1 Department of Conservation, Division of Oil, Gas, and Geothermal Resources . Jason R. Marshall 2 ACTING STATE OIL AND GAS SUPERVISOR 801 K Street, MS 24-03 (Legal Office) 3 Sacramento, California 95814-3530 Telephone (916) 323-6733 4 Facsimile (916) 445-9916 5 6 7 8 STATE OF CALIFORNIA 9 NATURAL RESOURCES AGENCY 10 DEPARTMENT OF CONSERVATION 11 DIVISION OF OIL, GAS, AND GEOTHERMAL RESOURCES 12 13 14 ORDER TO PAY A CIVIL PENALTY 15 N0.1163 16 17 Operator: Chevron U.S.A. Inc. 18 Field: Cymric Oil Field, Kern County 19 20 21 22 23 24 25 26 27 28 Order to Pay a Civil Penalty No. 1163 1 2 I. Introduction The State Oil and Gas Supervisor (Supervisor), acting through the Division of Oil, Gas, and 3 Geothermal Resources (Division) and under the authority of Division 3 of the Public Resources Code 4 (PRC; commencing with PRC section 3000) and title 14 of the California Code of Regulations 5 (Regulations), has the authority to impose a civil penalty against an operator for the violation of oil and 6 gas conservation laws. (PRC § 3236.5) 7 The Supervisor has determined that Chevron U.S.A. Inc. (Chevron or Operator) committed 8 numerous violations of the PRC and its implementing regulations at the Cymric Oil Field (Cymric). On 9 at least four occasions (May 10, June 8, June 23, and July 22, 2019), Operator allowed a series of 10 surface expressions that are not low-energy seeps to occur at Cymric in violation of Regulations section 11 1722, subdivision (a), section 1724.11, subdivision (a), section 1724.12, subdivision (b), and section 12 1771. The Supervisor, through his Inland District Deputy, obtained photographs and issued notices to 13 ,Operator concerning these surface expression violations to which Operator responded. Such responses 14 included steam radius restrictions and root cause analyses. However, Operator's initial responses appear 15 to have contained but not prevented additional surface expressions. On July 21, 2019, the Division 16 issued Remedial Order No. 1159 (Exhibit A) ordering Operator to take all measures to stop flow from 17 the established surface expressions and to prevent any new surface expressions. 18 19 Pursuant to PRC sections 3013, 3106, 3236.5, arid Regulations sections 1722, 1724.11, 1724.12, and 1771, the Supervisor hereby ord.ers Chevron to pay a civil penalty of $2,732,991. II. 20 21 22 Definitions The following definitions apply to the terms used in this Order: PRC section 3008, subdivision (a) defines "Well" to mean, among other things, "any oil or gas . ' 23 well or well for the discovery of oil or gas; any well on lands producing or reasonably presumed to 24 contain oil or gas," and "any well drilled for the purpose of injecting fluids or gas for stimulating oil or 25 gas recovery[.]" 26 PRC section 3009 defines "Operator" to mean "a person who, by virtue of ownership, or under 27 the authority of a lease or any other agreement, has the right to drill, operate, maintain, or control a well 28 or production facility." 2 Order to Pay a Civil Penalty No. 1163 1 2 3 4 5 6 PRC section 3010 defines production facility to mean "any equipment attendant to oil and gas production or injection operations[.]" Regulations section 1720, subdivision (f), defines "Operations" to mean "any one or all of the activities of an Operator covered by Division 3 of the Public Resources Code." Regulations section 1720, subdivision (h), defines "Low-energy seep" as "a surface expression for which the Operator has demonstrated all of the following to the Division: 7 (1) The fluid coming to the surface is low-energy and low-temperature; 8 (2) The fluid coming to the surface is not injected fluid; and 9 (3) The fluid coming to the surface is contained and monitored in a manner that prevents damage 10 11 12 to life, health, property, and natural resources." III. State Oil and Gas Supervisor and Division Authority PRC section 3013 states that the oil and gas conservation laws (commencing with PRC section 13 3000) "shall be liberally construed to meet its purposes'' and grants the Supervisor "all powers" that may 14 be necessary to carry out those purposes. 15 PRC section 3106, subdivision (a), authorizes the Supervisor to "supervise the drilling, 16 operation, maintenance, and abandonment of wells and the operation, maintenance, and removal or 17 abandonment of tanks and facilities attendant to oil and gas production ... so as to prevent, as far as 18 possible, damage to life, health, property, and natural resources[.]" 19 PRC section 3236.5 authorizes the Supervisor to impose a civil penalty on a person who violates 20 any provision in Chapter 1 of Division 3 of the PRC, generally the oil and gas conservation laws, or any 21 regulation that implements Chapter 1. 