I L E - Utah · 2016. 1. 15. · Utah Attorney General 1594 W. North Temple, Suite 300 Salt Lake City, Utah 84116 Tel: (801) 538-7227 Attorneys for Utah Division of Oil, Gas and Mining

Steven F. Alder (No. 0033) Melissa L. Reynolds (No. 15718) John Robinson Jr. (No. 15247)

Assistant Attorneys General Sean D. Reyes (No. 7969) Utah Attorney General

1594 W. North Temple, Suite 300 Salt Lake City, Utah 84116 Tel: (801) 538-7227

Attorneys for Utah Division of Oil, Gas and Mining

I L E JAN 11 2016

S5CRETARY, BOARD OF OIL, GAS & MINING

BEFORE THE UTAH BOARD OF OIL, GAS AND MINING

Notice of Agency Action for an Order Requiring Hinto Energy, Inc. to Plug and Reclaim Wells or, in the alternative, Forfeiting Surety Bonds and Authorizing the Division to Plug and Reclaim Wells Located in Sections 14 and 24, Township 21 South, Range 23 East in Grand County.

NOTICE OF AGENCY ACTION

Docket No. 2016-005 Cause No. 222-16

The Division of Oil, Gas and Mining (the Division) submits this Notice of Agency Action

seeking an Order from the Board of Oil, Gas and Mining (the Board) requiring Hinto Energy,

Inc. to plug and reclaim certain wells or, in the alternative, forfeiting the sureties posted for the

wells and ordering the Division to plug the wells and restore the sites as required by Rule 649-3-

1.16.lt also seeks an order requiring Hinto to provide full cost bonding on certain wells as

required by Rule 649-3-1.4.3 and to provide complete information on other wells as required by

Rules 649-3-36.1 and 649-8-11 or, in the alternative, to plug the wells as authorized by Rule 649-

3-36.

Jurisdiction and Procedure

1. The Board has jurisdiction over this proceeding under Utah Code§ 40-6-5, which grants

the Board "jurisdiction over all persons and property necessary to enforce this chapter" and

grants the Board authority to regulate the plugging of wells and reclamation of well sites. Id.

2. This proceeding is to be conducted formally in accordance with the Utah Administrative

Code Titles R641and R649, and with Sections 63G-4-204 to -209 of the Utah Code.

3. This proceeding affects the property interests of Hinto Energy, Inc. and Vectra Bank of

Colorado. Each is a "respondent" as defined by Utah Administrative Code Rule 641-100-

200.

4. Respondents must file and serve a written response within 20 days of the mailing date of

this Notice of Agency Action. Utah Admin. CodeR. 641-104-141. A party that fails to either file

a response or attend or participate in the hearing may be held in default. Id. R. 641-104-100.151.

5. Unless otherwise ordered by the Board, the hearing on this matter will be held on

February 24,2016 at 9 a.m. in the auditorium of the Utah Department of Natural Resources

building, 1594 West North Temple, Salt Lake City, Utah.

Allegations

6. The Board has the authority to regulate "all operations for and related to the production

of oil or gas" which includes the plugging of wells and reclamation of sites. Utah Code § 40-6-

5(3).

7. Under Utah Administrative Code Rule 649-8-11, operators must complete a monthly oil

and gas production report to account for oil, gas, and water produced from each well.

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8. An operator is also required to provide a bond made payable to the Division and

conditioned on the faithful performance of an operator's duty to plug dry or abandoned wells.

Utah Code § 40-6-5; Utah Admin. Code R. 649-3-1.

9. The Rules allow wells to be shut-in or temporarily abandoned for up to 12 consecutive

months. Utah Admin. Code R. 649-3-36. If a well is shut-in for a longer period of time, the

operator must file a Sundry Notice explaining why the well is shut-in, how long the operator

expects the well to be shut-in, and that the well has integrity. Id. The Division must review this

Sundry Notice to either allow continued shut-in status or require remedial action to establish

well integrity. Id.

10. Likewise, when an operator fails to provide the information required by 649-3-36, the

Division may require remedial action to establish well integrity. In cases involving a lack of

reporting, a lack of field presence and maintenance of wells, and a lack of sufficient bonding,

the Division considers the appropriate remedial action to be plugging and restoring the well.

11. After a five year period of non-activity or non-productivity, the operator must plug a

well, unless the Division approves an extended shut-in time upon a showing of good cause by

the operator. Utah Admin. CodeR. 649-3-36.

