Project and Pipeline Risk Requirements Based on the Operator - - PDF document

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Project and Pipeline Risk Requirements Based on the Operator Agreement and Associated Comprehensive Drilling Plan

There still remains uncertainty by some as to whether or not Extraction Oil and Gas Inc (Extraction) is required to fulfill the risk analysis requirement. The following information is from the Operator Agreement (OA) between the City and County of Broomfield (CCOB) and Extraction; the required Comprehensive Drilling Plan (CDP); and subsequent exchanges of letters between Extraction and CCOB regarding conditions of approval and final approval. Extraction submitted five versions of the CDP to the City from Dec 2017 through July 2018 with the final re-submitted and approved version being the one dated July 27, 2018.

OPERATOR AGREEMENT

Extraction and CCOB signed an Operator Agreement which can be viewed online at:

https://www.broomfield.org/DocumentCenter/View/25064/Resolution-2017-186-and-Agreement The Operator Agreement (OA) requires a Comprehensive Drilling Plan (CDP) and defines the basic requirements on Page 6 (of 114) and includes a list of 23 plans that must be completed prior to submitting their Form 2/2A Permits to Drill to the Colorado Oil and Gas Conservation Commission (COGCC). These plans shall comply with the requirements set forth in Exhibit B which lists the Best Management Practices (page 23 of 114). It should be noted that despite the final CDP not being available until July 27, 2018, Extraction submitted their COGCC Form 2/2A Permits to the City back in December 2017.

Operator Agreement Requirements Regarding “Risk”:

• Risk Management Plan - Section (R)
• Alternative Site Analysis - Section (W)

In every version of the CDP submitted by Extraction, there is a statement that they agreed to do the risk analysis (see details below).

Exhibit B - Best Management Practices Regarding “Risk” (page 23):

• Item 3. Use of Pipelines. The Operator agrees to build pipelines... If requested by

the City, Operator will conduct a risk analysis to identify potential risks associated with pipelines and the measures implemented that are intended to mitigate such

• risks. (Note: Broomfield requests this analysis on 08/20/2019 and Extraction

notes they received the request and will do the pipeline risk analysis before commencing drilling operations.)

• Item 55. Risk Assessment. As part of Operator's application to the City, Operator

agrees to provide a risk management plan, which will include the identification of potential risks, methods of risk avoidance and controls that implement techniques to prevent accidents and losses and reduce the impact or cost after the

• ccurrence of identified potential events.

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COMPREHENSIVE DRILLING PLAN (CDP) - Dated July 27, 2018

This Operator Agreement requires a Comprehensive Drilling Plan (CDP). The final version of the CDP which was re-submitted by Extraction and approved by the Broomfield City Manager can be downloaded in its entirety or by sections at this link: https://drive.google.com/drive/folders/1zNNQfxxjZ7wvsZ6SAk_7UuF5990U0uGk The two plans of particular interest in the CDP with regard to risk are Section (R) Risk Management and Section (W) Alternative Site Analysis:

Section (R) Risk Management Plan:

This section of the CDP on risk management includes an introduction in which Extraction makes strong statements about how safe of a company it is and then goes on to explain what a Risk Management plan entails. This section of the approved July 26, 2018 version of the CDP can be viewed at: https://drive.google.com/file/d/1cLZJJjY184LPvcX02nfUY7p1BBwWhv6l/view?usp=sharing This Preamble to Risk Management includes the following statements about the company’s safety, yet evidence from the COGCC and other sources states otherwise: Statement 1: "Extraction has never experienced a spill or incident of any kind that left our pad location" However, per a search of COGCC records and relevant information:

■ Certainly VOCs, NOx, and air pollutants have left their sites. ■ Per Form 19 - Facility No. 454028 (Operated by XOG subsidiary 8 North) on

03/08/2018, “A gasket failure on the heater treater was identified as the cause of the release, causing at releasing at least 5 bbls (barrels) of crude oil outside containment and off the site.”

■ Per Form 19 - Facility No. 453075 (Operated by Extraction) on 04/13/2018, “A

very thin mist was carried by the extreme wind a short distance into the adjacent agricultural field to the south.” Statement 2: "Extraction has experienced only one significant event in our company’s history... no harm was done to the public whatsoever..." This event is the Stromberger 22-e fire and explosion in Windsor in which the benzene levels were so high that a significant spike in Benzene was detected at the Boulder Reservoir over 30 miles away which was traced back to this site through analysis of wind direction and speed. It is up to interpretation as to whether or not any harm was done to the public, if air quality impacts are taken into account. Statement 3: “The “Charles Taylor” risk matrix... is solely a product of Broomfield’s Task Force.”

