l) Page 2 of 30 brief, Hilcorp has taken numerous corrective actions in light of the incident. Hilcorp invites an open discussion of these issues in the informal review. and hopes one outcome will be a commitment to a greater degree of open communication between Hilcorp and AOGCC in the future. STATEMENT OF FACTS The most serious penalties proposed by AOGCC in the Notices are contained in Dkt. 5-25, and concern an incident which occurred during workover operations at Milne Point well on September 25, 2015. The rig used during this operation was Automated Service Rig 1 (ASRI). was constructed by Rangeland Drilling Automation, Inc. in the spring of 2015, and was put into service on July 19, 2015. The rig is operated by integrated Well Services (IWS) personnel working in two shifts, from 6:00 am to 6:00 pm and 6:00 pm to 6:00 am. These crews were directly supervised by two toolpushers, whose shifts were noon-to-midnight and midnight to noon. At the time of this incident, Hilcorp was represented on the worksite by a very experienced wellsite leader, who provided overall operational direction and supervision, and who was onsite 24 hours per day. A. Hilcorp Contractor Safety Expectations and Practices. As part ofits own comprehensive safety program,3 Hilcorp requires by contract that all of its contractors. including IWS, to maintain their own safety programs, train their employees to recognize work hazards, and to adhere to all applicable workplace safety standards: See. Ex. I, l-lilcorp Safety Manual Table of Contents [a full copy ofthe Safety Manual is available upon request). Hilcorp has a comprehensive safety program that ensures standards of federal, state and local regulatory agencies are adhered to in the workplace, and ultimately that personnel are safe and the environment protected. The program includes the standard elements of a Safety Management System. including Employee Training and Contractor Oversight. It is implemented by ten safety professionals. one ?re chief, and one safety systems administrator. Four of the safety professionals work on the North Slope while another four work in the Cook inlet directly supporting ?eld activities. Additionally Hilcorp Alaska?s environmental department has twelve environmental professionals who oversee the environmental aspects of Hilcorp's activities. Two environmental Specialists work on the North Slope; eight others work out of the Anchorage of?ce and deploy to field locations as work conditions dictate. In addition to the twenty-four safety and environmental protL-ssionals staffed in Alaska, Hilcorp has another eighteen Environment, Health and Safety professionals staffed in the Lower-48. Hilcorp Alaska, LLC Submission for Informal Review 5-25, and Page 3 of 30 must perform all work and services in accordance with all applicable safety regulations, precautions and procedures, and shall employ all protective equipment and devices required by governmental authorities, or reasonably recommended by industry safety associations. [Hilcorp] expects to train its employees to recognize common hazards associated with their work tasks and must adhere to all Hazard Communication Standards as required by all applicable Federal, State, and Local Safety Regulations or industry standards. 4 Hilcorp also mandates that everyone, including personnel, have Stop Work Authority; All [Hilcorp] employees, and its employees, agents or sub-contractors have ?Stop Work Authority? for any unsafe or potentially unsafe situation. Any potential hazards identi?ed must be reported immediately to a [Hilcorp] representative and work stopped until the can be properly understood and IWS utilizes the DuPont Stop Work Program and incorporates the DuPont Stop Work cards into the daily operations. Personal Protective Equipment, Safety Meetings, and Job Safety Analyses are additional contractual requirements.6 Hilcorp professionals worked extensively with prior to start-up ofASRl, and were assured that IWS's safety program was fully compliant-1 After ASRI was placed in service, Hilcorp professionals regularly visited the rig and conducted audits, orientation and other support.3 Hilcorp?s Wellsite Leader was aware of and observed participation at safety meetings and JSAs by IWS personnel. After the J-OSA incident, Hilcorp obtained further continuation, through copies of training logs, JSAs, STOP cards and Near Miss Reports,9 that personnel regularly participated in and contributed to these vital programs. 4 See Ex. 2, Hilcorp Alaska, LLC Minimum Contractor Safety Requirements, which is an exhibit to the Hilcorp/1W5 Master Services Agreement in effect at the time of the incidentASR Rig Crew Contacts. 3 Id. 9 Ex. 4, ASRI STOP Cards and Near Miss Reports. Hilcorp Alaska, LLC Submission for Informal Review 5-25, 5-29, 5?30, and I) Page 4 of 30 B. Milne Point Workover Project Planning and Sundry Submission Pursuant to its general powers and duties set forth in AS 31.05.030, the AOGCC has promulgated regulationsl0 requiring operators to submit an Application for Sundry Approvals (Fonn 10-403) (?Sundry Application") prior to commencement of workover operations, and a Report of Sundry Well Operations (Form 10404) ("Sundry Report") alter completion of such operations. The Commission may waive these requirements ?for wells in a pool for which pool rules have been prescribed,"? which it did for certain workover operations at Milne Point prior to Hilcorp becoming operator. Upon becoming operator at Milne Point, Hilcorp began submitting Sundry Applications for all workover projects, and received approvals from AOGCC personnel prior to commencement of any Operations. It has also regularly submitted Sundry Reports at the conclusion of all such operations. in 20 ACC the Commission has listed six speci?c types of infomtation that 2 Section 280(b)(5) requires "a description of must be provided with a Sundry Application.I wellbore ?uid to be used for primary well control" but it is otherwise silent on the topic of liquids or gasses that might be employed during the course of any particular workover, such as for well cleanout. in addition, Section requires submission of ?a copy of the proposed 20 AAC 25.280. 20 AAC 25.28002). '2 These are: the current condition of the well; (2) a copy of the proposed program for well work; (3) unless already on ?le with the commission. a diagram and description of the well control equipment to be used, including if applicable a list of the blowout prevention equipment (BOPE) with speci?cations; (4) the maximum downhole pressure that may be encountered, criteria used to determine it. and the maximum potential surface pressure based on a pressure gradient to surface of psi per foot of true vertical depth, unless the commission approves a different pressure gradient that provides a more accurate means of determining the maximum potential surface pressure, such as using a stabilized shut-in tubing pressure: (5) a description of any wellbore ?uid to be used for primary well control; and (6) the current bottom-hole pressure, or, if data setting out the actual pressure are not available, an estimate of the current bottom-hole pressure. Hilcorp Alaska, LLC Submission for informal Review (0TH-I 5-25, 5-29, 5-30, and 5-31) Page 5 of 30 program for well work,? but provides no further detail or guidance regarding the content or level of detail of that item. Speci?cally. there is no requirement for submission of detailed descriptions of each particular step of the operation, or for submission of detailed written procedures for each of those steps. Box 12 of Form 10403 lists three types of attachments? that can be submitted with the Sundry Application, with a box next to each to be checked as an indication of which of those are being submitted with the application. In every Sundry Application for Milne Point workovers submitted prior to the incident (including each of the Summary Applications that are at issue herein), Hilcorp informed the Commission that it was submitting only a Description Summary of Proposal and a BOP Sketch; in every case, the Commission approved the Sundry Application. Prior to the J-08A incident, Commission staff did not advise that it expected Hilcorp to state whether it intended to or might employ nitri?ed fluids or other additives to assist with well cleanout. A total of 4 workovers (including 1-08A) involving the use of nitrogen gas have been performed at Milne Point since Hilcorp assumed the role of Operator in early 2015, two using the Nordic 3 rig, and two using Asst.? On the ?rst such job?MP Well l-lS?thc llilcorp operations engineer indicated that nitri?ed fluids, surfactants and gel sweeps might be employed if ?unable to gain circulations or solids to surface?? This Sundry Application was approved, and the description of the proposed cleanout methods received no comment. At the end of this job, a 10-404 Sundry Report form was submitted, with a Weekly Operations Summary detailing the use of nitrogen gas in the cleanout. '6 The AOGCC again made no comment. The same operations engineer submitted a Sundry Application for Well (approved the same day as the Sundry Application on but indicated only the plan to ?circulate the '3 Description Summary Proposal, Detailed Operations Program, and/or BOP sketch. '4 These are: Well l-lS, Ex. 5 (Form l0?403, Sundry No. 315-153. approved March 25, 2015. and Form 10-404); Well -09A, Ex. 6, (Form 10-403, Sundry No. 315-162, approved March 25, 2015, and Form 10- 404); Well .l?OlA, Ex. 7 (Form 10-403, Sundry No. 315-459. approved July 30, 2015 and Form 10-404) and Well J-OSA, Ex. 8 (Form lO-403, Sundry No. SIS-527, approved August 20l5, and Form 10- 404). '5 Ex. 5, Well 1-15. 