12. If the Division finds that a well is in violation of Rule 649-3-36, it must require full cost

bonding for the well in the amount of actual plugging and site restoration costs. Utah Admin.

Code R. 649-3-1.4.3. The Division must provide written notification to the operator and identify

the need to establish increased bonding for shut-in wells. Within 30 days after that notification,

"the operator shall submit to the division an estimate of plugging and site restoration costs for

division review and approval." Id. R. 649-3-1.4.4.1.

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13. If the Division orders an operator to plug a well after a five year period and the operator

does not comply with that order, "the operator shall forfeit the drilling and reclamation bond

and the well shall be properly plugged and abandoned under the direction of the Division."

Utah Admin. Code R. 649-3-36.

14. The Rules also require the Division to take action seeking forfeiture of a bond if the

operator refuses or is unable to conduct plugging and site restoration, or fails to comply with a

condition of a permit. Utah Admin. CodeR. 649-3-1.16.1.

15. When it becomes necessary to forfeit the bond, the matter must be considered by the

Board. Utah Admin. CodeR. 649-3-1.16.2 and 16.4.

16. The Board may order the Division to use the forfeited bond amount to plug and restore

the wells to which the bonds apply. Utah Admin. CodeR. 649-3-1.16.4.2. If the amount of the

forfeited bond is not sufficient to plug and restore a well, the Division may complete the

plugging and restoration and may recover all costs in excess of the forfeited funds from the

operator. Id. R. 649-3-1.16.5.

17. This matter addresses violations of the Rules by Hinto Energy, Inc. (Hinto). Hinto is a

corporation in good standing authorized to conduct business in the State of Utah.

18. Hinto is the designated operator of the following eight wells drilled in Sections 14 and

24, Township 21 South, Range 23 East in Grand County, Utah:

Well Name

Nuggett 14-4

Gibralter 1

Sweetheart SA

Sweetheart 2A

4

API Well Number

43-019-30423

43-019-31033

43-019-31417

43-019-31418

Sweetheart 7

14-01

Sweetheart 14-02

Little Boy 2

43-019-31420

43-019-314SO

43-019-314S1

43-019-31460

19. Hinto became the operator of the Gibralter 1 well when the Division approved a change

of operator from Mar/Reg Oil Company (Mar/Reg) to Hinto on March 19,2014.

20. Hinto became the operator of the remaining wells when the Division approved a change

of operator from Pacific Energy & Mining Co. (Pacific) to Hinto on March 19, 2014.

21. As a condition of the Division's approval of Hinto taking ownership of the wells, Hinto

agreed to a plan of action (the Agreement) which detailed the status of, and Hinto's plans for,

each of the eight wells. The Agreement was submitted February S, 2014. The Agreement is

attached as Exhibit A.

22. At the time of the operator change, five of the wells were already in non-compliance for

extended shut-in or temporarily abandoned status under Utah Administrative Code Rule 649-3-

36. These wells include the Sweetheart SA, Sweetheart 2A, Sweetheart 7, 14-01, and Little Boy 2

wells.

23. Pursuant to the Agreement, Hinto provided estimated plugging costs for the five wells

that were in non-compliance on February 7, 2014 as follows:

Well Name

Sweetheart SA

Sweetheart 2A

Sweetheart 7

14-01

Little Boy 2

s

Estimated Plugging Cost

$6,000.00

$6,000.00

$6,000.00

$8,000.00

$4,000.00

24. Hinto has been unresponsive since September 2014, has failed to meet its obligations

under the Agreement and the Rules, and has failed to respond to Notices of Violation and

Division Orders. It is therefore necessary for the Board to take action with respect to the wells.

This requested action is based on three categories of wells operated by Hinto: the Extended

Shut-In Wells, the Shut-In Wells, and the Remaining Wells (each more fully defined below).

First Cause of Action The Extended Shut-In Wells

25. The Division incorporates by reference the preceding allegations.

26. In the Agreement, Hinto agreed to move the Sweetheart 7, 14-01, and Little Boy 2 wells

(the Extended Shut-In Wells) out of non-compliance.

27. Hinto agreed to rework the Sweetheart 7 well to bring it back on production in April

2014. No reworking reports have been filed and the Division has not been provided with other

information showing that Hinto reworked the Sweetheart 7 well or brought it back on

production.

