Cook Inlet Energy unsuccessfully contests fine

The Alaska Oil and Gas Conservation Commission’s final decision to put a $446,000 penalty on Cook Inlet Energy remains final.

In an order Tuesday, the commission — Alaska’s regulator of the hydrocarbon industry — denied Cook Inlet Energy’s appeal of the fine, originally issued Feb. 14 for an incident in 2013. AOGCC began considering Cook Inlet’s arguments against the penalty March 6.

Between November 2013 and January 2014, Cook Inlet Energy’s Sword 1 oil well on the west Cook Inlet’s Kustatan Peninsula (also known as West Forelands) operated for 42 days with a non-functioning AOGCC-required safety valve system. The commission alleged that one of the two required valves was non-functional, and the other missing, during a Dec. 11, 2013 inspection; Cook Inlet Energy later denied the second valve was missing at the time.

On Feb. 16, 2014, an AOGCC inspector saw the second valve installed, but witnessed it failing a safety test, requiring the well to be shut down. The well remained active, however, until March 7, 2014, while Cook Inlet Energy sought, unsuccessfully, to waive the shut-down requirement.

In a later hearing on the penalty, Cook Inlet Energy Production Manager David Kumar told the commission the well was a low-energy design that required a hydraulic jet pump rather than natural pressure to create flow from the well, making the safety valves unnecessary. However, Cook Inlet Energy does not dispute the safety valve violations, according to Tuesday’s order.

“Instead, (Cook Inlet Energy) claims it acted in good faith, that its violations were mitigated and that the fines are inconsistent with past fines imposed by AOGCC,” the order states.

The order, signed by AOGCC chair Kathy Forester and commissioner Hollis French — lacking the signature of the third AOGCC commissioner Dan Seamount — questions the claim of good faith by noting Cook Inlet Energy’s “conscious disregard” of the safety valve requirement and “significant history of regulatory compliance issues.”

“The potential for harm was significant; that no harm occurred was simply luck,” the order states.

The commission recorded eight violations by Cook Inlet Energy between 2011 and June 2016, some of which resulted in enforcements. They include a late 2014 citation for Cook Inlet Energy’s unapproved flaring of 24.6 million cubic feet of natural gas between Nov. 26, 2013 and Feb. 2014. AOGCC proposed a $294,834 fine for the flaring, which was dropped after a review.

As for Cook Inlet Energy’s claim that the penalty is inconsistent with past penalties, Tuesday’s order states that some of the smaller past penalties Cook Inlet Energy cites were issued prior to a statutory penalty increase.

“Others are cited without any articulation as to how the decision cited is inconsistent with the AOGCC’s decision here,” the order states.

The $406,000 penalty has been a subject of dispute between Cook Inlet Energy and AOGCC since it was originally issued in Dec. 2014 as an $806,000 penalty. After Cook Inlet argued that the fee was excessive in a February 2015 appeal hearing, AOGCC dropped it to the current amount in a May 2015 order.

Two appeals since have resulted in no changes to the penalty. Cook Inlet Energy now has the option to further appeal to the Alaska Superior Court within 30 days.

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