1d. '7 Ex. 6, Well J-09A. Hilcorp Alaska, LLC Submission for Informal Review 5-25, 5-29, and OTH-15-3 l) Page 6 of 30 well clean? without indication of the ?uid, gas or other products that might be required to complete the cleanout Operation. Seawater and nitrogen were used in that operation, and this was duly noted on Weekly Operations Summary submitted with the 10-404 Sundry Report form, to which the AOGCC made no comment. '8 The third workover involving nitrogen use?on well J-OlA?was performed by A different Hilcorp operations engineer submitted a Sundry Application which did not mention that nitrogen gas would or might be used;19 again, this fact was noted in the materials submitted with the I0-404 form,20 without comment from the AOGCC. The ?nal project involving nitrogen ?also performed by ASRl?was on J-OBA, and the Sundry Application again did not 2' Hilcorp fully reported state whether nitrogen would or might be used during the well cleanout. the incident at to the Commission, including the use of nitmgen. Its use was also clearly identi?ed in documents submitted with the l0-404 following conclusion of the Operation.? As a result of the incident at J-OBA, Hilcorp ?rst became aware that the AOGCC expected disclosure of intended or possible nitrogen use in Sundry Approvals, and that if the need to use nitrogen became apparent during the operation (and after its Sundry Application had been approved), that this would constitute ?substantive change" requiring noti?cation to the Commission pursuant to 20 AAC 25.507.23 In response, Hilcorp has altered its practice to require that future Sundries will note where the use of nitrogen is reasonably anticipated, and '3 1d. Ex. 7, Well J-OIA. 3" Id. 2' Ex. 8, Well J-O8A. 22 Id. 23 The ?rst and operative sentence of 20 AAC 25.507 provides in relevant part: If an Operator desires to make a substantive change in aln] . . . activity for which commission approval is required and has been obtained . . . complete details of the well?s current condition and the proposed change must be submitted to the commission with [a Sundry Application] . . . . Nothing in the regulations suggests that using nitrogen to assist in well cleanout operations is ?substantive," and that quali?er is not de?ned or discussed in any other regulation. Hilcorp Alaska, LLC Submission for lnfonnal Review 5-25, 5-29, and 5-31) Page 7 of 30 contact the Commission prior to use of nitrogen where its use was not reasonably anticipated and therefore not noted in the Sundry?1 C. The J-08A Incident. On September 25, 2015, three IWS employees (a toolpusher and two operators) were overcome by nitrogen gas inside the tank module of the rig. An investigation team was convened to conduct an on-site investigation, resulting in an lntemal Incident Investigation 7 and a Lessons Learned report? an event sequencing chem?? a Root Cause Analysis2 Summary.? All of these items have previously been provided to the Commission. In order to assist the J-08A well cleanout, Halliburton was engaged to deliver and pump nitrogen to the ASRI rig. Job Safety Analyses were conducted as the night crew came on duty at 6:00 pm on the 24th, 293nd again when the day crew came on tour at 6:00 am on the 3" Both IWS toolpushers attended both JSAs, and the topic of nitrogen pumping was covered at both meetings. The 6:00 am meeting notes indicates discussion occurred of both the hazards (3lrd party work, pressure, plugged lines, and loss oi? oxygen) and controls (good communications, monitoring pressure, avoidance of nitrogen clouds, and avoidance of areas where nitrogen is present). These items were all and accurate, and, indeed foreshadowed issues that later arose. The procedure involved simultaneous pumping of water and nitrogen down the annulus, with the intended goal of floating ?uids and solids at the bottom of the well up and out the tubing. The returns, including Fluids, solids and nitrogen were to be routed from the tubing to an open-air bleed tank located away from the other structures on the wellsite. 2" See infra. note 42.. 25 Ex. 9, lntemal Incident Investigation Report. 2" Ex. 10, Event Sequencing Chart. 27 Ex. 1 1, Root Cause Analysis. 2" Ex. 12, Lessons Learned Summary. 29 Ex. 13, SA 9124. This JSA form indicates that this meeting was conducted at 5:43 pm on September 3" Ex. 13, JSA 9/25. Hilcorp Alaska, LLC Submission for Informal Review 5-25. 5-29, and 5-3l) Page 8 of 30 The Halliburton crew made its connections to the rig starting just after midnight on A nitrogen line was run the 25m, alter which it conducted another safety meeting at 2:10 am.3 from Halliburton?s truck to a junction, which also connected to the ?5 pump; the third leg of the junction was connected to the well annulus (or kill side). Check valves were installed on the kill side of the junction, in order to prevent nitrogen or well ?uids from ?owing back into the ASRI pump line.32 The only pressure gauge on the pump line was located on the kill side of the check valve?this meant that when there was back pressure well pressure) on the check valve, it would close, and the gauge would only ?see" pressure between the pump and the check valve.33 After making its connection and conducting a pressure test to 3500 psi, the Halliburton crew began pumping nitrogen at 2:40 am. The volume of nitrogen was gradually increased, to 1200 and pumping proceeded for approximately 2 hours, when a leak developed in Halliburton?s nitrogen hose. The pumping was suspended for approximately 25 minutes while the hose was replaced, after which the pumping continued from 4:55 am to 6:30 am, when nitrogen pumping ceased. The wellsite leader monitored returns to the bleed tank, and these indicated that the nitrogen cleanout had been a success. The Halliburton crew then stood by while the crew pumped 50 of seawater down the annulus, and monitored the well to ensure that the nitrogen had been removed. After pumping the ?rst 50 seawater pill, the pressure gauge on the tubing indicated 0 psig, while the annulus pressure indicated 300 psi?as noted above, however, the gauge which the crew relied on for annular pressure was reading the pressure trapped between the check valve and the pump. In reality, the annular pressure was likely at least 1000 psi. The wellsite leader then released the Halliburton crew at approximately 8:00 am, who disconnected its nitrogen lines from the junction (but left the junction and the check valves in place). The wellsite leader called for a second 50 seawater pill to be pumped down the annulus, but after only approximately 4 bbls, the crew encountered an unexpected pressure spike 3? Ex. 14,11a11iburton Job Log. 32 Ex. Fluid Flow Diagram J-osA Incident. -- Id. Hilcorp Alaska, LLC Submission for Informal Review 5-25, OTH-15-29, 5?30, and 5?3 1) Page 9 of 30 to around I 100 psi, which was thought to be due to an obstruction or a closed valve. This was reported by radio to the wellsite leader. who reportedly responded, ?I?m confused fellas, let?s sit down and talk." He directed the crew to stop pumping, and to bleed off what was anticipated to be a relatively small quantity of fluid. At this time, the toolpusher was with the wellsite leader in the wellsite leader?s of?ce, located approximately 200-300 feet away from the rig and tank modules. The IWS operators (MB and determined that in order to bleed