BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO	) ) ) )	CAUSE NO.   112 ORDER NO.   112-174

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on July 12, 2004 at 9:00 a.m., in Suite 801, 1120 Lincoln Street, Denver, Colorado on the application of McElvain Oil & Gas Properties, Inc. for an order to establish that the permit for the Payne No. 1 Well be clarified to authorize the appropriate artificial lift device be utilized to maximize the economic and efficient production from the well, and that operations may be conducted without buried electrical lines, provided there is compliance with Commission noise regulations.

FINDINGS

            The Commission finds as follows:

1.   McElvain Oil & Gas Properties (“McElvain”), as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

            2.  Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

            3.  The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

            4.  On June 15, 1988, the Commission issued Order No. 112-60 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland coal seams, underlying certain lands in the Ignacio-Blanco Field, with the permitted well when north of the north line of Township 32 North to be located in the NW¼ and the SE¼ of each section and when south of the north line of Township 32 North to be located in the NE¼ and SW¼ of each section, no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.  Section 17, Township 32 North, Range 6 West, N.M.P.M. was included in this order.

            5.  On July 28, 2000 (amended November 19, 2001), the Commission issued Order No. 112-157 which allowed an optional additional well to be drilled in certain 320-acre drilling and spacing units, including Section 17, Township 32 North, Range 6 West, N.M.P.M., for production from the Fruitland Coal seams, with permitted wells to be located in any undrilled quarter section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line. 

            6.  On February 13, 2004, McElvain filed with the Commission an Application for Permit-to-Drill the Payne No. 1 Well located in the NW¼ NE¼ of Section 17, Township 32 North, Range 6 West, N.M.P.M.  The surface location of the Well was authorized by the Colorado Oil and Gas Conservation Commission through Permit No. 20040352 dated March 12, 2004.

            7. On April 7, 2004, the La Plata County Planning Department issued a conditional permit for the Payne No. 1 Well requiring, among other things, visual and sound mitigation through the installation of a low profile pumping device six (6) months after the first date of production, the use of electricity to power any motors (engines) at the site with the exception of motors used for drilling, periodic or temporary maintenance or recompletion, and the burial of any associated electrical lines.  McElvain believes that compliance with the County directive will cause waste as prohibited by §34-60-107 and §34-60-117, C.R.S. since it will significantly inhibit or limit production from this well and will violate waste prevention as defined in §13-60-103(12), (13)(a) and (b), C.R.S.

            8.  On May 25, 2004, McElvain filed with the Commission an application for an order to establish that the permit for the Payne No. 1 Well be clarified to authorize the appropriate artificial lift device be utilized to maximize the economic and efficient production from the well, and that operations may be conducted without buried electrical lines, provided there is compliance with Commission noise regulations.

            9.  On June 28, 2004, La Plata County filed with the Commission a Statement of Intervention to raise environmental and public health, safety and welfare concerns, and to request that the Commission deny the relief requested by McElvain in its Application.  In addition, the County requested that the Application be heard in full at a hearing before the Commission.

            10.  On June 28, 2004, the Hearing Officer left a voice message for the La Plata County Attorney, advising him that a prehearing conference was scheduled for June 30, 2004 at 1:30 p.m.  On June 29, 2004, the La Plata County Attorney responded to the voice message, indicating he did not plan to present witnesses or testimony at the hearing, that he did not intend to attend the hearing, and that it was the County’s wish for the Intervention to stand on its own.  The Hearing Officer advised the Attorney that because the County was not planning on participating in the hearing, an administrative hearing would be conducted on the Application, with a recommendation that the Commission consider the County’s written intervention along with the Hearing Officer recommendation.  The La Plata County Attorney stated that he was not surprised by the decision to hold an administrative hearing.

            11.  At the time of the administrative hearing, McElvain’s attorney stated that contrary to the allegation in the County’s Statement of Intervention that McElvain has not exhausted its administrative remedies at the County level, McElvain is attempting to exhaust its administrative remedy and as such has applied for a hearing appealing the County’s decision.  That hearing has now been rescheduled to July 6, 2004.  He also stated that McElvain recognizes the County’s land use authority but believes the two (2) requirements subject to its Application may constitute an operational conflict with the COGCC.

