Ahtna apologizes to state regulators after $380K fine
Ahtna Inc. leaders admitted the Native corporation’s drilling subsidiary repeatedly failed to comply with state regulators’ demands over several months, but at the same time asked the Alaska Oil and Gas Conservation Commission to lessen the resulting $380,000 in fines that the corporate officials feel are excessive.
Ahtna CEO Tom Maloney said during a Sept. 12 AOGCC appeal hearing that the company has the “deepest sorrow” for the internal communications failures that led the commission to levy the fines.
He stressed the communications problems were fixed as soon as possible after he was notified.
“We are committed that it will never happen again,” Maloney said.
The commission issued the fines to Tolsona Oil and Gas Exploration LLC, a wholly-owned Ahtna subsidiary of which Maloney is also CEO, because the company, among other things, time and again did not provide data on the natural gas exploration well it drilled last fall and was not responsive to efforts by commission officials to contact the company, according to a May 24 AOGCC order.
The Alaska Oil and Gas Conservation Commission is a technical state regulatory body responsible for oversight of subsurface oil and gas activity.
The fine order in May followed an April 11 Notice of Proposed Enforcement Action that claimed Tolsona failed to hold up its end of a deal after the commission granted the company’s request to suspend the well it had challenges drilling.
Maloney and Ahtna attorneys did not dispute the general conclusion that the company dropped the ball by having poor internal communications policies. He said he was made aware of the order on May 25 by an individual in the oil and gas industry but outside the Ahtna family of companies.
“I was shocked and dismayed when I read the order,” Maloney testified to the commission. “We’re deeply sorry that this has occurred. It’s been a black eye for all of us in the corporation.”
Late last September, the wholly owned Ahtna Inc. subsidiary spudded the Tolsona-1 gas exploration well on state land about 11 miles west of Glennallen. An Ahtna press release announcing the start of the drilling work said the well’s target depth was about 4,000 feet.
The company statement also noted previous exploration wells in the region — Ahtna was a partner on one — hit high pressure water zones that hampered drilling.
According to the AOGCC, the Tolsona-1 well reached its total depth on Nov. 22, after 54 days of drilling.
Ahtna originally expected the drilling to take 26 days.
A Jan. 6 Ahtna release stated the well was ultimately drilled to 5,500 feet on Dec. 5 to overcome challenges from unexpected complexities in the area’s geology.
At that time Ahtna was preparing for detailed analysis of the well data, the company said.
According to the commission, the well was evaluated until Dec. 14, when the company applied to the commission to suspend the well. That application was approved the same day.
A day later, the company reported that pressure was building in the well casing annulus — the area between the inner tubing and outer casing — to nearly 900 pounds per square inch.
The pressure again built back to approximately 1,110 pounds per square inch after Tolsona bled it to zero, according to AOGCC documents.
As a result, the commission approved continued suspension of well operations and the installment of a second mechanical tubing plug. The commission additionally wanted Tolsona to monitor the well pressure and provide weekly reports until Jan. 20.
On Jan. 12, the commission approved Tolsona’s request to further install a back pressure valve in the well tubing at the end of the pressure reporting period. As a stipulation of installing the back pressure valve, Tolsona was required to provide monthly pressure reports to the AOGCC and give commission inspectors three days notice so they could witness the pressure readings.
Shortly thereafter the problems began.
A March 6 AOGCC Notice of Violation issued to Tolsona Oil and Gas stated the company failed to report the well pressure on Jan. 20, but after a Jan. 23 follow-up by the commission, “Tolsona provided the data the same day with ‘apologies, we will not be late again.’”
However, according to the March 6 notice, after not receiving the Feb. 20 pressure report, the commission did not hear back from Tolsona via email after Feb. 28 and March 2 phone calls were not returned.
The commission subsequently sent an inspector to the drill pad March 3.
The notice states that once on site, the inspector discovered that the well pressures had not been recorded over the past month; a Tolsona representative that met with the inspector did not know if the back pressure valve had been installed; and the Tolsona employee had not been trained to properly record the wellhead pressures.
The April 11 AOGCC enforcement notice states that “Tolsona remains non-responsive and has failed to provide the required monthly well pressures for March 2017. Further, it alleges the company violated state regulations by not installing another pressure gauge on an outer well casing.
Ahtna attorney Nicholas Ostrovsky said during the hearing that his subsequent review of company communications found a “choke point” in communications within Tolsona without redundancy measures to assure management was made aware of issues such as the AOGCC’s demands.
That choke point came down to the company’s operations and development manager, according to the Ahtna officials. The commission’s directives simply did not make it to Maloney or any other senior leaders, they said, despite the fact that everyone involved works in the same office complex.
Maloney said he talked with the individual responsible almost daily but the situation was never brought up.
A clearly perturbed Commissioner Cathy Foerster asked a series of technical questions the Ahtna officials were unable to answer; the attorneys and Maloney said they understood the hearing was to focus on the timeline of events and not issues with the well. As a result, the commission gave the company 30 days to respond to the questions.
Ahtna counsel Brewster Jamieson said the company sympathizes with what the commission initially thought was the case, that Tolsona was “simply blowing the commission off,” but said that was absolutely not the case because management did know what was going on.
Therefore, he said the company believes the fines for not following the commission’s orders are excessive and not in line with similar previous cases.
Foerster also asked why it should matter to the commission whether or not management was notified.
“The AOGCC did everything in its power to get a hold of us and we simply failed to respond,” Ostrovsky said.
The April 11 notice details the $380,000 proposed fine as $10,000 for failing to install the pressure gauge and another $10,000 for failing to submit the March 20 well pressure report.
On top of that, the commission levied another $5,000 per day for each of the 50 days the gauge was not installed, from Feb. 20 to April 11, and $5,000 per day for each day the March 20 pressure report was past due.
Jamieson contended the commission issued the $260,000 in fines for not installing the pressure gauge based on inapplicable regulations. He said the commission referenced production well regulations in issuing the fines, but the exploration well has never reached production so it couldn’t violate those regulations.
The regulation application issues were not discussed further.
AOGCC Chair Hollis French said the commission noted Ahtna’s contrition on the matter and left the hearing record open until Oct. 26 to allow for the company to respond to Foerster’s technical questions.
No ruling was made on the fines as a result.
Elwood Brehmer can be reached at email@example.com.