off the annulus pressure, the only readily available flow path was through the choke manifold and into the mud pits. On the way to the mud pits, the flow would go through a gas buster, which is a tank with baffles that directs liquid into the mud pit tanks, while it directs gas out a pipe which vents to the atmosphere at the top of the pit trailer.35 The toolpusher met MB in the manifold room.3b located at one end of the pit trailer, while JG stayed on the rig ?oor. MB walked down the lines from the rig floor, through the choke manifold and into the mud pit tank, which was the expected path for the fluid being bled off the annulus. MB reports that he simply missed the dump valve on the bottom of the gas buster. It is unclear whether the toolpusher also walked down the flow line path with it is clear that the wellsite leader, who remained in his of?ce, did not. As the bleed-off began, the toolpusher returned to the wellsite leader?s of?ce, while MB was in the manifold room and was on the rig floor, each monitoring the respective pressure gauges.37 The noise level in the manifold room increased signi?cantly, indicating that a gas, and not a liquid, was being bled off through the choke manifold. JG attempted to raise MB on the The operators? initials will be used to protect their identities. 35 Id 35 Ex. to, roam Jobsite Overview; Ex. Tank Trailer Passenger Side View; Ex. l8 'l?ank Trailer Driver Side View. '7 JG was monitoring the pressure gauge at the pump, which, as noted previously, was "blind" to the annular pressure because of the check valve. Upon opening the valve to route the annular returns through the choke manifold and into the pits, the pressure gauge on the choke manifold began recording the actual annular pressure. That gauge was visible in the manifold room on a screen, which would also have been viewable in the wellsite ieader's office. it is believed that the pressure against the check valve was nearly equal to the annular pressure when the crew stopped pumping. This would have led to similar readings at hoth pressure gauges when the HCR valve was opened. Hileorp Alaska, LLC Submission for informal Review 5-25, 5-29, and Page 10 of 30 radio, who did not respond due to the noise. JG then went to the manifold room and motioned to ME to join him on the stairs between the manifold room and rig floor. They walked into the tank room (immediately adjacent to the gas buster) in order to exit the tank trailer and proceed up the stairs toward the rig. A?er only this brief passage through the tank room, both remarked that they were light headed and feeling funny but were not thinking clearly enough to associate these with their work environment. JG then radioed the toolpusher to meet him by the tank trailer. MB stayed behind, and went back to his ?station" in the manifold room. When they met outside, JG told the toolpusher that he and MB were both ?loopy and dizzy." The toolpusher then stated that he would check this out, but did not stop the operation, and did not inform the wellsite leader of this development. They both walked around the back end of the tank trailer to the opposite side, and then to the front of the trailer where there is another set of stairs leading directly into the manifold room. As they passed the back of the trailer, the toolpusher indicated to JG that the mud hatch at the back of the trailer should be Opened for extra ventilation. The toolpusher and JG arrived in the mud room and encountered MB. MB stepped out onto the landing for fresh air, JG stepped into the manifold room, and the toolpusher entered the tank room, presumably to open the mud hatch at the rear of the trailer. Again, the toolpusher did not inform the wellsite leader or shut down the job. After about 15-20 seconds, JG went into the tank room, and upon ascending the steps, observed the toolpusher in the far and near the mud hatch. JG then took a deep breath (right next to the gas buster), with the intent of assisting the toolpusher. He blacked out about halfway into the room, but he managed to reverse his direction and exit the trailer at the front entrance. MB then went into the tank room via the door between the manifold room and tank room, saw the toolpusher slumped at the back of the tank room, and then immediately went back to the manifold room and shut the choke valve to step the pressure flow. He took a deep breath, re?entered the tank room, made it to the mud hatch which he opened, and then positioned the toolpusher next to the open hatch. He managed to make it back to the tank room side exit, where he was overcome on the stairs outside the exit. JG, in the meantime, had recovered suf?ciently to see MB at the tank room entrance, assist him outside, and then make his way to the rig ?oor, where he shut in the well completely. He then sounded the man down alarm, and an emergency response was initiated. Hileorp Alaska, LLC Submission for lnforrnal Review (0TH-15-25, 5-30, and 5-31) Page 1 of30 The toolpusher, JG and MB received oxygen, and were transported to the Milne Point unit clinic for evaluation. An incident team was assembled, and an investigation conducted. AOGCC was noti?ed, and its representative went to the wellsite to investigate. Presumably, a report of the AOGCC investigation was prepared, but this has not been provided to Hileorp as of the date of this submission. D. l-Iilcorp Has Engaged in Extensive Efforts to Identify and Correct the Causes of the Incident. As noted above, immediately after this incident, Hilcorp voluntarily conducted a thorough investigation, which identi?ed and considered many potential causes that led to this incident. In addition, Hilcorp prepared a Comprehensive List of Causes and a corresponding CLC Corrective Actions matrix? detailing numerous action items to address the CLC. A Lessons Learned Summary?D was also prepared and voluntarily distributed widely throughout the company and to other North Slope producers. Hilcorp?s investigation was rapid, candid and self-critical. Hileorp has also cooperated fully with the Commission?s own investigation, and agreed to all conditions imposed by the Commission prior to recommencing operations. All but one of the items on the CLC Corrective Actions matrix have been completed.? These corrective actions range from looking and tagging out the dump valve on the gas buster, to providing further training regarding the rig?s choke manifold and associated flow lines, to supplementing the rig?s gas detection system with low oxygen sensors, to providing in-ear headsets to facilitate communication in high noise environments, etc. in addition, Hilcorp effected a leadership change at ASRI, now assigning two wellsite leaders (instead of one) to manage the drilling programs. 3? See, Ex. 1 1 (Comprehensive List of Causes contained in Root Cause Analysis). 3? Ex. t9, CLC Corrective Actions Matrix. 4? Ex. l2, Lessons Learned Summary. Item 5 of the CLC Corrective Actions Matrix, installation of low oxygen detectors, is very close to completion. The detectors have been installed, but have not yet fully been wired and commissioned. That will occur by mid-February. during the crew?s scheduled time off. Hilcorp Alaska, LLC Submission for informal Review 5-25, 5?29, 5-30, and Page [2 of 30 Signi?cantly, Hileorp has also changed its approach to the preparation of Sundry Authorization forms to standardize the level of detail provided to the Commission. Prior to this incident. there was some degree of variability in the level of detail submitted to the Commission to comply with the requirement in 20 AAC for ?a copy of the proposed program for well work.? Some operations engineers at Milne Point tended to provide more of a summary with the Sundry Authorization, and then provide a more detailed work program to the ?eld. Other operations engineers provided a summary procedure to both, with the expectation that the ?eld personnel would be better suited to develop detailed procedures matching the on-site conditions at the time of the operation. Prior to the -08A incident, Commission staff routinely approved workover plans with more or less detail, and did not express a preference or expectation for one format over the other. Hilcorp has now adopted a practice intended to standardize Sundry Authorization submissions, and to ensure both that the submitted procedures are adequately detailed, and that 2 these same procedures will be provided to the wellsite for execution.?l Deviations from the submitted procedures require notice to and approval from the Commission- ?2 Ex. 20, email ?'orn Bo York (Operations Manager at Milne Point) to Hilcorp personnel, dated November 30, 2015. In relevant part, Hilcorp management expects strict adherence to the following practices: Prior to Initiating Well Work: 1. Operations engineer responsible for the well work will develop the procedure with adequate detail to ensure ?eld execution may occur within the steps included in the procedure and all AOGCC requirements are addressed. 