CHAPARRAL ENERGY, LLC — Notice of Probable Violation

case documentOfficial PDF420155018_Operator Prehearing Submission_03212016.pdf#

party submissionOfficial PDF420155018_Operator Response to Notice and Request for Hearing_10162015.pdf#

420155018_Final Order_01172017_text.pdf, page 1Official PDFJanuary 17, 2017 Mr. Mark A. Fischer Chairman and CEO Chaparral Energy, LLC 701 Cedar Lake Blvd. Oklahoma City, OK 73114 Re: CPF No. 4-2015-5018 Dear Mr. Fischer: Enclosed please find the Final Order issued in the above-referenced case. It withdraws the allegation of a violation. This enforcement action is now closed. Service of the Final Order by certified mail is deemed effective upon the date of mailing, or as otherwise provided under 49 C.F.R. § 190.5. Thank you for your cooperation in this matter. Sincerely, Alan K. Mayberry Associate Administrator for Pipeline Safety Enclosure cc: Mr. Rod Seeley, Director, Southwest Region, OPS Mr. Ahren Scott Tryon, Tryon Law Firm, 4148 Hockaday Drive Dallas, Texas 75229 CERTIFIED MAIL - RETURN RECEIPT REQUESTED#

420155018_Final Order_01172017_text.pdf, page 2U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ____________________________________ ) In the Matter of ) ) Chaparral Energy, LLC, ) CPF No. 4-2015-5018 ) Respondent. ) ____________________________________) FINAL ORDER From August 25 - September 17, 2015, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), investigated an accident that occurred on Chaparral Energy, LLC’s (Chaparral or Respondent) Coffeyville 8" carbon dioxide (CO2) pipeline in Shidler, Oklahoma. The Coffeyville 8" pipeline experienced a failure on August 25, 2015. Following the failure, PHMSA issued a Corrective Action Order (CAO) to Chaparral on August 28, 2015.1 Chaparral’s Coffeyville Pipeline System consists of 67.5 miles of 8" CO2 pipeline running from the Coffeyville Resources Nitrogen Fertilizer Plant in Coffeyville, Kansas to the North Burbank production field near Shidler, Oklahoma. Following the accident investigation, on September 18, 2015, the Director, Southwest Region, OPS (Director) issued a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (Notice) to Chaparral for allegedly failing to comply with the pressure restriction contained in the CAO. In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that Chaparral had violated the Corrective Action Order and proposed assessing a civil penalty of $115,200 for the alleged violation. The Notice also proposed ordering Respondent to take certain measures to correct the alleged violation. Respondent responded to the Notice by letter dated March 21, 2016 (Response). Chaparral contested the allegation and requested a hearing. In accordance with 49 C.F.R. § 190.211, a telephonic hearing was held on March 31, 2016, before a Presiding Official from the Office of Chief Counsel, PHMSA. After the hearing, Respondent submitted written statements for the record by letters dated June 27, 2016 (Closing), August 29, 2016, and November 15, 2016. Pursuant to § 190.209(b)(7), the Director submitted a written evaluation of Respondent’s response material on July 27, 2016. 1 Chaparral Energy, LLC, CPF No. 4-2015-5017H, Corrective Action Order (Aug. 28, 2015).#