28. Hinto agreed to waterjet the 14-01 and Little Boy 2 wells to bring them back on

production. No reports of water jetting have been filed and the Division has not been provided

with other information indicating that any water jetting occurred.

29. Production reports show that Sweetheart 7 well has been shut-in since 2005, the 14-01

well has been shut-in since 2008, and the Little Boy 2 well has been shut-in since 2010. Hinto has

not met the terms of the Agreement with respect to the Extended Shut-In Wells.

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30. Hinto provided to the Division the following Certificates of Deposit (CDs) held by

Vectra Bank of Colorado as bonds to secure the plugging and abandonment of the respective

wells as required by Utah Code§ 40-6-5(2)(f) and Utah Administrative Code Rule 649-3-1(1):

Well Name

Sweetheart 7

14-01

Little Boy 2

Total for Extended Shut-In Wells:

Amount

$6,000.00

$6,000.00

$4,000.00

$16,000.00

31. Hinto executed Collateral Bond agreements on the Division's form 4B for each of these

bonds, which provides that the CDs are payable to the Director of the Division of Oil, Gas and

Mining, as agent of the State of Utah, unless the wells are properly plugged and the well sites

restored.

32. Because Hinto had not met the terms of the Agreement and because the Extended Shut-

In Wells were still in non-compliance status, the Division issued a Notice of Violation (NOV) on

March 16, 2015. The NOV required Hinto to fulfill full cost bonding and to submit plugging

plans for the Extended Shut-In Wells.

33. Hinto had until April30, 2015 to comply with the NOV. Hinto never responded and did

not comply with the NOV.

34. On May 12, 2015, the Division issued a Division Well Plugging Order to Hinto, ordering

Hinto to plug and abandon the Extended Shut-In Wells. Hinto did not respond to or appeal the

Plugging Order.

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3S. On December 1, 201S, the Division issued a Second Division Well Plugging Order to

Hinto ordering Hinto to plug and abandon the Extended Shut-In Wells. The Extended Shut-In

Wells remain in violation of Rule 649-3-36.

36. Hinto has not responded to the Division's Plugging Orders, and has therefore refused to

plug the Extended Shut-In Wells.

37. Since the Extended Shut-In Wells are not producing and have been shut-in for more

than five years, and Hinto has not otherwise provided required information or given good

cause to continue their shut-in status, the Extended Shut-In Wells need to be plugged and the

sites need to be reclaimed in order to prevent injury to public health and the environment.

Second Cause of Action The Shut-In Wells


39. In the Agreement Hinto explained the status of, and the company's plans for, the

Sweetheart SA, Sweetheart 2A, and Sweetheart 14-02 wells (the Shut-In Wells).

40. In the Agreement, Hinto claimed that the Sweetheart SA well was producing.

41. Production reports show that the Sweetheart SA well has been shut in since 2012; Hinto

has not provided the Division with evidence of production, and the Division is not aware of any

actions taken to put the Sweetheart SA well onto production.

42. In the Agreement, Hinto agreed to rework the Sweetheart 2A well and have it back on

production in April2014. No reworking reports have been filed and the Division has not been

provided with other information showing that Hinto reworked the Sweetheart 2A well or

brought it back on production.

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43. Production reports show that the Sweetheart 2A well has been shut-in since 2012. Hinto

did not meet the terms of the Agreement with respect to this well.

44. In the Agreement, Hinto agreed to waterjet the Sweetheart 14-02 well to put it back on

production. No reports of water jetting have been filed and the Division has not been provided

with other information indicating that any water jetting occurred.

4S. Production reports show that the Sweetheart 14-02 well has been shut in since March

2014. Hinto did not meet the terms of the Agreement with respect to this well.

46. Hinto has never provided a Sundry Notice demonstrating that the Sweetheart SA,

Sweetheart 2A, and Sweetheart 14-02 wells have integrity as required by Rule 649-3-36.

47. The Division issued an NOV to Hinto for the Sweetheart SA and Sweetheart 2A wells on

March 16, 201S. The NOV ordered Hinto to provide full cost bonding as required by Rule 649-3-

1.4.3. Hinto did not respond to the NOV and remains in violation of Rule 649-3-36 for the

Sweetheart SA and Sweetheart 2A wells.

48. The Division issued an NOV to Hinto for the Sweetheart 14-02 well on January S, 2016.

The NOV ordered Hinto to provide full cost bonding as required by Rule 649-3-1.4.3. This NOV

is attached as Exhibit B.