22 23 24 25 Regulations section 1722, subdivision (a), requires Operator to conduct all operations "in accordance with good oilfield practice." Regulations section 1724.11, subdivision (a), mandates that "[u]nderground injection projects shall not result in any surface expression." 26 Regulations section 1724.12, subdivision (b), states that "[n]otwithstanding any efforts 27 undertaken by the Operator to contain a surface expression or otherwise mitigate risks associated with a 28 surface expression, the existence of a surface expression, other than a low-energy seep, is a violation of 3 Order to Pay a Civil Penalty No. 1163 1 the prohibition in Section 1724.11 (a) against underground injection projects resulting in any surface 2 expression." 3 Regulations section 1771 prohibits Operator from using open unlined channels or ditches to 4 transport oil or water containing oil, "unless provisions are made so that they are not a hazard as 5 determined by the Supervisor." 6 Regulations section 1775 requires Operator to address oilfield wastes, harmful chemicals, 7 unused equipment, scrap and other trash so as not to cause damage to life, health, property, freshwater 8 aquifers or surface waters, other natural resources, or such that its operations become a public nuisance 9 or a menace to public safety. IV. 10 11 12 Alleged Acts and Omissions A. Failure to Prevent a Surface Expression On at least four occasions (May 10, June 8, June 23, and July 22, 2019), Operator allowed a 13 series of surface expressions that are not low-energy seeps to occur at Cymric in violation of 14 Regulations section 1724.11, subdivision (a). The Division observed that the surface expressions 15 included steam and high volumes of oil coming to the surface for periods exceeding two to three 16 minutes, which are indications, among other things, that the expressions were not low-energy seeps. 17 Operator has not demonstrated otherwise. 18 19 20 21 22 On July 12, 2019, the Supervisor served Operator an Order to Perform Remedial Work, citing violations of, at least, Regulations section 1774.11, subdivision (a). Based on the above, and PRC section 3236.5, for Chevron's failure to prevent a surface expression, the Supervisor is imposing a civil penalty of $900,000. B. Failure to Comply with Transport Requirements for Oil and to Conduct Operations in 23 Accord with Good Oilfield Practice 24 For a 113-day period, beginning May 10, 2019 and continuing to at least August 31, 2019, 25 Operator allowed oil from the four surface expression areas on Operator's property to travel downslope 26 across a wide area. The channel of oil flowing downslope from the surface expressions had a maximum 27 extent of 41,947 square feet on August 1, 2019. Division staff observed Operator on multiple occasions 28 using pumps, bins, and a vacuum truck to capture oil from the unlined channel and transport it for 4 Order to Pay a Civil Penalty No. 1163 1 processmg. The transportation of oil through this channel is in violation of Regulations section 1771, 2 which prohibits the transportation of oil and water containing oil through open unlined channels and 3 ditches. The Division also considers Operator's failure to contain the flow of oil through this channel to 4 not be in accord with good oilfield practice in violation of Regulations section 1722, subdivision (a). 5 Based on the above, and PRC section 3236.5, for Chevron's failure to comply with transport 6 requirements for oil and to condu~t operations in accord with good oilfield practice, the Supervisor is 7 imposing a civil penalty of $1,832,991. · V. 8. Civil Penalty Assessment 9 The Supervisor may impose a civil penalty on any person who fails to comply with oil and gas 10 conservation laws, or any implementing regulations. (PRC, §3236.5, subd. (a).) In establishing a civil 11 penalty amount, "the [S]upervisor shall consider, in addition to other relevant circumstances, all of the 12 following: (1) The extent of harm caused by the violation; (2) The persistence of the violation; (3) The 13 pervasiveness of the violation; (4) The number of prior violations by the same violator; (5) The degree 14 of culpability of the violator; (6) Any economic benefit to the violator resulting from the violation; (7) 15 The violator's ability to pay the civil penalty amount, as determined based on information publicly 16 available to the [D]ivision; and (8) The [S]upervisor's prosecution costs." 