2. Regulatory Tech (Tom Fouts} will generate Fonn I0-403 to accompany the procedure. Operations engineer that deveIOped the procedure will review the procedure with the Field Foremen and Well Site Manager that will be performing the work. Intent is to obtain their comments and input on the steps and to leverage their 20+ years of performing well work. 4. Operations engineer will provide the reviewed procedure and Form 10403 to the operations manager for review and schedule a peer review meeting with the other operations engineers in town. Typically this meeting will occur on Friday after the AFE review meeting but can be scheduled at any time. Field Foreman and WSMs should also be invited to this meeting. 5. After the changes are incorporated from the peer review. the operations engineer will initial the Form 10-403 and the operations manager will sign it. (continued) Hilcorp Alaska, LLC Submission for Informal Review 5-29, OTH- 1 5-30, and 5?31) Page 13 of 30 All of the efforts detailed above (most of which were voluntarily and independently taken prior to receipt of the AOGCC Notices) demonstrate Hilcorp?s sincere and thoughtful desire to improve both safety in its operations and compliance with the Commission?s expectations. As discussed infra,43 these actions should be considered in determining the amount of the penalty to be assessed for the violations detailed in the Notices. E. The 1-03 Alleged Failure to Report Use of Blowout Prevention Equipment. The Notice at Dkt. OTH-15-029 relates to an incident that occurred on May 2, 2015, during a workover of MP Well 1-03, which was being performed for the purpose of straddling a casing leak which had been discovered previously. After the straddle assembly was successfully set, the well began to flow, which was an expected possible consequence of the operation. The BOPE, which was already closed in anticipation of the possible ?ow, was used to restrict the flow of the well while it was weighted up with ?uid. 6. The Reg Tech will submit the 10-403, procedure, and all attachments to AOGCC two weeks prior to performing the work. 7. The Reg Tech will track the submittal and let the operations engineer know once approval is received. Work Exmtlion: l. The operations engineer and WSM are responsible for executing the work. 2. Prior to starting the work, a kick off meeting will be held by the WSM with the rig crew. The entire procedure will be walked through and any special safety considerations will be addressed. The rig crew should understand the procedure and the approved steps. This meeting will be documented on a safety meeting sign in sheet. 3. ANY deviation from the approved procedures will be discussed with the operations engineer and in turn the AOGCC representative. Work will not proceed until the deviatiop is approved by AOGCC. 4. ANY step or detail not included in the approved procedure but is discovered during well work activities and needs to he added will be discussed with the operations engineer and in turn the AOGCC representative. Work will put proceed until tlinddition is approved by AOGCC. 5. I repeat the step is not included in the approved procedure or its detail is addedichanged. work will sto until the 0 ions on ineer noti?es the A CDC and the changdadded step is approved. The operations engineer may get verbal approval but ALWAYS followed up with written con?rmation via email. (emphasis in original). ?3 At Section 1113(3). Hilcorp Alaska, LLC Submission for informal Review 5-29, 5-30, and 5-31) Page of 30 The wellsite leader advised Hilcorp?s team by email of the success of the straddle and that the well had begun to tlow.??1 Hileorp's operations engineer responded: . . . please make sure that you notify AOGFC of closure of BOPs due to well control within 24hrs. books like you have everything under control. The wellsite leader then responded ?Ha they were already closed!? refen'ing to the fact that the BOPE had been closed in anticipation of the well flowing when the packer placed during the operation was released. The wellsite leader nevertheless sent an email message to several AOGCC personnel, including Jell'Jones and James Regg, advising them as follows: Utilized Annular BOP for Shut in while waiting to weight up after successful straddle isolation. Weighting up ?uid density .5 ppg. Not sure if noti?cation required in this James Regg responded to Hileorp?s wellsite leader, "1f planned step in your operation report is not Accordingly, no further report was made to the AOGCC. In its Notice, the Commission alleges that Hileorp violated 20 AAC 25285 by failing to provide notice of the BOPE use, and by failing to re?test the equipment before re-entering the well after its use. However, the Commission apparently overlooked the above-quoted communications between Hilcorp and AOGCC personnel. Pursuant to 20 AAC routine use of BOPE in workover operations where such use is not suspected to have compromised its effectiveness is an exception to the retesting requirements of 20 AAC .47 Section .235(o(2) requires a re-test of BOPE when it is ?used for well control or other equivalent purpose, or when routine use of the equipment may have compromised its effectiveness . . . Since that is not how the BOPE was used in this instance, no re-test was required. Under these circumstances, Hilcorp respectfully disagrees with the Commission?s imposition of a ?ne. Based on the communications between I-lilcorp and AOGCC staff 4" Ex. Email string between WB and Chris Kanyer, May 2, 2015. ?5 Ex. 22, Email from we to AOGCC, May 2. 2015. 1d. ?7 Hileorp personnel advise that the industry shorthand of ?closing the BOP in anger," as distinguished from routine use, is the trigger for the re-testing requirements of 20 AAC Hilcorp Alaska, LLC Submission for informal Review and 5-31) Page 15 of30 discussed above, it is clear that Hilcorp did not willfully disregard 20 AAC The fact that Hilcorp reached out to AOGCC staff to clarify the regulatory requirements demonstrates Hilcorp?s good faith efforts to comply. Moreover, Hilcorp does not believe the factual circumstances surrounding the 1-03 workovcr establish a sufficient basis to enhance the penalties proposed in the other Notices? at issue here. F. The Facts Do Not Justify the Use of In?ammatory Language. to proposing fines for these and other violations, the Commission employs particularly harsh language in the notices of proposed enforcement. Regardless of the nature of the alleged violation, or its relationship to other alleged violations, each notice of proposed enforcement states the following: [This] violation is neither isolated nor innocent and is emblematic of ongoing compliance problems with Hilcorp rig workover operations. ?t it it The disregard for regulatory compliance is endemic to Hilcorp?s approach to its Alaska operations and virtually assured the occurrence of this violation. Hilcorp?s conduct is inexcusable. Hilcorp conducts many operations in over 20 units and ?elds in Cook Inlet and on the North Slope. Virtually all of these operations are permitted, conducted, concluded, and reported in full compliance with AOGCC and other statutes and regulations. Rather than operating with a disregard for compliance, Hilcorp works diligently and in good faith to comply with all applicable laws and regulations, and has swiftly implemented corrective actions where it has fallen short. Therefore, the Commission?s use of inflammatory language in the notices is not justi?ed by the facts. Ill. ANALYSIS OF PROPOSED FINES Hilcorp believes that the enforcement action proposed by the Commission in the Notices raises serious eoncems about the scope of the Commission?s authority, as well as the cumulative nature of the proposed lines. These concerns are addressed infra in section IV. Dockets 5-025, 030 and 031. Hilcorp Alaska, LLC Submission for lnforrnal Review 5-29, 5-30, and OTll-l 5-31 Page 16 of 30 This section discusses Hilcorp?s concems with the lines, using the factors contained in AS which provides: to determining the amount of a