49. Hinto has provided to the Division the following Certificates of Deposit (CDs) held by


wells as required by Utah Code§ 40-6-S(2)(f) and Utah Administrative Code Rule 649-3-1(1):

Well Name

Sweetheart SA

Sweetheart 2A

Sweetheart 14-02

9

Amount

$6,000.00

$6,000.00

$8,000.00

Total for Shut-In Wells: $20,000.00




restored.

51. Hinto has failed to demonstrate that the Shut-In Wells have integrity or provided good

cause for continued shut-in status, and remains in violation of Rule 649-3-36. Hinto must

provide the Division with proof of integrity and provide full cost bonding to the Division for

the Shut-In Wells in the amount of actual plugging and site restoration costs.

52. If Hinto fails to respond and provide full cost bonding, the Division believes that due to

Hinto' s lack of responsiveness, lack of field presence, lack of adequate bonding, and apparent

abandonment of wells, it is in the best interest of protecting public health and safety to require

remedial action in the form of plugging and abandoning the Shut-In Wells.

53. If Hinto fails to plug and abandon the Shut-In Wells, the bonds should be forfeit so the

Division can plug and restore the wells.

Third Cause of Action The Remaining Wells


55. In the Agreement, Hinto stated that the Nuggett 14-4 and Gibralter 1 wells (the

Remaining Wells) were producing, and agreed to submit a Sundry Notice to change the status

of the Gibralter 1 well, which had been listed as shut-in in the Division's records.

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56. After becoming the operator of the Remaining Wells, Hinto provided monthly

production reports for seven months, but has not provided production reports since September

2014. Therefore, Hinto is in violation of Rule 649-8-11. Hinto should provide justification for

shut-in status if there has been no production since September 2014, as required by Rule 649-3-

36.

57. The Division has numerous concerns with the lack of information and communication

from Hinto regarding the Remaining Wells. Specifically, the Division has no indication that the

wells have integrity and do not pose a threat to public safety and welfare. In addition, by not

providing any information on production levels, Hinto might be avoiding royalty payments

that it would otherwise have to pay on a producing well.

58. The Division issued an NOV to Hinto for the Remaining Wells on January 5, 2016. The

NOV addressed Hinto' s violation of Rule 649-8-11, stating that Hinto' s failure to submit

monthly production reports calls into question whether the Remaining Wells are currently shut

in, which would put them in violation of Rule 649-3-36. This NOV is attached as Exhibit B.

59. If Hinto fails to produce evidence of production at the hearing, or fails to demonstrate

that the Remaining Wells have integrity as required by Rule 649-3-36, the Board may order

Hinto to fulfill full cost bonding under Rule 649-3-1.4.3. Without evidence of integrity, the

Division believes that the appropriate remedial action under Rule 649-3-36.2 is well plugging

and site restoration. If Hinto fails to plug and restore the Remaining Wells, the bonds should be

forfeit.

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60. Hinto has provided to the Division the following Certificates of Deposit (CDs) held by


wells as required by Utah Code§ 40-6-5(2)(f) and Utah Administrative Code Rule 649-3-1(1):

Well Name

Nuggett 14-4

Gibralter 1

Total for the Remaining Wells:

Amount

$15,000.00

$1,500.00

$16,500.00




restored.

62. Operations must be conducted to prevent negative effects of oil and gas production such

as pollution of fresh water supplies and unreasonable permanent damage to surface land. These

objectives and the unknown circumstances associated with the Remaining Wells warrant a

Board order requiring Hinto to demonstrate to the Division's satisfaction that the Remaining

Wells are producing or shut-in and that they have integrity. If Hinto fails to do so, it should be

ordered to plug and restore the Remaining Wells and, if it does not, the bonds should be

ordered forfeit so the Division can conduct plugging and site restoration.

Civil Penalties


64. If, after an adjudicative proceeding, the Board determines that a person violated the

Rules, that person is subject to civil penalties of up to $5,000 per day of violation. Utah Code

12

§ 40-6-11(4)(a). Civil penalties must be pursued in a separate civil action in district court if

authorized by the Board. Id.

65. The Extended Shut-In Wells have each been shut in for more than five years and

therefore must be plugged and abandoned in accordance with Rule 649-3-24. Hinto never

responded to the NOV or Plugging Orders and remains in violation of Rule 649-3-36 for the

Extended Shut-In Wells.