17 The Supervisor determines whether a violation qualifies as a "Major" or "Minor" violation in 18 accordance with PRC section 3236.5. A "major violation" is a violation that is not a well stimulation 19 violation and that is one or more of the following: (i) A violation that results in harm to persons or 20 property or presents a significant threat to human health or the environment; (ii) A knowing, willful, or 21 · intentional violation; (iii) A chronic violation or one that is committed by a recalcitrant violator. In 22 determining whether a violation is chronic, or a violator is recalcitrant, the Supervisor shall consider 23 whether there is evidence indicating that the violator has engaged in a pattern of neglect or disregard · 24 with respect to applicable requirements; (iv) A violation where the violator derived significant economic 25 benefit, either by significantly reduced costs or a significant competitive advantage. The civil penalty 26 amount for a major violation shall be not less than $2,500 per violation and not more than $25,000 per 27 violation. A "minor violation" is a violation that is neither a well stimulation violation nor a major 28 violation. The civil penalty amount for a minor violation shall not be more than $2,500 per violation. 5 Order to Pay a Civil Penalty No. 1163 1 At the Supervisor's discretion, each day a major or minor violation continues or is not cured may be 2 treated as a separate violation. Based on the above allegations, at this time, the Supervisor hereby imposes a civil penalty of 3 4 $2,732,991. This amount is based on a subset of violations which occurred between May 10, 2019 and 5 August 31, 2019 and reflects Chevron's failure to prevent and control surface expressions at Cymric as 6 required by regulation and as ordered in Remedial Order No. J 159. 1. The Extent of Harm Caused by the Violation 7 8 The Supervisor determined that the surface expressions present a significant threat_of harm to 9 human health and the environment. An oiled bird, a Lesser Nighthawk, was recovered from the site on 10 August 14, 2019 and was taken to a wildlife care center where it had to be euthanized. The oil flowing 11 at the site was at a high temperature, producing steam, and could cause burns or ground instability, 12 making the area around the surface expressions unsafe for hlimans. Oil flowing through an unlined 13 channel presents potential impacts to soil, surface water, and wildlife. 14 2. The Persistence of the Violation 15 On four separate occasions, the Division witnessed surface expressions of bubbling oil in four 16 separate _and distinct areas on Operator's Cymric property. The first occasion persisted for one day, the 17 second and fourth for 11 days each, and the third for 13 days: a total of 36 days of surface expression 18 activity. 19 3. The Pervasiveness of the Violation 20 The surface expressions occurred in four localized areas that extend beyond the point source and 21 affect a large area downslope from the release point. On August 1, 2019, oil traveling downslope 22 encompassed a 41,947 square foot area in an open unlined channel. I 23 4. The Number of Prior Violations by the Same Violator 24 Operator has been cited for other surface expression violations in the past 12 months. The 25 Division issued Notices of Violation for these incidents, but as the matters are still pending, they were 26 not considered for the calculation of the civii penalty included in this Order. 27 Ill 28 Ill 6 Order to Pay a Civil Penalty No. 1163 1 5. The Degree of Culpability of the Violator 2 Operator stated to the Division that activities at its underground injection project at Cymric may 3 have contributed to surface expressions at the site. Operator is responsible for any·surface expressions 4 resulting from its underground injection project, per Regulations section 1724.11. 5 6. Any Economic Benefit to the Violator Resulting from the Violation 6 The Governor's Office ofEniergency Services (CalOES) estimated that approximately 30 7 percent of fluid released at the surface expressions is oil. Operator is collecting and transporting this 8 fluid to a processing facility forconversion into sales oil. As of August'!, 2019, CalOES reported that 9 the surface expressions had released 31 ?685 barrels of oil and water. Accounting for shrinkage and 10 separation during processing, the Division estimates Operator will produce 7,129.125 barrels of sales oil 11 from the surface expressions at Cymric. This gives Operator an economic benefit of approximately 12 $399,231 from this incident. 7. 13 The Violator's Ability to Pay the Civil Penalty Amount I 14 15 Between 2005 and 2018, the average annual revenue for this Operator in the state of California was $3,344,021,603. 