420155018_Final Order_01172017_text.pdf, page 3CPF No. 4-2015-5018 Page 2 BACKGROUND Respondent received a call from a landowner regarding a leak on its Coffeyville pipeline system on August 25, 2015.2 After taking immediate action to verify the location of the pipeline failure, Respondent isolated the pipeline segment containing the leak by closing upstream and downstream block valves and then blew down the pipeline segment. 3 During the afternoon of August 25, 2015, OPS representatives initiated contact with Respondent regarding the pipeline leak. Respondent informed OPS that it had isolated the segment of pipeline containing the leak location (Affected Segment), that CO2 product was not flowing in the pipeline at the time of the leak because the Coffeyville Fertilizer Plant that supplied CO2 to the system was offline, and that pipeline pressure at the leak location at the time of the leak was approximately 1,100 psig.4 On August 26, 2015, Respondent informed OPS that it would remove and replace the failed section of pipe on that day. After replacing and testing the Affected Segment, Respondent returned the Coffeyville pipeline system to service on August 26, 2015. Between August 26 and August 28, 2015, the Coffeyville pipeline system was operated at pressures below the system’s maximum operating pressure established pursuant to 49 C.F.R. Part 195.5 On August 26, 2015, OPS notified Respondent by telephone that a CAO would be issued in the next couple of days, and that the CAO would call for the development of a Remedial Work Plan.6 On August 28, 2015, OPS issued the CAO and upon receipt Respondent implemented “Corrective Action Item 1,” which directed the Company to immediately shut down the entire Coffeyville pipeline system.7 Respondent took no other operational action on the pipeline after shutting down the pipeline on the afternoon of August 28, 2015. Notably, the Coffeyville pipeline remained shut down with product in the line at the same pressure it had been operating at prior to the shutdown on August 28.8 2 Response at 2. 3 Response at 2. 4 Response at 2. 5 Response at 2-3. 6 Response at 3. 7 Response at 4. Item 1 of the CAO stated “Shutdown of Pipeline. Chaparral must not operate the Affected Segment until authorized to do so by the Director.” 8 Response at 4.#

420155018_Final Order_01172017_text.pdf, page 4CPF No. 4-2015-5018 Page 3 On September 8, 2015, Respondent submitted a Restart Plan to the Director for approval as required by the CAO.9 Respondent’s Restart Plan included a statement regarding “Incremental Pressure Changes.”10 This section stated that pressure in the pipeline was currently in the range of 1,100 psig to 1,300 psig, and that Respondent would actually be decreasing pressure rather than incrementally increasing pressure when it returned the pipeline to service.11 The decrease in pressure would be in accordance with Corrective Action Item 3, which permitted the pipeline to be returned to service at an operating pressure not to exceed eighty percent (80%) of the actual operating pressure in effect immediately prior to the failure. Respondent stated in the Restart Plan that it would release CO2 product into the atmosphere until the highest pressure reading along the pipeline system did not exceed 896 psig.12 On the morning of September 18, 2015, the Director, Southwest Region, approved Respondent’s Restart Plan. That afternoon, OPS served Respondent with the current Notice of Probable Violation alleging Respondent violated the CAO by failing to reduce operating pressure on the Affected Segment upon receipt of the CAO to 80% of operating pressure at the time of failure.13 WITHDRAWAL OF ALLEGATION The Notice alleged that Respondent violated the CAO, as follows: Item 1: The Notice alleged that Respondent violated the CAO, which states in relevant part: CORRECTIVE ACTION 3- Return to Service - After the Director approves the Restart Plan, Chaparral may return the Affected Segment to service but the operating pressure must not exceed eighty percent (80%) of the actual operating pressure in effect immediately prior to the Failure. The Notice alleged that Respondent violated the CAO by failing to lower pressure in the Affected Segment upon receipt of the CAO to 80% of the actual operating pressure in effect immediately prior to the Failure. Specifically, the Notice alleged that between August 28, 2015, when the CAO was received by Respondent, and September 18, 2015, when the Restart Plan was approved by the Director, Respondent did not lower the pressure on the Affected Segment to 80% of the actual operating pressure in effect immediately prior to the Failure. 9 Item 2 of the CAO required that “Prior to resuming operation of the Affected Segment, develop and submit a written Restart Plan to the Director for prior approval.” Corrective Action Order at 4. 10 Restart Plan at 4. 11 Restart Plan at 5. 12 Response at 4. 13 Response at 5.#

