August 20, 2009

OIL & GAS DOCKET NO. 01-0258192

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COMMISSION CALLED HEARING PURSUANT TO SECTION 89.041 OF THE TEXAS NATURAL RESOURCES CODE TO DETERMINE WHETHER WELL NOS. 1, 2, 36, 37, 63, 70-74, 100-102, 105-109, 133, 134, 136, 143-145, 163, 165, 169-171, AND 198-200 ON THE STIEGLER, HAROLD LEASE AND WELL NOS. 1, 4, 5, 7-9, 11-15, 17-30, 32, AND 36 ON THE STANGA, MUENNINK & MUENNINK LEASE, TAYLOR-INA FIELD, MEDINA COUNTY, TEXAS HAVE BEEN PROPERLY PLUGGED BY S.O.C. INVESTORS, INC. AS REQUIRED BY SECTION 89.011 OR SECTION 89.012 OF THE TEXAS NATURAL RESOURCES CODE AND TO PROVIDE S.O.C. INVESTORS, INC. AN OPPORTUNITY TO SHOW CAUSE WHY THE COMMISSION IS NOT AUTHORIZED TO PLUG THE WELLS PURSUANT TO SECTION 89.043 OF THE TEXAS NATURAL RESOURCES CODE.

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APPEARANCES:

FOR S.O.C. INVESTORS, INC.:

John M. Currie	President

Donald M. Currie

FOR THE RRC:

Christopher Hotchkiss	Attorney, Enforcement Section

Ramon Fernandez	Deputy Asst. Director, Field Ops.

PROPOSAL FOR DECISION

PROCEDURAL HISTORY

DATE OF REQUEST FOR HEARING:	July 24, 2008

DATE OF NOTICE OF HEARING:	July 29, 2008

DATE OF HEARING:	August 18, 2008

HEARD BY:	Marshall Enquist, Hearings Examiner

DATE RECORD CLOSED:	August 18, 2008

DATE PFD CIRCULATED:	August 20, 2009

STATEMENT OF THE CASE

This hearing was called in response to a July 16, 2008 request for a hearing filed by John M. Currie as President of S.O.C. Investors, Inc. (hereinafter SOC). Mr. Currie was in receipt of District Office letters dated July 2, 2008 and July 7, 2008 directing SOC to plug 59 wells located on the two leases listed in the caption of this docket. SOC believes Commission expenditure of funds for the plugging of these wells is unnecessary as SOC will plug them if the Commission will grant it enough time to do so.

A hearing was held on August 18, 2008, at which time John M. Currie, President of SOC, appeared and presented evidence. Christopher Hotchkiss, RRC Enforcement Attorney, appeared representing the Field Operations Section of the RRC.

APPLICABLE LAW

Under Texas Natural Resources Code §89.011, titled Duty of Operator, an operator must plug a well when required and in accordance with Commission rules in effect at the time of the plugging. The duty to plug only ends if the well is sold or conveyed while the well is in compliance with the rules of the Commission relating to safety or the prevention or control of pollution.

Under Texas Natural Resources Code §89.012, titled Duty of Nonoperator, if the operator of a well fails to comply with Texas Natural Resources Code §89.011, each nonoperator (i.e., working interest owner) is responsible for his proportionate share of the cost of the proper plugging of the well.

Under Texas Natural Resources Code §89.041, titled Determining Proper Plugging, if it comes to the attention of the Commission that a well that has been abandoned or is not being operated is causing or is likely to cause pollution of fresh water above or below the ground or if gas or oil is escaping from the well, the commission may determine at a hearing, after due notice, whether or not the well was properly plugged as provided for in Section 89.011 or Section 89.012 of the Texas Natural Resources Code.

Under Texas Natural Resources Code §89.043, titled Plugging by Commission, if the Commission determines at a hearing under Section 89.041 of the Texas Natural Resources Code that a well has not been properly plugged or needs replugging, the Commission may plug or replug the well if, as relevant in this docket, neither the operator or the nonoperator has properly plugged the well and neither the operator or nonoperator has assets with which to properly plug the well.

MATTERS OFFICIALLY NOTICED

The examiner has taken Official Notice of the Form P-5 filings of S.O.C. Investors, Inc. with the Commission. The examiner has also taken Official Notice of Commission Mainframe P-4 Inquiry, Production Data Query, Oil Proration Schedule, Well Bore Oil Lease, and Oil Lease Inquiry screens.