8. The Supervisor's Prosecution Costs 16 17 The Supervisor incurred approximately 516 hours of staff time associated with inspections, 18 monitoring, and compliance at Cymric in relation to the surface expressions, and in preparing the 19 Supervisor's Order to Perform Remedial Work and Order tci Pay a Civil Penalty. The Supervisor's 20 prosecution costs for this matter are estimated at this time to be $49,981. The civil penalty amount is based on a review of the factors in PRC section 3236.5 for major 21 22 violations. The Supervisor reserves the right to modify the civil penalty amount to more accurately 23 reflect the factors in PRC section 3236.5 including, among other things, prosecution costs and wildlife 24 impacted by the surface expressions after August 31, 2019. The Supervisor also reserves the right to 25 amend the civil penalty amount to reflect Operator's additional recent surface expression violations in 26 other areas of the state. 27 I I I. 28 /// 7 Order to Pay a Civil Penalty No. 1163 VI. 2 Operator's Required Actions Based on the above, and pursuant to PRC sections 3013, 3106, 3236.5 and Regulations sections 3 1722, 1724.11 , 1724.12, and 1771, the Supervisor hereby orders Chevron to pay a civil penalty of 4 $2,732,991. VII. 5 6 Operator's Appeal Rights Operator may appeal this Order by filing a timely written notice of appeal with the Director as 7 described in Article 6 (Appeals and Review) of Division 3 of the PRC , commencing with PRC section 8 3350. (PRC , § 3225 , subd . (d) .) If this Order is mailed to you, the Director must receive the appeal 9 within 15 days from the date the Supervisor mails the Order. To file an appeal, a written notice of 10 appeal must be sent via U.S. mail to: 11 Department of Conservation 12 Director's Office of Appeals 13 801 K Street, MS 24-03 (Legal Office, Chief Counsel) 14 Sacramento, California 95814-3530 15 Or via electronic mail: 16 Appeals.DOGGR@ conservation .ca.gov 17 18 19 If Operator does not submit a timely written notice of appeal , Operator waives the right to challenge this Order and this Order will become a final order. If Operator submits a timely written notice of appeal, it, and interested parties, will receive notice 20 21 of the appeal hearing date, time, and place. Foilowing the hearing, Operator wi II receive a written 22 decision that affirms, sets aside, or modifies the appealed order. VIII. 23 Other Potential Actions to Enforce This Order Failure to comply with Section VI (Operator 's Required Actions) of this Order could subject 24 25 Operator to further enforcement action. PRC section 3236 makes it a misdemeanor for any person who 26 violates , fail s, neglects, or refuses to comply with any of the provi sions of the oil and gas conservation 27 laws commencing at PRC section 3000 . PRC section 3359 makes it a misdemeanor to fail or neglect to 28 / // 8 Order to Pay a Civil Penalty No. I /63 comply with an order of the Supervisor. Each day 's further failure, refusal, or neglect is a separate and 2 distinct offense. (PRC § 3359). 3 4 5 1~ 11~ /D DATED: 6 Acting State Oil and Gas Supervisor 7 8 9 10 ll 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 Order l o f'ay a Civil Penally No. I 163 1 2 3 PROOF OF SERVICE BY CERTIFIED U.S. MAIL I declare that I am employed in the County of Sacramento , California . I am over the age of 18 and not a party to the within captioned cause. My business address is 801 K Street, MS 18-05, Sacramento , California 95814 . On October 2, 2019 , I served the following document(s) : 4 ORDER TO PAY CIVIL PENAL TY, ORDER NUMBER 1163 5 6 7 8 by enclosing them in an envelope and placing the envelope for collection and mailing by certified U.S. mail on the date and at the below listed address(es) following our ordinary business practices. I am readily familiar with this business's practice for collecting and processing correspondence for mailing. On the same day that correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service in a sealed envelope with postage fully prepaid. 9 I served the documents on the person or persons below, as follows : 10 11 12 13 Mr. Nadim Hosn Chevron USA Inc. 9525 Camino Media Bakersfield , CA 93311 Certified Mail Receipt Number: 7013 2250 000 9010 0710 14 15 16 17 I declare under penalty of perjury of the laws of the State of California that the foregoing is true and correct, and that this declaration was executed on October 2, 2019 , at Sacramento , CA. 18 19 20 21 22 23 24 25 26 27 28 1 PROOF OF SERVICE - CCP, § 1013; PRC , § 3350