BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ) CAUSE NO. 112
ESTABLISHMENT OF FIELD RULES TO GOVERN )
OPERATIONS IN THE IGNACIO-BLANCO ) ORDER NO. 112-218
FIELD, ARCHULETA COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on June 11, 2009, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to allow up to two additional wells, for a total of up to four, in the established 320-acre drilling and spacing unit consisting of the N˝ of Section 12, Township 32 North, Range 6 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams.
FINDINGS
The Commission finds as follows:
1. Energen Resources Corporation (“Energen”), 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 pursuant to the Oil and Gas Conservation Act.
4. On June 17, 1988, the Commission issued Order No. 112-60, which among other things, established 320-acre drilling and spacing units for certain lands, including Section 12, Township 32 North, Range 6 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the permitted well to be located no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line.
5. On July 11, 2000, the Commission issued Order No. 112-157, which among other things, allowed an optional second Fruitland coal seam well to be drilled in each 320-acre drilling and spacing unit for certain lands including Section 12, Township 32 North, Range 6 West, N.M.P.M., with such additional well being located 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 April 14, 2009, Energen, by its attorneys, filed with the Commission a verified application for up to two additional wells, for a total of up to four, in the established 320-acre drilling and spacing unit consisting of the N˝ of Section 12, Township 32 North, Range 6 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams, with any permitted well located no closer than 660 feet to any outer boundary of the unit and no setback required to any interior quarter section line.
Further, Energen requests that the proposed wells be permitted as either directional or horizontal wells, at the discretion of the operator.
7. On May 27, 2009, Energen, by its attorneys, filed with the Commission a written request to approve the application based on the merits of the verified application and the supporting exhibits as provided for by Rule 511.c. Sworn written testimony and exhibits were submitted in support of the application.
8. Testimony and exhibits submitted in support of the application showed that the application lands are surrounded by lands which have been approved for 80-acre well density, and that Energen is the majority leasehold owner of the application lands for the Fruitland coal seams.
9. Testimony and exhibits submitted in support of the application showed that the Fruitland coal seams underlie the entirety of the application lands and provide a common supply of gas. Additional testimony indicated that marketable amounts of gas can be produced from the Fruitland coal seams in the vicinity of the application lands.
10. Testimony and exhibits submitted in support of the application showed that the Fruitland coal seams average approximately 46 feet in thickness across the application lands with an estimated original gas-in-place (“OGIP”) of approximately 13.4 BCF and a recovery factor of approximately 27% based on two wells per 320-acre spacing unit. Additional testimony indicated that, based on past history matching and simulation, an additional third well would result in incremental estimated ultimate reserves of 3.0 BCF for a 22% incremental recovery factor. Further testimony showed that the proposed wells are economic with an average rate of return of approximately 21%, and that the additional wells would efficiently recover gas reserves which would not be recovered under the existing well density order.
11. Energen Resources Corporation agreed to be bound by oral order of the Commission.
12. Based on the facts stated in the verified application, having received no protests, and based on the Hearing Officer review of the application under Rule 511.c., the Commission should enter an order to allow up to two additional wells, for a total of up to four, in the established 320-acre drilling and spacing unit consisting of the N˝ of Section 12, Township 32 North, Range 6 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams, with any permitted well located no closer than 660 feet to any outer boundary of the unit and no setback required to any interior quarter section line.
ORDER
NOW, THEREFORE IT IS ORDERED, that up to two additional wells, for a total of up to four, are hereby approved in the established 320-acre drilling and spacing unit consisting of the N˝ of Section 12, Township 32 North, Range 6 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams.
IT IS FURTHER ORDERED, that any permitted wells in the 320-acre drilling and spacing unit established for the N˝ of Section 12, Township 32 North, Range 6 West, N.M.P.M., shall be drilled either vertically, directionally or horizontally, at the discretion of the operator, provided that the location of the bottomhole for any permitted well shall be no closer than 660 feet from the outer boundary comply of the unit and no setback required to any interior quarter section.
IT IS FURTHER ORDERED, that wells drilled on the above-described lands shall comply with the terms and provisions of all of the Commission’s health, safety, welfare and environmental rules and regulations now or hereafter in effect.