DISCUSSION OF THE EVIDENCE

S.O.C. Investors, Inc.'s Evidence

By letters dated July 2 and July 7, 2008, SOC was directed by District Office 1 to plug 27 wells on the Stanga, Muennink & Muennink (08449) Lease and 32 wells on the Stiegler, Harold (08445) Lease in the Taylor-Ina Field in Medina County. In response to SOC's request for information on the cost of State-funded plugging, SOC was informed on July 10, 2008 that the estimated cost to plug the Stiegler, Harold (08445) Lease $188,800 and was informed on July 15, 208 that the estimated cost to plug the Stanga, Muennink & Muennink (08449) lease was $159,300.

SOC believes it can plug the wells at less expense, but admits that it will take it several years to do so.

SOC offered a brief history of how it came into being and its attempts to execute its responsibilities to the Commission. John M. Currie, President of SOC, stated that a friend of his, Jim Moyer, invested in the 1980s in several wells drilled by a young engineer of his acquaintance. Moyer convinced several friends, including John Currie, that it was a good investment and Solar Oil Corporation was formed as a vehicle for investing in these wells. The Executive Officer of Solar Oil Corporation was later killed in an automobile accident, at which time it was discovered that the corporation was a Ponzi scheme. In an attempt to keep Solar Oil Corporation from filing bankruptcy, Jim Moyer sued the estate of the deceased officer. In November of 1988, Mr. Moyer formed S.O.C. Investors, Inc., which consisted of 55 former investors in the Solar Oil Corporation Ponzi scheme.

The price of oil declined, and SOC attempted to continue to produce by airlift, swabbing and small pumps. The last production obtained was by the use of a swabbing unit mounted on a truck. However, the wells produced so little oil that even this became uneconomical.

Jim Moyer died unexpectedly in 1999. A meeting of the investors was called and John M. Currie volunteered to continue the business and became its President. At this point, the investors still did not want to declare bankruptcy, but were inclined to either sell the wells or give them away. Swabbing resumed, but it was still uneconomical. Operations on the two leases were suspended in October, 2002. SOC has been unable to find any operator interested enough in the wells to take them, even though the price of oil is now relatively high.

In 2007, District Office 1 notified SOC that eleven of its wells were H-15 delinquent. This placed an additional burden on SOC. Mr. Currie and the plugger he used on the Mann Estate Leases looked at the wells and estimated the top of fluid in the wells varied from 10 feet to 60 feet below the surface. SOC employed Gene Day, a consultant in San Antonio, to fill out the proper forms. However, Mr. Currie was on a 16 to 17 day vacation when the completed forms from Gene Day arrived at his office for his signature. The forms were mixed in with a collection of junk mail. As a result, the forms were not timely filed with the Commission.

SOC has some income from an investment in producing wells in Fort Bend County, but this only provides approximately $1,000 per month. After paying accountants for filing franchise taxes and income taxes, SOC has approximately $10,000 per year that it can apply to the plugging of wells. From 2004 through 2007, SOC plugged 29 wells on three nearby Mann Estate Leases. In its July 16, 2008 letter to the Commission, SOC calculates that the average cost of plugging these wells was $800. Given that cement and services are now more expensive, SOC estimates it can plug the remaining wells for approximately $1200 each.

Mr. Currie does not believe that any of the wells are a threat to surface water. SOC is on good terms with the mineral owner/surface owner of the two leases and does not anticipate any problems with access for plugging. SOC states that it is plugging wells as quickly as its income will allow and requests the Commission allow it time to complete the job.

Field Operations' Evidence

Mr. Hotchkiss notes that SOC last filed a Form P-5 on August 28, 2001. Its P-5 Organization Report is currently delinquent. John M. Currie is listed as President and Kenneth D. Crews is listed as Secretary. SOC is shown on Commission Mainframe P-4 screens as the operator of the two subject leases and the 59 wells that are the subject of this hearing.

Eleven wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink & Muennink (08449) Lease required H-15 testing. The H-15 fluid level tests submitted by SOC were insufficient for two reasons. First, the Commission will not accept a Form H-15 from an operator whose P-5 is delinquent. Second, even if SOC were not delinquent, the tested wells all showed top of fluid from 10 feet to 60 feet below ground level. A fluid level test is only passed when it shows top of fluid at least 250 feet below the base of usable quality water. The base of usable quality water in this area is 175 feet. Therefore, none of the fluid level tests pass.

Field Operations agrees that the estimated cost of plugging the subject wells provided to SOC was too high. The calculation was made using the average cost of plugging wells in Districts 1 and 2, which was approximately $6,000 per well. The per foot cost should have been used instead, which is roughly $3.20 per foot. As the subject wells are shallow, averaging 400 feet, the cost of plugging the wells would vary from $1,000 to $1,300 each. Thus, Field Operation's estimated cost to plug the wells is in rough agreement with SOC's estimated cost.