420155018_Final Order_01172017_text.pdf, page 5CPF No. 4-2015-5018 Page 4 Respondent has argued that, contrary to the allegation in the Notice, the language of the CAO did not require a pressure reduction upon receipt of the CAO, but rather “explicitly ties the 80% pressure limitation to the pipeline’s return to service after the Director approves the Restart Plan submitted by Chaparral.”14 Respondent further argued that it had fully complied with Corrective Action Item 3 “exactly as drafted and ordered by PHMSA.”15 Specifically, Respondent shut down the pipeline immediately upon receipt of the CAO, developed and received approval for a Restart Plan, and upon that approval, returned the pipeline to service at an operating pressure limitation of 896 psig (80% of actual operating pressure immediately prior to the failure).16 Because the Restart Plan was not approved until September 18, 2015, Respondent argued that the operating pressure limitation was not applicable until that time.17 OPS maintained that the CAO established an 80% pressure restriction, calculated to be 896 psig, and that Chaparral violated the requirement by shutting in the pipeline at 1107 psig. At the hearing, OPS explained that it was unaware Respondent had shut in the line at a pressure higher than allowed until OPS was notified of that fact by the Restart Plan.18 In addition, OPS stated the CAO was issued using language based on the understanding between the parties that the pipeline was not operating.19 Having reviewed the applicable provisions of the CAO, I find the position offered by OPS is not sustainable. The plain language of Corrective Action 3 required Respondent to establish a limit on operating pressure after the Director approved the Restart Plan. Specifically, the language stated: “After the Director approves the Restart Plan, Chaparral may return the Affected Segment to service but the operating pressure must not exceed eighty percent (80%) of the actual operating pressure in effect immediately prior to the Failure.” Unlike other corrective action orders that have been issued previously by PHMSA, which included a requirement to immediately reduce pressure upon receipt of the order, there was nothing in the CAO issued in this case that explicitly required Respondent to lower its operating pressure immediately upon receipt of the CAO.20 For this reason, I conclude Respondent did not violate Corrective Action 3 of the CAO when it waited until after approval of the restart plan to 14 Response at 5. 15 Response at 8. 16 Response at 8. 17 Closing at 5. 18 Recommendation at 2; Transcript at 36-37. 19 Transcript at 120. 20 See, e.g., Natural Gas Pipeline Company of America, CPF No. 4-2015-1006H, at 4, 2015 WL 3545212, at *3 (Apr. 17, 2015); Williams Partners, L.P., CPF No. 1-2015-1013H, at 4, 2015 WL 4652713, at *3 (Jun. 12, 2015); Tennessee Gas Pipeline Co., CPF No. 4-2015-1009H, at 4, 2015 WL 6758822, at *3 (Aug. 6, 2015) (requiring the operator to reduce and maintain a twenty percent (20%) pressure reduction upon receipt of the order, a provision not included in the CAO issued to Respondent).#

420155018_Final Order_01172017_text.pdf, page 6CPF No. 4-2015-5018 Page 5 reduce pressure. Accordingly, the Notice is withdrawn. The civil penalty proposed in the Notice is not assessed and the proposed compliance terms are not included. The terms and conditions of this Final Order are effective upon service in accordance with 49 C.F.R. § 190.5. January 17, 2017 ___________________________________ __________________________ Alan K. Mayberry Date Issued Associate Administrator for Pipeline Safety#

420155018_NOPV PCP PCO_09182015_text.pdf, page 1Official PDFNOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT REQUESTED September 18, 2015 Mark A. Fischer Chairman and CEO Chaparral Energy, LLC 701 Cedar Lake Blvd. Oklahoma City, OK 73114 Dear Mr. Fischer: CPF 4-2015-5018 From August 25 - September 17, 2015, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), pursuant to Chapter 601 of 49 United States Code investigated an accident that occurred on your Coffeyville 8” CO2 pipeline near Shidler, Oklahoma. The Coffeyville 8” pipeline experienced a failure on August 25, 2015, and as a result PHMSA issued a Corrective Action Order (CAO) to Chaparral on August 28, 2015. At the time the CAO was issued, it was not known that Chaparral returned the Coffeyville line to service. It was not until a Restart Plan was submitted that PHMSA became aware that Chaparral returned the line to normal service on August 26, 2015. Upon receipt of the CAO on August 28, 2015, Chaparral shut the line in; however, you did not limit the pressure to the 80% restriction as required by Corrective Action 3 of the CAO. As a result, it appears that you have committed a probable violation of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The item of probable violation is:#