penalty assessed under of this section, the commission shall consider (I) the extent to which the person committing the violation was acting in good faith in attempting to comply; (2) the extent to which the person committing the violation acted in a wilful or knowing manner; (3) the extent and seriousness of the violation and the actual or potential threat to public health or the environment; (4) the injury to the public resulting from the violation; (5) the bene?ts derived by the person committing the violation from the violation; (6) the history of compliance or noncompliance by the person committing the violation with the provisions of this chapter, the regulations adopted under this chapter, and the orders, stipulations, or terms of permits issued by the commission; (7) the need to deter similar behavior by the person committing the violation and others similarly situated at the time of the violation or in the future; (8) the effort made by the person committing the violation to correct the violation and prevent future violations; and (9) other factors considered relevant to the assessment that are adopted by the commission in regulation. Hilcorp respectfully submits that if due regard is given to those factors, the ?nes proposed by the Commission should be substantially reduced, and in some instances eliminated. A. $250,000 Total Fines for Failure to Provide Notice of Expected or Potential Nitrogen Use in Workover Operations. The Commission issued three Notices as a result of workovers that employed nitrogen. The Notice at docket 5-025, which addresses the incident at .l-08A, proposes an overall ?ne of $700,000?9 related to this incident, with $100,000 being assessed for performing the 4? This Notice also assesses a $20,000 line For late reporting of the RUFF. test conducted prior to startup alter the incident. Although this late reporting (of a successful HOPE test) was pure oversight and a departure I?rotn its otherwise timely liOl?l-Z test submittal practice. l-lilcorp does not contest that it submitted its test results three clays late. Hilcorp Alaska, LLC Submission for Informal Review 5?25. and 0TH-l5-3l) Page 17 of 30 cleanout of using an unapproved contingent plan. The Notices at Dockets and 031 relate to two other workovers that employed nitrogen, and propose a fine of $75,000 in each instance. The Notice at docket relates to a different issue entirely,50 but is cited as an aggravating factor which justi?es the severe penalties contained in the other Notices. Hilcorp questions the regulatory basis for, as well as the amount of, the proposed lines. As noted previously,? the Commission has promulgated no regulation nor issued any guidance stating or even suggesting that Sundry Applications must include mention of the expected or potential use of nitrogen gas during the well cleanout portion of a workover operation, or that deciding to use nitrogen due to unforeseen factors constitutes a ?substantive change? of the approved activity.?2 Well cleanout is a standard step in every workover at Milne Point. The use of seawater, nitrogen, or other substances is standard industry practice and depends on actual well conditions encountered during the operation. On the one occasion where Hilcorp mentioned in its Sundry Application that nitrogen or other additives might be employed,? the Commission made no comment. On the two other jobs where nitrogen was not mentioned in the Sundry Application but used during the operation, this fact was clearly identi?ed in material submitted in the Sundry Report forms 10404 after the conclusion of the operations?again, without any comment from the Commission that it considered this a ?substantive change" of the operations. In the absence of any regulation, guidance or mention of this topic by the Commission, Hilcorp?s failure to include the potential for nitrogen use in Sundry Application stemmed from a good faith belief that such mention was not required. The failure to include mention of nitrogen was not due to a willful failure to comply or for the purposes of deceiving the Commission. Hilcorp received no bene?t, either?the Commission?s previous silence regarding the use of nitrogen (both before and after workovers involving the use of nitrogen) hardly gave Hilcorp the 5? Discussed supra, at Section 5' Supra. at Section 52 See discussion at Section supra regarding the lack of any de?nition of ?substantive change" in the Commissions regulations or guidance; as well as the fact that the Sundry Application form 10-403 does not inquire on this or similar topics- ?3 MPU Well 1-15 on March 24.29, 201 5. Hilcorp Alaska, LLC Submission for Informal Review 5-29, 5-30, and 5-31) Page 18 0130 sense that it could avoid scrutiny or otherwise bene?t if it failed to seek pro-approval of nitrogen use. Thus, factors 1. 2 and 5 of AS 31.05.150(8) do not support imposition of any ?ne. much less that the fine should be enhanced. In addition, there is no indication that the failure to mention nitrogen in the Sundry Applications, or to notify the Commission of its use during the operation, was in any way a cause of the IWS personnel being overcome by nitrogen. At the time of the incident, the nitrogen pumping was concluded, and Halliburton?s nitrogen truck had been disconnected from the rig. The release occurred not because the nitrogen cleanout was performed incorrectly, but because, inter (that, the rig crew failed to manage a change in flow direction correctly. Notifying AOGCC personnel prior to the pumping would not have prevented this incident; likewise there is nothing to suggest that failing to notify AOGCC personnel of the possible use of nitrogen during the workover made the occurrence of this event more likely. Thus, factors 3 and 4 of AS which consider the causal connection between the violation and the actual or potential injury or threat to public health and safety, do not support imposition or enhancement of any ?ne. Regarding factor 6 of AS and as addressed supra in Section the Commission has improperly alleged violations of 20 AAC 25.285?) as a basis for these lines. As noted previously,54 Hilcorp has new adopted procedures to both standardize and improve its Sundry Applications. Hilcorp respectfully suggests that the Commission?s expectations for its Sundry Applications in general, and for noti?cation about anticipated use of nitrogen in particular, could have been more clearly communicated, particularly with respect to the operations at Milne Point, a unit where Sundry Applications for certain workover activities had not historically been required. Hilcorp wants and intends to comply with the Commission?s expectations for its Sundry Applications, and clear communication, rather than the proposed ?nes, is the most effective way to achieve this.55 5" Supra. at Section n. 42. 55 AS suggests that the Commission may consider ?other factors . . . that are adopted by the commission in regulation.? Hileorp is unaware of any such regulations. Hilcorp Alaska, LLC Submission for Informal Review and Page 19 of 30 B. $600,000 Fine for Failure to Maintain Safe Work Environment in Accordance With Good Oil?eld Engineering Practices. The proposed ?ne at docket is based on a single operation? that was conducted in an unsafe manner. The proposed ?ne consists of six separate sub-parts. each of which will be discussed in greater detail below. As a preliminary matter, Hilcorp believes that the AOGCC does not have statutory authority to levy ?nes to multiple asserted violations of 20 AAC 25526 that occur during the same incident on the same day, and thus the line based on this regulation should be reduced to a single line of no more than $100,000. 1. No Authority to Assess Multiple Fines for a Single Unsafe Operation. Alaska law provides the AOGCC authority to levy a fine ?of not more than $100,000 for the initial violation and not more than $10,000 for each day thereafter on which the violation continues?? The statute therefore permits the levying of a ?ne for the initial regulatory violation and daily ?nes thereafter so long as the underlying violation continues. 