Field Operations believes that SOC should not be granted an extension, citing its delinquent P-5, its lack of financial assurance, and the fact that it is the operator of 59 non-compliant wells, which pose a threat of pollution to the waters of the State. Field Operations presented a Well Plugging Priority System data sheet for the Stiegler, Harold (08445) Lease, showing measured fluid levels for the well ranging from fluid at the surface to 55 feet below the surface. Many of the well showed fluid levels 10 feet to 25 feet below the surface.

If SOC were able to plug 10 wells a year, assuming it maintained a constant income, it would be almost six years before the plugging could be completed. The Commission bundles shallow wells such as these in large packages to obtain a better bid price. Field Operations estimates it could have the 59 wells plugged in 3 to 6 months.

Field Operations states that if SOC wants to plug the 59 subject wells, and do so in conformity with Commission procedure, it should renew its Form P-5 Organization Report, post required financial assurance, perform mechanical integrity tests on the wells and begin plugging. Field Operations does not believe SOC is entitled to the relief requested and asks that the complaint of SOC be dismissed.

EXAMINER'S OPINION

Two questions are presented in this docket. First, have the 59 wells on the two subject leases been properly plugged by S.O.C. Investors, Inc.? Second, can S.O.C. Investors, Inc. show cause why the Commission is not authorized to plug the subject wells pursuant to Texas Natural Resources Code §89.043?

Commission P-4 screens show that SOC is the operator of the Stiegler, Harold (08445) Lease, Well Nos. 1, 2, 36, 37, 63, 70-74, 100-102, 105-109, 133, 134, 136, 143-145, 163, 165, 169- 171 and 198-200. SOC is also the operator of the Stanga, Muennink & Muenink (08449) Lease, Well Nos. 1, 4, 5, 7-9, 11-15, 17-30, 32 and 36. The last reported production on the Stiegler, Harold (08445) Lease was in March, 2002. The last reported production on the Stanga, Muennink & Muennink (08449) Lease was in August, 2002.

The subject wells have been inactive for a period greater than one year. SOC did not present valid leases or otherwise represent that it had a continuing good faith claim to operate the subject leases and wells. The Form P-5 Organization Report of SOC has been delinquent since October, 2002.

SOC's own Exhibit 1 indicates that there are 59 wells on the two subject leases that have not been plugged. A Mainframe Well Bore Oil Lease Inquiry made by the examiner on August 10, 2009 confirms that the subject wells are not plugged. It is evident that the wells have not been properly plugged pursuant to Texas Natural Resources Code §89.011, which disposes of the first question presented in this docket.

SOC is not an active operator. It has been delinquent since October, 2002 and has no financial assurance in place. It agrees that the wells need to be plugged and did not attempt to show a good faith claim to a continuing right to operate the subject wells. SOC readily admits that it does not have the financial resources to plug the 59 wells and can only do so incrementally. It would take at least 6 years for SOC to plug the 59 wells.

Texas Natural Resources Code §89.043(a)(2)(B) provides:

(a) If the Commission determines at a hearing under Section 89.041 of this code that a well has not been properly plugged or needs replugging, the Commission, through its employees or through a person acting as agent for the Commission, may plug or replug the well if:

(2) neither the operator nor nonoperator properly plugged the well, and

(B) neither the operator or nonoperator has assets with which to properly	plug the well.

Eleven wells on the subject leases have failed H-15 fluid level tests. These were Well Nos. 105, 106, 107, 108, 133, 134, 136 and 143 on the Stiegler, Harold (08445) Lease and Well Nos. 1, 4 and 5 on the Stanga, Muennink & Muennink (08449) Lease. These wells are likely to leak saltwater which could cause a serious threat of pollution or injury to the public health. Having failed their fluid level tests, the wells must now be returned to production, tested for mechanical integrity or plugged. There is little chance that the wells will be returned to production and SOC has indicated that MIT testing will be too expensive. The remaining alternative is to plug the wells. All 59 of the subject wells have fluid levels at 0 feet to 60 feet below surface, which is above the base of usable quality water at 175 feet below surface in this area.

Texas Natural Resources Code §89.043(b) provides:

(b) If a well is leaking salt water, oil or gas or is likely to leak salt water, oi or gas, and the leakage will cause or is likely to cause a serious threat of pollution or injury to the public health, the Commission, through its employees or agents, may direct the operator to take remedial action or to plug or replug the well without holding a hearing under Section 89.041 of this code or giving notice under Subsection (c) of this section.