66. The Shut-In Wells have each been shut in for more than 12 consecutive months. Hinto

has failed to provide a Sundry Notice demonstrating that the Shut-In Wells have integrity as

required by Rule 649-3-36. Hinto remains in violation of Rule 649-3-36 for the Shut-In Wells.

67. Hinto has failed to provide monthly production reports for the Remaining Wells as

required by Rule 649-8-11. If these wells have been shut-in for over 12 months they are also in

violation of Rule 649-3-36.

68. Hinto is in violation of the Rules for the Extended Shut-In Wells, the Shut-In Wells, and

the Remaining Wells and is therefore subject, in a separate civil proceeding, to a penalty of up to

$5,000 per day of continuing violation.

Request for Action

Based on the factual allegations above, the Division moves the Board to take the

following actions:

1. Order Hinto and/or Vectra Bank to commence plugging and restoration of the Extended

Shut-In Wells in accordance with the Division's requirements and the requirements of

Utah Administrative Code Rule 649-3-24 within 30 days of this Order, and if Hinto or

Vectra Bank fails to commence plugging and restoration work within 30 days,

13

a. Order Hinto's interest in and ownership of the COs for the Extended Shut-In

Wells-amounting to $16,000-be forfeit to the Division and order Vectra Bank

to deliver the full amount to the Division;

b. Order the Division to use the forfeited funds to complete the plugging and

restoration of the wells to which each bond applies;

c. If the forfeited funds are insufficient to cover the full cost of plugging and

restoring the Extended Shut-In Wells, authorize the Division to complete

plugging and restoration and bring all appropriate and necessary legal actions to

recover any costs in excess of the forfeited amount from Hinto;

2. Order Hinto to provide complete information as required by Rule 649-3-36 for the Shut

In Wells and to provide full cost bonding in the amount of actual plugging and site

restoration costs for the Shut-In Wells within 30 days of this Order, and if Hinto fails to

provide complete information and full cost bonding within 30 days,

a. Find that the appropriate remedial action under Rule 649-3-36.2 is plugging and

restoring the Shut-In Wells, and order Hinto to commence plugging and

restoration work within 30 days, and if Hinto fails to do so,

i. Order Hinto's interest in and ownership of the COs for the Shut-In

Wells-amounting to $20,000-be forfeit to the Division and order Vectra

Bank to deliver the full amount to the Division;

ii. Order the Division to use the forfeited funds to complete the plugging

and restoration of the wells to which each bond applies;

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iii. If the forfeited funds are insufficient to cover the full cost of plugging and

restoring the Shut-In Wells, authorize the Division to complete plugging

and restoration and bring all appropriate and necessary legal actions to

recover any costs in excess of the forfeited amount from Hinto;

3. Order Hinto to provide the Division with complete information on well integrity and

production for the Remaining Wells, and if Hinto fails to offer complete information as

required by Rules 649-3-36 and/or 649-8-11 within 30 days of this Order,

a. Find that the appropriate remedial action is to plug and restore the Remaining

Wells, and order Hinto to commence plugging and restoration work within 30

days, and if Hinto fails to do so,

i. Order Hinto' s interest in and ownership of the CDs for the Remaining

Wells-amounting to $16,500-be forfeit to the Division and order Vectra

Bank to deliver the full amount to the Division;

ii. Order the Division to use the forfeited funds to complete the plugging

and restoration of the wells to which each bond applies;

iii. If the forfeited funds are insufficient to cover the full cost of plugging and

restoring the Remaining Wells, authorize the Division to complete

plugging and restoration and bring all appropriate and necessary legal

actions to recover any costs in excess of the forfeited amount from Hinto;

4. Find that Hinto has violated the Rules with respect to the Extended Shut-In Wells, the

Shut-In Wells, and the Remaining Wells, and authorize the Division to seek penalties in

15

district court of up to $5,000 per day of continuing violation in an amount the Board

deems appropriate; and

5. Grant further relief that the Board deems just and proper.

Respectfully submitted on the \\i\1\ day of January, 2016.