3 The Charles Taylor Risk Matrix which was a product of the Task Force was included in every edition of the CDP until this final version. Extraction stated that they disagree with the risk numbers, but do not provide an alternative. Rather they replace the risk matrix with a list of “Operator Risk Mitigations” which is a list of BMPs that are intended to “minimize risk”, but not substantiated with analysis to show the effectiveness. Statement 4: "We are not aware of any neighborhood or community evacuations in the history of Front Range oil and gas." Evacuations are typically 1/2 to 1 mile for oil and gas related accidents including fires, explosions, and well blowouts. However, until recently operations were done on a smaller scale and conducted away from residential communities. In a 2016 study which reviewed oil and gas accidents in Colorado, the average number of residents living within 1 mile of each accident on average was just 31 residents with a median

• f 3 residents. There are thousands of residents living within 1 mile of the Livingston

Site so if there was an accident on any of these sites, the evacuation would be quite different and much more significant. Statement 5: “our Broomfield project is very safe” Liberty Oilfield Services will be conducting the completion activities on these sites. This is the same company that experienced the truck fires on the Noble site on 11/07/2018 in which the COGCC report indicates that workers noticed a fire between pump 9 and 10 which quickly spread to additional pumps in the area and was eventually extinguished by emergency responders by deployment of AFFF (Aqueous Film Forming Foam). Total damage was eight frac pumps and ancillary equipment. See also the Stromberger 22-e fire and explosion info above.

Risk Management

This section then goes on to describe "Risk Management" in Extraction's own words: "Risk management is an ongoing process that continues through the life of a project. It includes processes for risk management planning, identification, analysis, monitoring and control. Many of these processes are updated throughout the project lifecycle, as new risks can be identified at any time. The objective of risk management is to decrease the probability and impact of events adverse to the project... The probability of occurrence, number of categories impacted and the degree (high, medium, low) to which they impact the project will be the basis for assigning the risk

• priority. All identifiable risks should be entered into a risk register, and documented

as a risk statement." The above Risk Management plan sounds comprehensive, but they include no information to support that they actually conducted the analysis that they outlined in the approved CDP. Rather, they list a series of risks and some BMPs that are often not

4 substantial and show no information on the analysis. Followed by an ending statement, "With the use of these BMP’s, rules, regulations and other mitigating factors we expect the risk factors listed above to be minimized to near negligible." Upon what analysis and independent review process did Extraction base their finding that the cumulative risk is “near negligible”? Most of the BMPs and industry standards use hedge words such as “to the extent feasible” or conditions under which the requirement does not apply such as “during maintenance” or “during upset conditions”. A list of BMPs with no analysis can not possibly lead to a statement that the risks of such a complex project is "near negligible".

Section (W) Alternative Site Analysis:

All versions of the CDP have included a statement in the introduction about citizen health, safety, and welfare being paramount and also the commitment that Extraction made to Broomfield that they would conduct a risk analysis. This section of the approved July 26, 2018 version of the CDP can be viewed at: https://drive.google.com/drive/folders/1QLKXumbvUJiD1Y8-8rOgz9U7Fa9Wv-J9

Health, Safety, and Welfare is Paramount

Section 1.0 Introduction includes the following statement from Extraction: “[G]iven the proximity of the Broomfield Project to the Broomfield community and its citizens, Extraction engaged in over two (2) years of negotiations and compromise with Broomfield and its City Council (the “City Council”) to demonstrate its commitment to conducting safe and innovative oil and gas

• perations while keeping at all times the health, safety, and welfare of

Broomfield citizens a paramount consideration.”

Risk Analysis is a requirement

Section (W) Alternative Site Analysis of the approved July 26, 2018 version of the CDP in sub-section 7.5 states that “Extraction made other commitments to Broomfield… Extraction agreed to additional BMPs that addressed Broomfield concerns not addressed in the BMPs… These additional BMPs were as follows… Conduct a risk analysis.” See Appendix A for the complete language of Section (W) Alternative Site Analysis sub-section 7.5 or refer to the above Broomfield website link.

CONDITIONS OF APPROVAL AND FINAL APPROVAL

Back in August, residents provided additional information to City Staff regarding the fact that a risk analysis was required when it appeared based on comments from City Council Members that the risk analysis was not being done. The City subsequently added some conditions of

5 approval regarding risk. However, it should be noted that the risk analysis did not need to be added as a condition of approval as it was already required per the information provided above.

The City sent the following letter to Extraction on August 20, 2018:

https://www.broomfield.org/DocumentCenter/View/28073/8-20-18-CDP-Conditional-Approval- Letter-and-Press-Release The letter included the following two conditions of approval:

• 9. Extraction shall provide an amended Section (R) Risk Management Plan that includes

the following additional risks, associated mitigation efforts, & resulting mitigated risk probability:

• Each safety related risks identified in Extraction’s Securities and Exchange

Commission Form 10-K;

• Wildfire;
• Light pollution;
• Sabotage and vandalism;
• Risks associated with pipelines (see Operator Agreement, Ex. B, BMP #3); and
• Risks associated with potential interference with existing wells, including plugged

and abandoned wells, during the fracking process. If Extraction believes such risks are already included in the Risk Management Plan, Extraction will provide specific cross references.