SOC's lack of financial assets necessary to plug the subject wells and the fact that at least eleven wells pose a threat of leaking saltwater which will cause or is likely to cause a serious threat of pollution or injury to the public health are sufficient reason under Texas Natural Resources Code §89.043(a)(2)(B) and §89.043(b) for the Commission to plug the 59 subject wells. SOC has failed to show that the Commission is not authorized to plug the subject wells pursuant to Texas Natural Resources Code §89.043. Accordingly, the examiner recommends that SOC's request be dismissed and Commission authority to plug the wells immediately with state funds be confirmed.

FINDINGS OF FACT

1.	At least ten (10) days notice of the hearing in this docket was sent to all parties entitled to notice. S.O.C. Investors, Inc. appeared at the hearing through its President John M. Currie and presented evidence and testimony. Commission attorney Christopher Hotchkiss appeared on behalf of the Field Operations Section of the RRC and presented evidence and the testimony of Ramon Fernendez.

2.	The Form P-5 Organization Report of S.O.C. Investors, Inc. is currently delinquent. S.O.C. Investors last filed a P-5 Organization Report on August 28, 2001. S.O.C. Investors, Inc. has no financial assurance in place.

3.	The officers of S.O.C. Investors, Inc. are John M. Currie, President, and Kenneth D. Crews, Secretary.

4.	S.O.C. Investors, Inc. is the operator of the Stiegler, Harold (08445) Lease, Well Nos. 1, 2, 36, 37, 63, 70-74, 100-102, 105-109, 133, 134, 136, 143-145, 163, 165, 169-171 and 198- 200, Taylor-Ina Field, Medina County, Texas. The wells have not been plugged by the operator or the nonoperator.

5.	S.O.C. Investors, Inc. is the operator of the Stanga, Muennink & Muenink (08449) Lease, Well Nos. 1, 4, 5, 7-9, 11-15, 17-30, 32 and 36, Taylor-Ina Field, Medina County, Texas. The wells have not been plugged by the operator or nonoperator.

6.	A Mainframe Well Bore Oil lease Inquiry made on August 10, 2009 confirms that the 59 subject wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink & Muenink (08449) Lease are not plugged.

7.	S.O.C. Investors, Inc. does not have a good faith claim of a continuing right to operate the 59 wells that are the subject of this docket.

8.	S.O.C. Investors, Inc. does not have the assets to properly plug the 59 wells that are the subject of this docket.

9.	Pursuant to Texas Natural Resources Code §89.043(a)(2)(B), the Commission, through its employees, may plug or replug a well if neither the operator nor the nonoperator properly plugged the well and neither the operator nor the nonoperator has assets with which to properly plug the well.

10.	All wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink & Muennink (08449) Lease show fluid within 0 feet to 60 feet of the surface and pose a serious threat of pollution of surface or subsurface water:

a.	Well Nos. 1, 4 and 5 on the Stanga, Muennink & Muennink (08449) Lease have
failed H-15 fluid level tests.

b.	Well Nos. 105, 106, 107, 108, 133, 134, 136 and 143 on the Stiegler, Harold (08445)
Lease have failed H-15 fluid level tests.

c.	The base of usable quality water in this area is 175 feet.

d.	All wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink &
Muennink (08449) Lease show fluid levels well above the base of usable quality	water.

11.	Pursuant to Texas Natural Resources Code §89.043(b), the Commission, through its employees, may plug a well if it is leaking or is likely to leak salt water, oil or gas, and the leakage will cause or is likely to cause a serious threat of pollution or injury to the public health.

CONCLUSIONS OF LAW

1.	Proper notice of hearing was timely given to all persons legally entitled to notice.

2.	All things have occurred and been accomplished to give the Commission jurisdiction to decide this matter.

3.	The 59 wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink & Muenink (08449) Lease have not been properly plugged under the provisions of Texas Natural Resources Code §89.011 or §89.012.

4.	The Commission is authorized to plug the 59 wells on the Stiegler, Harold (08445) Lease and the Stanga, Muennink & Muenink (08449) Lease pursuant to Texas Natural Resources Code §89.043(a)(2)(B).

5.	The Commission is authorized to plug eleven wells on the Stanga, Muennink & Muenink (08449) Lease pursuant to Texas Natural Resources Code §89.043(b).

RECOMMENDATION

The examiner recommends that the request of S.O.C. Investors, Inc. be dismissed.

Respectfully submitted,

Marshall Enquist

Hearings Examiner

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