20 AAC 25.526 provides that ?An operator shall carry on all Operations and maintain the property at all times in a safe and skillful manner in accordance with good oil ?eld engineering practices and having due regard for the preservation and conservation of the property and protection of freshwater.? This regulation contains no discrete subparts that can be independently violated? instead, an operator is either in compliance or in violation at any given time. Put simply, once an operator is conducting an operation in an unsafe manner, the operator is in violation of this regulation (and subject to additional daily ?nes) until the operator remedies the conditions that make its operation unsafe. In its Notice, the AOGCC asserts that Hilcorp failed to maintain a ?safe work environment" at the wellsite as a result of six distinct acts that it asserts failed to conform with ?generally accepted oil?eld practices.? The Commission preposes to levy a $100,000 ?ne for each individual conditions. For instance, the Commission alleges that Hilcorp failed ?to The operation in question may be seen in general terms as the workovcr, which was the subject of an approved Sundry Application. The precise step in that operation which resulted in an unsafe condition was the decision to bleed annular pressure to the tank trailer via the choke manifold and gas buster. No matter how viewed, this was a single operation. 5? AS Hilcorp Alaska, LLC Submission for Informal Review 5-25, 5?29, 5-30, and Page 20 of 30 engage in a formal hazards identi?cation? before perfomting the cleanout of MPU J-OSA. If this or any other act identi?ed in the Notice resulted in an unsafe workover operation, there was still only one unsafe operations?the additional acts did not re-violatc 25 AAC 25.526. The AOGCC has the statutory authority to levy a fine upon Hilcorp?s failure to meet the ?safe and skillful manner" standard of 20 AAC 25.526?regardless of whether this violation was caused by one or more acts or omissions. Once in violation, however caused, the authority to levy additional ?nes was limited to daily fines for on-going violation. This interpretation of ?ning authority comports with Alaska law regarding multiple penalties for conduct arising out of a single transaction, which focuses on the consequences of multiple violations of the same law.? Here, the consequence of one or all of Hilcorp?s asserted actions was that Hilcorp was failing to perfonn its operation in a safe and skillful manner. Whether a single act or multiple acts occurred during the operation to produce the violation, the consequence was the same. Accordingly, AOGCC has the authority to levy a single ?ne for failing to conduct the operation on September 25, 2015 in a safe and skillful manner, but it may not assess separate lines for each act or omission that may have contributed to that failure. 2. $100,000 for failure to engage in formal hazards identi?cation process. Contrary to the Commission?s assertion, Hilcorp required to?and IWS did routinely?engage in a formal hazard identification process before all operations,59 including in particular the nitrogen pumping operation on September 24-25 at -08A. The JSAs prepared by the IWS crew speci?cally identified the hazards and risks of nitrogen (particularly creating an oxygen-deprived environment). The set-up of the job adequately assessed the risks associated with normal nitrogen cleanout operations, which properly directed the well returns (including nitrogen) to an outside. open-air tank. Signs were posted at the job site warning that nitrogen was in use. In this instance, the particular hazard to the crew arose after the nitrogen cleanout was complete, after Halliburton's nitrogen pumping truck had disconnected from the rig, and 5? Johnson v. State, 328 P.3d 71, 83 {Alaska 2014). 59 See supra. Section Hilcorp Alaska, LLC Submission for Informal Review (OTl-l-l 5-25. and 5-31] Page 21 of 30 after the crew believed all of the nitrogen gas had been removed from the well. Unexpected pressure was encountered while pumping seawater down the annulus, and the toolpusher and wellsite leader decided to ?bleed off? what was believed to be a small amount of water to the mud pits via the gas buster, which (unbeknownst to all) had the dump valve in an open position through which nitrogen escaped into the enclosed space. Upon encountering this changed operation, Hilcorp?s expectations were that a hazard assessment for the new operation would be conducted. The crew and wellsite leader incorrectly believed that the bleed-off operation was such a minor and routine step that the existing JSA was adequate and did not need to be revisited. This failure to employ the established hazard identi?cation process, rather than the lack of such a process, led directly to this incident. Although Hilcorp and its contractors routinely engage in job hazard identi?cation and follow industry and governmental standards speci?c to this issue, the Commission has not promulgated any regulation or issued any guidance which requires an operator to engage in a formal hazards identi?cation process. Here, the Commission states that this process should have been facilitated by ?hazards/risk experts . . . including assessing the risks of using nitrogen in a ?ll cleanout on It is unclear what the Commission?s expectations are for the involvement of ?hazards/risk experts.? In discussing this issue, the Notice refers to an OSHA publication, but the Commission has not adopted any regulation making violation of this publication a basis for a ?ne under 20 AAC 25.526. 3. $100,000 for failure to identify and implement safeguards to ensure personnel safety in the event of a nitrogen release. The principal safeguard employed to ensure personal safety in the event of a nitrogen release?avoidance of accumulations of nitrogen gas?was identi?ed and implemented through direction of the cleanout returns, including the nitrogen gas, to outside open-air tanks. Directing the nitrogen returns to the tank trailer was not a normal or anticipated operation. Even so, the mud pit trailer had both a gas buster and a high volume air exchange/exhaust system that were suf?cient to deal with any accumulation of nitrogen gas in the retums from the well bore?it was the failure to use these as designed which led to the incident, and this failure was one of management of change, which is covered below. Hilcorp Alaska, LLC Submission for Informal Review (OTB-1.545, 5-29, 5-30, and Page 22 of 30 To the extent this ?ne is based on a failure to include a low oxygen alarm along with the gas detection system, this is not mandated either by industry or OSHA standards, or in any regulation promulgated by the Commission, and thus cannot form the basis for the proposed ?ne. Nevertheless, after this incident, Hilcorp voluntarily out?tted the rig with such alarms as additional protection against low oxygen due to any cause, including nitrogen accumulation. 4. $100,000 for ?Failure to provide and make available at the rig a detailed procedure for performing a fill cleanout with nitrogen, including requirements for veri?cation of the integrity of all barriers in the flow paths for wellbore ?uids returning to surface during the ?ll cleanout operations.? The Commission has issued no regulations requiring that procedures for workover operations be provided to the rig, and has issued no guidance specifying the level of detail that the Commission would consider adequate. This ?nding also overlooks the fact that Halliburton made available a detailed and comprehensive procedure for performing a ?ll cleanout with nitrogen"0 and communicated this to the rig hands at pie-job safety meetings at the wellsite. in addition, verifying the integrity of all barriers in the flow paths for fluids returning to surface is a well-understood and constant responsibility of the wellsite leader and toolpusher. This was in fact done before the nitrogen pumping Operation itself. The nitrogen pumping operation was concluded at the time of this incident, and no procedure for nitrogen cleanout would have addressed the precise circumstances that were encountered. Accordingly, the alleged failure to include a detailed procedure had no causal relationship to this incident. The cause of this incident was Hilcorp?s ineffective management of change, not the lack of a detailed procedure at the wellsite. The crew state that they did, in fact, walk down the lines prior to initiating flow into the mud pits, thus demonstrating knowledge that veri?cation of flow paths was a requirement. However, the open dump valve at the bottom of the gas buster was missed in this process. In addition, the wellsite leader did not walk down the lines, as was his clearly understood responsibility. 6? Ex. 23, Halliburton N2 Procedures. Hilcorp Alaska, LLC Submission for informal Review 5-29, and OTH-I 5-3 I) Page 23 of 30 Nevertheless, Hilcorp has instituted a practice of requiring such detailed procedures at the wellsite, and has created diagrams of anticipated connections and ?ows for various standard pumping operations. 