Ahtna subsidiary gets reduction in huge fine at Tolsona well
(Editor's note: This story has been updated to include a response by Ahtna Inc.)
State regulators substantially reduced the penalty issued to an Ahtna Inc. drilling subsidiary to $92,000 in a final order issued Wednesday morning after company leaders admitted to the gas well violations and rectified them.
The Alaska Oil and Gas Conservation Commission initially imposed a fine of $380,000 on Tolsona Oil and Gas Exploration LLC in late May for the company’s prolonged failures to install pressure gauges on its natural gas exploration well, monitor the well casing pressure and to even respond to repeated demands by the commission to do so.
The wholly-owned Ahtna subsidiary spudded the Tolsona-1 well near Glennallen in September 2016, but technical challenges with the 5,500-foot well led the drilling to take about 54 days, according to Ahtna, about twice as long as originally expected.
By mid-December, the company was preparing to suspend the well when pressure began to build between inner well casings. Tolsona notified the AOGCC of the issue, bled the pressure and the commission required the company to monitor the pressure for four weeks, according to the order. In January, the commission further required Tolsona to install a pressure gauge on an outer well casing and similarly report monthly pressure readings. The company said in February it would meet the requirement.
However, Tolsona officials did not follow through with the pressure reports or return subsequent emails and phone calls from the commission. That led the AOGCC to issue a proposed enforcement action in mid-April, to which the company again didn’t respond.
As a result, the AOGCC issued the $380,000 proposed penalty May 24.
The Alaska Oil and Gas Conservation Commission is a technical state regulatory body responsible for oversight of subsurface oil and gas activity.
Ahtna did not dispute the commission’s timeline of events during a Sept. 12 hearing on the matter. Tom Maloney, CEO of Ahtna and Tolsona, said at the time that the company manager responsible for the project never relayed issues to him, despite the fact that the two communicated daily.
According to the documents, Maloney called the commission May 25 and said the company had not received the enforcement notice and the commission sent copies to him.
Tolsona installed the outer pressure gauge June 1.
Maloney apologized to the three-member commission at the Sept. 12 hearing for the company’s errors and said an internal investigation revealed problems in its communication chain, which have been rectified.
Brewster Jamieson, an attorney for Ahtna, also said at the hearing that because the company was not “simply blowing the commission off” and leaders didn’t know about the problems the fines were excessive also not in line with similar previous cases.
The original fines were $10,000 for not installing the pressure gauge and another $10,000 for not submitting the first pressure report in March. Additional fines of $5,000 per day were levied for each of the 50 days the gauge wasn’t in place before the April enforcement notice and $5,000 per day for each day the pressure report was past due.
The final $92,000 penalty includes both the $10,000 fines for the initial violations but the accumulating daily penalties were reduced from $5,000 to $1,000 per day.
“Tolsona’s demonstrable disregard for regulatory compliance precludes any finding that it acted in good faith,” the final order states. “The unmonitored over-pressured annulus is deemed a serious violation which poses a serious and significant risk to public health. Although there was no injury to the public, the seriousness of the violation, the absence of any effort by Tolsona to correct the violation and the need to deter such behavior weigh strongly in the penalty imposed.
“However, the steps Tolsona has taken to ensure compliance with AOGCC regulations on future work, and Tolsona’s statement that it plans to plug and abandon the Tolsona-1 well, warrant reduction of the proposed civil penalties.”
The company has 30 days to appeal the ruling to the Alaska Superior Court but issued a statement Thursday morning saying it "appreciates the substanital reduction in penalties from the AOGCC and does not plan to appeal the penalty."
"We are proud that the Tolsona project delivered a perfect safety record, provided a boost to the local and statewide economy, created new employement opportunities for Ahtna shareholders and Alaskans, and that we were able to reach and evaluate the targeted zone," the Ahtna statement continues. "We are actively pursuing additional gas exploraiotn opportunities with operators on Ahtna lands in the Copper River basin."
Elwood Brehmer can be reached at [email protected].