Addresses Required by Rule:

Utah Board of Oil, Gas and Mining: Ruland J. Gill, Jr. Chairman of the Board Board of Oil, Gas and Mining 1594 West North Temple, Suite 3710 Salt Lake City, Utah 84114-5610 (801) 538-7200

Utah Division of Oil, Gas and Mining: JohnR. Baza Division Director Division of Oil, Gas and Mining 1594 West North Temple, Suite 3710 Salt Lake City, Utah 84114-5610 (801) 538-7200

UTAH OFFICE OF THE ATTORNEY GENERAL

~~ Steven F. Alder Melissa L. Reynolds John Robinson Jr. Assistant Attorneys General 1594 West North Temple, Suite 300 Salt Lake City, Utah 84116-3154 Tel: (801) 538-7227 Email: stevealder®utah.gov

mreynolds®utah.gov jrobinson®utah.gov

Attorneys for the Division of Oil, Gas and Mining

16

Certificate of Service

I certify that I caused the above Notice of Agency Action to be served on the following

parties by certified mail on the (~-fl'\ day of January, 2016:

Hinto Energy, Inc. c/o George Harris 5350 S. Roslyn Street, Suite 400 Greenwood Village, CO 80111-2125

Hinto Energy, Inc. 7609 Ralston Road Arvada, CO 80002

Daniel S. Sam RA for Hinto Energy, Inc. 319 West 100 South, Suite A Vernal, UT 84078

Vectra Bank Corporate Headquarters 2000 South Colorado Blvd. #2-1200 Denver, CO 80222

17

V ectra Bank of Colorado 1001 17th Street, Suite 1160 Denver, CO 80202

Vectra Bank Colorado, National Association 2000 East 20th Street Farmington, NM 87401

Vectra Bank Colorado Foundation 1 South Main Street, 2nd Floor Salt Lake City, UT 84133

Harris H. Simmons RA for Vectra Bank of Colorado 1 South Main Street, 2nd Floor Salt Lake City, UT 84133

Exhibit A

February 5, 2014

Via E-Mail

Ms. Rachel Medina

HINT¥> FNFRCiY

7609 Ralston Road Arvada, CO 80002

Division of Oil, Gas and Mining P.O. Box 145801 Salt Lake City, Utah 84114~5801 [email protected]

Re: Plans for Wells

Dear Ms. Medina:

Per your request, below is a status and plans as to the wells that Hinto Energy, Inc. has requested to become the operator of. Please note that for the last two months, there has been no gas production due to the unavailability of the Cisco Gathering Facility. We have attached correspondence received from Summit Operating, LLC, confinning that such facility will be available to accept gas, we expect to begin producing gas for sale within 60 days of the Summit plant start~up, as we have to replace some meters, test gas lines and re~test gas inert contents. In addition, we are developing a super perforating technic that uses high pressure water jets to drill lateral perforations from 30 to 300 feet out from the well bore. Given weather and rig availability, we intend to complete this work within 180 days to bring wells Sweetheart 14-01, Sweetheart 14-02 and Little Boy 2 back on production as described below.

API Number 43-019-314

43-019-30423

43-019-31033

43-019-31418

Name Sweetheart SA

Nugget Fee 14-4

Gilbraltor #1

Sweetheart 2A

Status - Plan Is producing.

Is producing.

After reviewing the State ofUtah's records we have discovered that the well status according the state is Shut ln. The well is producing and we will be filing a sundry notice to change its status.

We will re-work the well and expect to have it back on production in April 2014.

API Number 43-019-31420

43-019-31450

43-019-31451

43-019-31460

HINT¥> FNF.RGY

7609 Ralston Road Arvada, CO 80002

Name Sweetheart 7

Sweetheart 14-01

Sweetheart 14-02

Little Boy 2

Status - Plan We have been re-working the well, but have pulled off due to weather and expect to have it back on production in April2014.

We intend to water jet the 93 8 to 948 zones and bring the well back on production.

We intend to water jet zones 665~675 and zones 960-970 and put the well back on production.

We intend to water jet the well and have the well back on for production of gas.

If you have any questions, please do not hesitate to contact myself or Ms. Kampmann.