5. $100,000 for failure to have in place a robust ?Stop Work Authority? that was clearly understood and readily implemented by ASRI. This ?ne is contrary to the evidence and not supported by regulation. As demonstrated above,"1 Hilcorp mandates incorporation of a Stop Work Authority into its operations, and utilizes the Dupont STOP program, a state-of-the-art safety program that, among other things, empowers each and every worker to stop work at any time when safety concerns arise. This stop work authority was regularly underscored during pre~job meetings, during safety meetings, during numerous training sessions, and through lWS?s regular use of cards." Interviews of the personnel involved in this operation disclose that they all readily understood their right and duty to stop work; all readily understand that they could and should have stopped the work at a number of points in the operation, particularly just after they detected an unusual smell and experienced light-headedness. None of the involved employees can explain their failure to do so?and all of them readily admit that this was a mistake?but it was not due to the lack of such a program in the ?rst instance. The Commission has adopted no regulations addressing stop work authority policies or programs, nor has it promulgated regulations or issued guidance regarding the ?robustness" that such policies and programs must achieve- The proposed ?ne on this alleged basis is therefore unsupported. 6. $100,000 for failure to assess and manage changes that potentially introduce new hazards or unknowingly increase the risk of existing hazards during a rig workover. Hilcorp has identi?ed this failure as the principal cause of this accident, and has taken numerous corrective actions, including replacing and enhancing wellsite leadership, to prevent such incidents from reoccurring. See supra. Section 11A. Hilcorp Alaska, LLC Submission for Informal Review (0TH-15-25, 5-29, 5-30. and OTH-15-3 I) Page 24 of 30 7. $100,000 for inadequate training of personnel on As detailed above,?2 Hilcorp's employees receive extensive regular and ongoing training, and possess all required certi?cations. While the personnel involved failed to follow their training in several key respects, it does not follow that the training they received was inadequate or de?cient. The training records of every employee are available for inspection by the Commission, and the Commission has not Speci?ed which training was supposedly inadequate, nor the regulatory authority for imposing a ?ne on this basis. Accordingly, this proposed fine is not legally or factually supported. 8. The proposed ?nes do not consider the factors in AS 31.05.] 50(g). The Commission proposes to assess the maximum ?ne, six times, for conduct leading to the J-OBA incident. In so doing, the Commission has focused on one of nine factors set forth in AS 3 6, ?the history of compliance or noncompliance by the person committing the violation with the provisions of this chapter." In so doing, the Commission raises unadjudicated allegations contained in other Notices. at least one of which63 lacks a factual basis. Increasing the severity of a line based on unproven allegations is a practice inconsistent with due process, and when, as here, the unproven allegations are shown to be without basis, the proposed action loses its support entirely. In imposing its maximum ?ne, multiplied six-fold, the Commission also fails to consider any of the other 8 factors of In particular, the Commission should consider: that the violations alleged were not willful or knowing (factors that Hilcorp derived absolutely no bene?t from the alleged violations (factor that Hilcorp is highly motivated by factors other than the proposed line to prevent such incidents from reoccurring (factor and that Hilcorp has voluntarily initiated a wide range of corrective actions to prevent such incidents from occurring in the Future (factor 8). (12 Id. ,3 Docket 0'Fll-15-029, discussed supra. at Section 1115. Hilcorp Alaska, LLC Submission for informal Review 5-29, 5-30, and 5-31) Page 25 of 30 IV. VAGUENESS. REGULATORY OVERHEACH, AND DUE PROCESS The Notice indicates that the Commission intends to impose $600,000 in penalties against Hilcorp under AS 3105150 for violation of 20 AAC 25.526 citing conduct that threatened worker safety. The Commission promulgated .526 to create operational standards to conserve and protect oil, gas, and freshwater. It does not and cannot apply to worker safety. Further, to extend .526 to worker safety would require an expansive interpretation that would render the regulation imperrnissibly ambiguous and vague, violating due process. A. The Commission Lacks Authority to Regulate Worker Safety. Alaska?s Administrative Procedure Act states that when ?a state agency has authority to adopt regulations to implement, interpret, make specific or otherwise can?y out the provisions of statute, a regulation adopted is not valid or effective unless consistent with the statute and reasonably necessary to carry out the purpose of the statute.""4 In addition, the APA states that be effective, each regulation adopted must be within the scope of authority conferred and in accordance with standards prescribed by other provisions of law?? Here, it is clear that, by extending application of .526 to worker safety, the Commission has exceeded its statutory authority.? 6? AS 44,62,030 65 AS 44.62.020. 6" When .526 was adopted, AS 3 50 did not authorize the Commission to regulate worker safety, or impose ?nes against an oil?eld operator for action that threatens worker safety. Recognizing this lack of authority, John K. Norman, then Chair of the Commission, testi?ed before the Alaska Senate in 2007 that a ?recently concluded enforcement action [had] emphasized the lack of [the Speci?c authority for the regulation of safety issues." Hearing on 11.3. 109, Alaska State Legislature. House Special Committee on 01?! and Gas. April 12, 2007 (statement of Chair John K. Norman, Alaska Oil and Gas Conservation Commission). In response, the Legislature revised AS 31.05.0150 to provide the Commission the ability, but not the mandate, to regulate ?for conservation purposes and, to the extent not in con?ict with regulation by the Department of Labor and Workforce Development or the Department of Environmental Conservation, for public health and safely pumoses.? 2007 Alaska Sess. Laws ch. 54, 2 to 5 (SB. [09) (codified as AS However, the Commission has never implemented regulations to exercise this permissive authority. Mr. Norman?s testimony recognized that the Commission lacked statutory authority to regulate safety issues when it adopted .526. The authorizing statute in effect in 1999 allowed the Commission to regulate only ?for conservation purposes." AS 3! (1998). Subsequent to the 2007 amendment of AS 31.05.030, the Commission has not issued formal or infonnal guidance in the form of promulgated regulations, ?Industry Guidance (continued) Hilcorp Alaska, LLC Submission for Informal Review 5-25. and Page 26 of 30 B. Ambiguity of 20 AAC 25.526 Prohibits Application to Worker Safety. Even if the Corruuission had the statutory authority to regulate safety when it adopted .526, the regulation would be ambiguous and unenforceable in that respect. As the Alaska Supreme Court explained in 20l5: A regulation is ambiguous when [it] is capable of two or more equally logical interpretations. And ambiguous statutory or regulatory requirements must be strictly constmed in favor of the accused before an alleged breach may give rise to a civil penalty. . . . People should not be required to guess whether a certain course of conduct is one which is apt to subject them to criminal or serious civil penalties.m The terms "safe and skillful manner? and "in accordance with good oil?eld engineering practices" are vague and unde?ned However, the phrase ?having due regard for the preservation and conservation of the property and protection of freshwater" indicates the conduct proscribed relates to the goal of resource and freshwater conservation. The Commission has underscored this interpretation in its public statements. For instance, in its 20H) Statement to the Governor, the Commission wrote that it ?strives to ensure safe, technically prudent, and environmentally protective oil and gas well construction and operations? through its regulatory The Commission stated: Speci?c to drilling and workover operations, Commission performs periodic compliance inspections to ensure the equipment being used is consistent with the approved application, provides redundant levels of safety and protection for the well operations being performed, and is suitable for the environment in which activities are being conducted. Blowout prevention equipment inspections and -.rr'trre.r.rr'ug tests per the regulatory frequency is a particular emphasirfor AOGCC inspections, Bulletins," or enforcement orders that purport to expand the meaning of .526 beyond the bounds statutorily authorized when it was adopted in 1999. The Commission lacked authority to regulate any safety issue when it adopted .526, and the Commission cannot now attempt to utilize it for this purpose. ?37 RBG Bush Planes. LLC v. Atastm Public Of?ces Comm'n, 361 P.3d 886, 892 (Alaska 2015) (internal quotation marks and citations omitted). 