420155018_NOPV PCP PCO_09182015_text.pdf, page 21. CORRECTIVE ACTION 3 – [CPF No. 4-2015-5017H] Corrective Action Order: Chaparral Energy, LLC Return to Service - After the Director approves the Restart Plan, Chaparral may return the Affected Segment to service but the operating pressure must not exceed eighty percent (80%) of the actual operating pressure in effect immediately prior to the Failure. Chaparral Energy LLC (Chaparral) has the line shut-in, but has failed to reduce the pressure on their Coffeyville 8” carbon dioxide pipeline following PHMSA’s issuance of a CAO. On August 25, 2015, Chaparral experienced a reportable failure on your Coffeyville 8” carbon dioxide pipeline resulting in the release of over 2600 barrels of carbon dioxide while shut in at 1100 psig. The preliminary cause of the failure appears to be external corrosion, but the investigation is still ongoing. On August 28, 2015, PHMSA issued a CAO (CPF No. 4-2015-5017H) to Chaparral to establish an 80% pressure restriction (from the pressure at the time of the release) on your pipeline. The CAO 80% pressure restriction would limit the pressure to 896 psig; however, the current pressure on the pipeline is 1107 psig. Proposed Civil Penalty Under 49 United States Code, § 60122, you are subject to a civil penalty not to exceed $200,000 per violation per day the violation persists up to a maximum of $2,000,000 for a related series of violations. For violations occurring prior to January 4, 2012, the maximum penalty may not exceed $100,000 per violation per day, with a maximum penalty not to exceed $1,000,000 for a related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentation involved in the above probable violation(s) and has recommended that you be preliminarily assessed a civil penalty of $[total amount] as follows: Item number PENALTY 1 $115,200 Proposed Compliance Order With respect to item 1 pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to Chaparral. Please refer to the Proposed Compliance Order, which is enclosed and made a part of this Notice. Response to this Notice Enclosed as part of this Notice is a document entitled Response Options for Pipeline Operators in Compliance Proceedings. Please refer to this document and note the response options. All material you submit in response to this enforcement action may be made publicly available. If you believe that any portion of your responsive material qualifies for confidential treatment under 5 U.S.C. 552(b), along with the complete original document you must provide a second2#

420155018_NOPV PCP PCO_09182015_text.pdf, page 3copy of the document with the portions you believe qualify for confidential treatment redacted and an explanation of why you believe the redacted information qualifies for confidential treatment under 5 U.S.C. 552(b). If you do not respond within 30 days of receipt of this Notice, this constitutes a waiver of your right to contest the allegations in this Notice and authorizes the Associate Administrator for Pipeline Safety to find facts as alleged in this Notice without further notice to you and to issue a Final Order. In your correspondence on this matter, please refer to CPF 4-2015-5018 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, R. M. Seeley Director, Southwest Region Pipeline and Hazardous Materials Safety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings 3#

420155018_NOPV PCP PCO_09182015_text.pdf, page 4PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to Chaparral a Compliance Order incorporating the following remedial requirements to ensure the compliance of Chaparral with the pipeline safety regulations: 1. 2. In regard to Item Number 1 of the Notice pertaining to the failure to reduce the pressure on the Coffeyville 8” carbon dioxide pipeline, Chaparral must reduce the pressure on the pipeline to the 80% restricted pressure of 896 psig. It is requested (not mandated) that Chaparral maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to R.M. Seeley, Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration. It is requested that these costs be reported in two categories: 1) total cost associated with preparation/revision of plans, procedures, studies and analyses, and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure. 4#