An oil and gas operator in the Permian Basin was fined about $1.8 million for violating state laws at four wells in Lea County.
Caza Operating’s alleged infractions included illegal flaring, or the burning of excess natural gas, failing to file monthly drilling reports and not notifying state regulators of changes to the company’s drilling plans, according to a notice of violation filed Dec. 14 by the New Mexico Oil Conservation Division (OCD).
The violations were noticed by the OCD during routine audits that revealed a “pattern of non-compliance” by Caza, records show, after the company’s failure to file several monthly production reports brought on a deeper inquiry that discovered additional infractions.
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Caza operating did not return a request for comment by the Carlsbad Current-Argus for this story.
One of those violations showed that in August Caza flared an unauthorized amount of gas at one of the wells in violation of New Mexico’s Natural Gas Waste Rules that went into effect last year and banned routine flaring activities.
Records show Caza submitted 11 flaring reports between Aug. 16 and 31, with eight of the reports considered “major” releases and not detailing emergency events.
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Caza cited “Downstream operator had gas plant shut down. This event was outside the control of the operator. No choice but to flare,” read the notice of violation.
In total, the OCD reported Caza flared about 22 million cubic feet of natural gas during the two-week period in question.
At another well September, Caza submitted drilling information to the OCD that moved the well from its previously approved location since February 2021.
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Despite the OCD seeking clarification in October, the notice of violation shows Caza insisted the location was correct, drilled and completed the well allegedly in violation of its application to permit drilling (APD).
In response to OCD’s inquiry Caza contended moving the drill path of the well was allowable, according to the federal Bureau of Land Management (BLM).
Despite this, the OCD argued the company was still required to submit a plan to the state regulator detailing the adjusted plans.
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“Operator drilled and completed the well in violation of the APD,” read the OCD’s notice. “Operator failed to notify OCD of its intent to modify the permitted drill plan.”
A similar violation occurred at a third well Caza drilled and completed in September, after the operator submitted forms to the state that changed the targeted formation from the Wolfcamp shale formation to the Bone Spring formation.
The Bone Spring and Wolfcamp shales are the two most productive and sought-after formations within the western Delaware sub-basin of the Permian which straddles the border between southeast New Mexico and West Texas.
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Bone Spring is about 3,500 feet thick, according to the Energy Information Administration (EIA), and Wolfcamp is about 1,000 feet thick.
Together, the U.S. Geological Survey in 2018 estimated the plays hold up to 46.3 million barrels of oil, 281 trillion cubic feet of natural gas and 20 billion barrels of natural gas liquids – the largest deposit ever discovered.
But operators are required to specify which formation their wells target, and the OCD said Caza failed to adequately notify the agency of the switch.
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The Division also cited Caza for a similar violation, changing underground production zones without adequate notice, in September.
The four wells brought 10 total violations, producing the $1.8 million fine which the OCD said it could add to if additional violations are found, or reduce based on the operator’s response to the notice.
“OCD may recalculate the civil penalties for additional or ongoing violations occurring on or after the date of issuance of this NOV and will take into consideration Operator’s good faith effort to comply with the applicable requirements,” read the notice.
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Caza can call for a review of the notice to negotiate with OCD which would then produce a final report including actions to resolve the violations and the penalty the company will pay to the State.
If the violations are not resolved in 30 days, OCD will hold a hearing on Feb. 16, 2023 to determine its next course of action.
OCD Director Adrienne Sandoval said the proceedings were essential to holding oil and gas companies accountable for their operations in New Mexico.
“Thanks to the diligent work of our staff, OCD was able to recognize this pattern of non-compliance and undercover multiple violations,” she said in a statement. “OCD remains committed to ensuring compliance with the Oil and Gas Act by all operators in New Mexico.”
Adrian Hedden can be reached at 575-628-5516, [email protected] or @AdrianHedden on Twitter.