68 AOGCC Statement to Governor, May 2010, available at 14. (emphasis added). Hilcorp Alaska, LLC Submission for Informal Review 5-25, Dru-15-29, 5-30, and 5-3 I) Page 27 of 30 The Commission went on to explain: After well drilling and completion, upon and after the onset of well production operations, other Commission regulations require installation, use, and maintenance of safety-related well hardware such as surface safety valves for certain types of wells, subsurface safety valves for certain wells, and various well production flow control devices. All offshore wells require an automatic, failsafe surface safety valve. A subsurface safety valve is required in every offshore producing well unless the operator can demonstrate to the Commission?s satisfaction that the well is incapable of unassisted flow of hydrocarbons to surface. The components of a well safety valve system are regularly inspected by Commission for proper operation given the production characteristics of the well and the challenges of operating environment, including witnessing tests. Operators are required to test of the components of a safety valve system at least once every 6 months and provide all test results to the Commission for review.70 These statements make clear that the Commission?s regulation of ?safety? refers to ensuring wells are equipped suf?ciently to prevent catastrophic blowouts that waste resources and pollute freshwater. While blowouts are inherently unsafe for workers, the Commission does not indicate (nor does the legislature) that worker safety is the object of its regulatory structure and inspections. In fact, the Conmrission?s statutes and regulations do not even mention the words ?employee" (other than Commission employees) or ?worker." This orientation toward well safety, not worker safety, is consistent with Alaska's larger regulatory scheme. The Legislature has a speci?cally designated agency to ensure worker safety, the Alaska Occupational Safety and Health section of the Department of Labor and Workforce Development. The Commission?s authorizing statute, which grants it the authority to regulate oil and gas operations for public health and safety only ?to the extent not in conflict with regulation by the Department of Labor and Workforce Development,"" makes this division of purpose between the Commission and AKOSH clear. This prohibits ?conflict," but does not create overlapping authority. Finally, application of .526 in the Commission's publicly-available enforcement orders is consistent with Hilcorp?s understanding that the ?safe and skillful" requirement means an operator must conduct operations in a prudent manner to avoid waste Hilcorp Alaska, LLC Submission for Informal Review O'l'H-l 5-29, 5-30, and 5-31) Page 28 of30 contamination of freshwater. The Commission has not cited .526 in an enforcement order in over 10 years, and not since 2007 amendment of AS 31.05.150. It has only cited the regulation three times.72 The Commission has applied .526 exclusively to engineering practices creating a signi?cant risk of resource waste through a blowout, and they support interpretation that .526 regulates the safe operation of a well, not the work environment. C. 20 AAC 25.526 is Unconstitutionally Vague. The Commission has the authority to levy ?nes for violation of its promulgated regulations, As a result, Commission?s regulations must meet basic constitutional due process requirements to be enforceable. Alaska courts recognize that ?in order to be consistent with notions of fundamental fairness a statute must give adequate notice of the conduct that is prohibited.?3 Even if Commission had the statutory authority to regulate worker safety at the time .526 was adopted, .526 would be uneonstitutionally vague in that respect. As outlined above, by its language and history, .526 limits its application to conservation of resource and protection of freshwater, and nothing the Commission has done provides notice that .526 encompasses worker The regulation fails to give "the ordinary citizen fair notice of what is and what is not prohibited.?75 Hilcorp ?should not be required to guess whether a certain course of conduct is one which is apt to subject [it] to serious civil penalties," but .526, as the Commission is now interpreting it, requires operators to do just that.76 As a result, .526 is void for vagueness under Alaska law. 12 In a June 2, 2005 order, the Commission cited Nabors Alaska Drilling for violating rules regarding testing of blowout prevention equipment on a rig by falsifying test results with a practice referred to as ?chart spinning." AOGCC Order 34 - Nabors Alaska Drilling, Rig 9E8, Enforcement Order. In 2004, the Commission cited BPXA in two orders for failing to bleed off well pressure before restarting a shut-in well and in connection with its practices in managing wells with sustained annular pressures, in the latter case resulting in a catastrophic failure and explosion. AOGCC Order 32 - BPXA, PBU, 11-1 1, Enforcement Order; AOGCC Order 29 - BPXA, PBU A-22, Enforcement Order. These orders did not cite worker safety as a basis for the operators? failure to conduct activities in a ?safe and skillful" manner. 7? State v. Rice, 626 P.2d 104, 109 (Alaska 1981) (applying due process doctrine to regulatory violation). 7? See AS 44.62.190 (requiring publication 30 days before the adoption, amendment, or repeal of a regulation). 15 VECO Intern. Inc. v. Alaska Public Offices Comm 753 P.2d 703, 714 (Alaska 1988). 7? Id. Hilcorp Alaska, LLC Submission for Informal Review 5-25, 5-30, and 5-31) Page 29 of 30 in addition to the notice requirement, the Alaska Supreme Court has held that a statute is unenforceably vague if a ?statute's imprecise language encourages arbitrary enforcement by allowing prosecuting authorities undue discretion to determine the scope of its prohibitions.?77 Again, the Commission has never applied .526 to worker safety, never issued any regulations or guidance that it intended to do so, and only imposed penalties for conduct creating a signi?cant risk of resource waste through a blowout. That the Commission has not consistently sought to enforce .526 on the basis of worker safety demonstrates selective enforcement in this instance that makes the regulation unenforceably vague. V. CONCLUSION Hilcorp concedes that the incident at J-OSA was unfortunate and preventable. Hilcorp immediately and dispassionately investigated the incident, identi?ed its most likely contributing causes, and then systematically proceeded to make corrections and improvements with the goal of substantially reducing the likelihood of similar future incidents. However, the fines proposed by the Commission are excessive, not justi?ed by the factual record, and outside the scope of its regulatory authority. Further, the factual record does not support the Commission?s claims that Hilcorp has an ?endemic disregard" for compliance. On the contrary, Hilcorp?s record in Alaska demonstrates conscientious attention to regulatory compliance, and swift corrective action when Hilcorp falls short. Hilcorp looks forward to engaging in an open and candid discussion of these issues with the Commissioners at the upcoming informal review, and hopes that by doing so an agreed resolution of this matter can be achieved. The Commissioners and Hilcorp share the same goal?encouraging the safe and responsible production of Alaska?s oil and gas resources. 7? State v. Rice, 626 P.2d at 109. Hilcorp Alaska, LLC Submission for informal Review 5-29, and Page 30 of 30