• 10. Prior to the beginning of the Drilling Phase at any well site and subject to the approval
• f the City and County Manager, Extraction will provide the Risk Analysis, as

referenced in the CDP in Section (W) Alternative Site Analysis, in sub-Section 7.5, and such Risk Analysis should support all of those critical risks identified in the Risk Management Plan.

Letter to City Manager from Extraction on 09/10/2019:

https://drive.google.com/file/d/1iWpyjre9UeZqnp2W5SCfgw1QHNydth9m/view?usp=sharing This letter is in response the the Letter from the City Manager. Extraction ignores the risk requests from the 08/20/2019 letter, except for the pipeline risk analysis in which they agree to do the pipeline risk analysis per BMP #3 now that the City has requested it and will do this analysis prior to the commencement of drilling operations on any site. It should be noted that nothing was changed in the CDP which still requires the risk analysis.

City Manager Charles Ozaki's response to Extraction on 09/10/2019:

https://drive.google.com/file/d/1_ReinTTTsZuP2Xwrjq1rzf6BIsyIE02k/view?usp=sharing Despite the risk analysis still being required per the Risk Assessment process described by Extraction and in their statement in the CDP that they would conduct the risk analysis, the City then made a statement that CCOB would do a risk analysis. Despite this statement, nothing in Section R or Section W of the CDP was changed:

6 “To resolve conditions 9 and 10, Broomfield will be retaining DNV-GL Inc., as an expert consultant to conduct an independent risk assessment process. I request Extraction to cooperate with Broomfield's consultant in the process. Extraction has agreed to provide a risk analysis on pipelines before drilling begins, as requested by Broomfield pursuant to the

• perator agreement, BMP#3.”

To date, the residents have not yet seen a risk analysis from Extraction or information from the City stating that they have done the risk analysis that they agreed to. The City has contracted with DNV-GL to do a HAZID process which is believed to be a hazard

• identification. It is unclear to what extent any identified hazards will be analyzed. The City plans

to provide an update or presentation to the City Council and Community on Feb 19, 2019. Based upon the inclusion of the information about risk analysis as part of the alternative site analysis plan, it seems the more logical time to have done this analysis would have been before the sites were finalized and certainly before work commenced. At this time, despite not having a completed project and/or pipeline risk analysis, some sections of the pipeline are complete, site preparation has commenced at the Interchange Pad, and the site preparation is now scheduled to begin at the Livingston Site on February 12.

7 Appendix A The following excerpt was taken from Section (W) Alternative Site Analysis of the approved July 26, 2018 version of the CDP which states that “Extraction made other commitments to Broomfield… Extraction agreed to additional BMPs that addressed Broomfield concerns not addressed in the BMPs… These additional BMPs were as follows… 6. Conduct a risk analysis.”

7.5 Other Negotiations Between Extraction and Broomfield Extraction made other commitments to Broomfield throughout the negotiation process beyond its contractual obligations stemming from the Noble SUA, the Sovereign MOU, and Extraction Supplemental MOU. First, Extraction agreed that thirty two and a half (32 ½) acres of the 100 acre parcel purchased by Extraction for the Interchange A Well pad and the Interchange B Well Pad would be dedicated to Broomfield for Open Space.19 Extraction also agreed to pay Broomfield $650,000 for the lease of the open space for the Northwest and Parkway well pads, and $20 per linear foot for pipeline easements in the open space. Second, in addition to the plugging and abandoning of existing wells in Broomfield that Extraction was already completing, Extraction agreed to plug and abandon of all its remaining wells in Broomfield beginning in early 2019 and completed no later than 2022. Third, Extraction agreed to additional BMPs that addressed Broomfield concerns not addressed in the BMPs already agreed to under both the Sovereign MOU and the Extraction Supplement

• MOU. These additional BMPs were as follows:
• 1. Adopt all of the Committee’s air quality recommendations, except those

recommendations for Tier 4 engines;

• 2. Increase general liability insurance coverage to $100,000,000 while the well sites are

under Extraction control and $25,000,000 for the duration of the agreement if there is a change in ownership;

• 3. Conduct soil gas monitoring;
• 4. Adopt Committee Recommendation setbacks pursuant to Action Step OG-18.5 and

maintain a 1,000 foot setback from all Adams County homes;

• 5. Conduct noise modeling at 1,000 feet from the pads at a 55 decibel level; and
• 6. Conduct a risk analysis