Sincerely,

~~c~ George Harris Chief Executive Officer

Exhibit B

UTAH DEPARTMENT OF NATURAL RESOURCES Division of Oil, Gas & Mining Oil and Gas Program 1594 West North Temple, Suite 1210, Box 145801 Salt Lake City, UT 84114-5801 (801) 538-5340 Phone (801) 359-3940 Fax

NOTICE OF VIOLATION

STATE OF UTAH

OIL AND GAS CONSERVATION ACT ++++++++++++++++++++++++++++

TO THE FOLLOWING OPERATOR:

Operator Name: HINTO ENERGY

Mailing Address: ATTN: MR. GEORGE HARRIS

5350 S. ROSLYN STE 400

GREENWOOD VILLAGE. CO 80111-2125

Well(s) or Site(s):1) SWEETHEART 14-02

2) NUGGET 14-4

3) GIBRAL TER 1

Date and Time of lnspectionNiolation: January 05. 2016

API#: 43-019-31451

API #: 43-019-30423

API#: 43-019-31033

Under the authority of the Utah Oil and Gas Conservation Act, Section 40-6 et. Seq., Utah Code Annotated, 1953, as amended, the undersigned authorized representative of the Division of Oil, Gas and Mining (Division) has conducted an inspection of the above described site andfor records on the above date and has found alleged violation(s) of the act, rules or permit conditions as described below.

Description of Violation(s): Rule R649-3-36, Shut-in and Temporarily Abandoned Wells - According to Rule R649-3-36, the operator is required to supply the Division with reasons for extended Slrr A. the length of time for extended Slrr A and proof of well bore integrity for every well SifT A over 12 consecutive months. After five (5) years of continued SIITA, the wells are to be plugged unless good cause Is supplied to the Division for extended Sl{fA in addition to the required jnformatjon just mentioned.

Rule R649-3-4.3 Bonding- If the division finds that a well sublectto this bonding rule is In violation of Rule R649-3-36, Shut - in and Temporarily Abandoned Wells, the division shall require a bond amount for the applicable well in the amount of actual plugging and site restorations costs.

Rule R649-3-4.41 Bonding- Within 30 days of notification by the division, the operator shall submit to the division an estimate of plugging and site restoration costs for division review and approval.

The Division has previously initiated several contacts with Pacific Energy & Mining Co. (Pacific) requesting required documents and action per R649-3-36. On November 1, 2013 Hinto Energy CHinto> became the operator of these wells. When Hinto took over the wells, a plan of action was agreed upon to move forward with these wells to keep them out of a non-compliance status. This agreement was sent to the Division on February 5, 2014. Well #1 above has been shut-in for one (1) year and eleven (11 l months and is in violation of Rule R649-3-36. Wells #2 & #3 are listed as producing: yet no production reports have been received since September, 2014. This puts them in violation of Rule R649·8, and also brings to question whether wells #2 & #3 are currently shut-in; putting them in violation of Rule R649-3-36. To date, after multiple requests, the Division has not received any response from Hinto concerning compliance matters or field presence.

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UTAH DEPARTMENT OF NATURAL RESOURCES Division of Oil, Gas & Mining Oil and Gas Program 1594 West North Temple, Suite 1210, Box 145801 Salt lake City, UT 84114-5801 (801) 538-5340 Phone (801) 359-3940 Fax

Well #1 above is In violation of R649-3-36 as slated above. therefore Hinto is required to plug this well or meet the requirements showing good cause and wellbore integrity. Wells #2 & #3 are In viola !ion of R649-8 and are required to report production. If wells #2 & #3 are no longer producing and are currently shut-in. they are also required to meet R649-3-36 and will be required to plug or meet the requirements showing good cause and well bore integritv. Hinto is required to put up full cost bonding for the wells In violation above per R649-3-4, It is mandatorv that Hinto submit all required documentation and plans to the Division by lhe compliance deadline below.

Immediate Action: For the wells subJect to this notice, Hinto shall fulfill full cost bonding. Hlnto shall also submit plugging p lan I or production roporta for he well contained in this Notice.

• Fines may be levied up to $10,000.00 per dav for every well in violation given the authority provided under U.C.A 40-6-11, part 4

This notice shall remain in effect until it is modified, terminated, or vacated by a written notice of an authorized representative of the director of the Division of Oil, Gas and Mining. Failure to comply with this notice will result in the Division pursuing further actions against said operator. Further actions may include initiation of agency actions and requests for bond forfeiture and civil penalties.

Compliance Deadline: February 6. 2016

Date of Service Mailing: January 5, 2016 Certified Mail No.: 7014 2870 0001 4232 4795

cc: Steve Alder, Assistant Attorney General Compliance File Well Files

Operator Representative (if presented in person)

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I L E - Utah · 2016. 1. 15. · Utah Attorney General 1594 W. North Temple, Suite 300 Salt Lake City, Utah 84116 Tel: (801) 538-7227 Attorneys for Utah Division of Oil, Gas and Mining