            12.  Testimony and exhibits presented at the administrative hearing indicated that McElvain is seeking clarification from the Commission confirming its ability to choose the type of pump that best suits the operation, and the ability to comply with the COGCC’s noise regulations without the requirement to electrify the wellsite.  Additional testimony and exhibits showed the 320-acre drilling and spacing unit, the location of the Payne No. 1 Well, the Munoz surface ownership upon which the well will be located, the Burbach adjacent surface ownership, and the previously installed gas compressor located on the Burbach’s property.  Further testimony indicated that existing wells in the area were drilled in the 1950s, that the Munoz family has owned and farmed its surface since the 1960s and that the Burbach family acquired its surface in 1998 but did not take possession until after 2000.

            13.  Testimony and exhibits presented at the administrative hearing showed the location of the drillsite from the county road and the location of the Burbach home.  Additional testimony indicated that the Payne No. 1 Well will be located approximately 600 feet north of the Burbach property and approximately 900 feet from the Burbach home.  Further testimony indicated that the well is at an exception location to the permitted location in Order No. 112-157 and was moved out of the window to accommodate the surface owner’s request to avoid interference with irrigation.  Additional testimony indicated that a surface use agreement has been executed with the Munoz’s, and that thirty-four (34) mineral owners have either leased or agreed to participate in the drilling of the well.

14.  Testimony and exhibits presented at the administrative hearing showed the La Plata County permit application that McElvain submitted, the various correspondences between the County and McElvain regarding the permit requirements, the permit denial and the scheduled permit appeal hearing.  Additional testimony indicated that a neighborhood meeting was held on June 8, 2004 at the County’s request to discuss the issues related to the surface owner (Munoz) and the adjacent surface owner (Burbach).  Further testimony indicated that this meeting was the first time the Munoz’s were aware that the County had any concern regarding the well.

15.  Testimony and exhibits presented at the administrative hearing showed that McElvain operates one hundred thirty (130) wells in the San Juan Basin and are partners in approximately four thousand (4,000) wells in the Basin.  Additional testimony and exhibits showed a letter to La Plata County wherein McElvain responded to the issues raised by the County as to why the permit was not approved.  Further testimony indicated that progressive cavity pumps do not perform on Fruitland coal seam wells, and further that the specific pumps required by the County are not available. 

16.  Testimony and exhibits presented at the administrative hearing showed that production would not be maximized by the use of progressive cavity pumps, that fluid removal would be reduced by using a County required pump, and that switching pumps once the well is producing would likely cause operational problems.  Additional testimony indicated that waste would be prevented by the granting of the Application.

17.  Testimony and exhibits presented at the administrative hearing showed a letter from La Plata Electric Association regarding the cost of electrifying the wellsite.  Additional testimony indicated that based on estimated costs of $100,000 for above ground electricity or $300,000 buried electricity, the economics would be almost double if the wellsite was required to be electrified.

18.  McElvain Oil & Gas Properties agreed to be bound by oral order of the Commission.

            19.  Based on the facts stated in the verified application, having received one written intervention and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order establishing that the permit for the Payne No. 1 Well be clarified to authorize the appropriate artificial lift device be utilized to maximize the economic and efficient production from the well, and that operations may be conducted without buried electrical lines, provided there is compliance with Commission noise regulations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the permit for the Payne No. 1 Well located in the NW¼ NE¼ of Section 17, Township 32 North, Range 6 West, N.M.P.M. is hereby clarified to authorize the appropriate artificial lift device be utilized to maximize the economic and efficient production from the well, and that operations may be conducted without buried electrical lines, provided there is compliance with Commission noise regulations.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

            IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

            IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

            IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

ENTERED this  day of July 2004, as of July 12, 2004.

                                                    OIL AND GAS CONSERVATION COMMISSION

                                                     OF THE STATE OF COLORADO

                                                                        By

                                  Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 27, 2004