IT IS FURTHER ORDERED, that the following terms, conditions and provisions of Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations:
Well Permit Limitations A Commission hearing shall be required before a drilling permit may be issued for a well site located within one and one-half (1˝) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations. The purpose of the hearing shall be to address potential adverse impacts to the Fruitland outcrop.
Annual Drilling Plan The Director shall survey the operator as to its drilling plans for 2008, and annually thereafter. The survey results shall be reported to the Commission for its consideration with respect to the conditions attached to this order.
Wildlife The operator shall notify the Colorado Division of Wildlife ("CDOW") of the location of any proposed additional well site and advise the Director of the date such notice was provided. If the Director receives comments from the CDOW within ten (10) days of the date notice was provided, such comments may be considered in applying Rule 508.j.(3)B. conditions.
Emergency Preparedness Plan The operator submitting an Application for Permit-to-Drill for a proposed additional well under this order shall file and maintain a digital Emergency Preparedness Plan ("EPP") with La Plata County. The EPP shall include as-built facilities maps showing the location of wells, pipelines and other facilities, except control valve locations that which may be held confidential. The EPP shall include an emergency personnel contact list.
Gas and Oil Regulatory Team The Director shall ensure that the La Plata County Gas and Oil Regulatory Team ("GORT") continues to meet as appropriate, but no less than semiannually. GORT meetings may be scheduled more frequently if the members believe a meeting is appropriate. (GORT includes invited member representatives from La Plata County, BLM, SUIT, industry operators and Commission. Its meetings are open and typically attended by interested area residents.)
3M Mapping, Modeling and Monitoring Project The Director shall ensure that the 3M Technical Peer Review Team is invited to meet as appropriate, but no less than semiannually to review proposals and results related to the 3M Mapping, Modeling and Monitoring Project. 3M Technical Peer Review Team meetings may be scheduled more frequently if the members believe a meeting is appropriate.
Post Completion Pressure Build-Up Tests In addition to obtaining a bottom hole pressure on all wells drilled under this order, the operator shall conduct pressure build-up tests two (2) to three (3) months after initial production begins and once every three (3) years thereafter. The operator shall provide the data acquired, an evaluation of the data and the procedures utilized to conduct the pressure build-up tests to the Director within thirty (30) days of the conclusion of each test. After reviewing the quality of the pressure buildup data and the adequacy of the geographic distribution of the data, the Director may reduce the number of wells for which pressure build-up testing is required.
IT IS FURTHER ORDERED, that the following Rule 508.j.(3)B. conditions from Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable Commission Rules and Regulations:
Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the surface well location is proposed to be sited within any subdivision that has been approved by La Plata County. The Director shall conduct an onsite inspection if the surface well location is within two (2) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations and the surface owner, LGD, operator, or Director requests an onsite inspection.
Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the operator and the surface owner have not entered into a surface use agreement. If the reason the surface use agreement has not been executed is related to surface owner compensation, property value diminution, or any private property contractual issues between the operator and the surface owner, then no onsite inspection shall be required.
The purpose of the onsite inspection shall be to identify any potential public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction regarding the proposed surface location that may not be adequately addressed by Commission rules or orders. The onsite inspection shall not address matters of surface owner compensation, property value diminution, or any private party contractual issues between the operator and the surface owner.
When the Director conducts onsite inspections under the conditions in described in the paragraphs above, the Director shall invite the representatives of the surface owner, the operator and LGD to attend. The Director shall attempt to select a mutually acceptable time for the representatives to attend. The inspection shall be conducted within ten (10) days, or as soon as practicable thereafter, of either the date the LGD advises the Director in writing that the proposed surface well site location falls within an approved subdivision or the date the operator advises the Director in writing that a surface use agreement has not been reached with the surface owner. If requested by the operator, the Director may delay the onsite inspection to allow for negotiation between the operator and surface owner or other parties.
Following the onsite inspection, the Director shall apply appropriate site specific drilling permit conditions if necessary to prevent or mitigate public health, safety and welfare or significant adverse environmental impacts taking into consideration cost-effectiveness and technical feasibility and relevant geologic and petroleum engineering conditions as well as prevention of waste, protection of correlative rights, and promotion of development.
Examples of the types of impacts and conditions that might be applied if determined necessary by the Director include (this list is not prescriptive or all inclusive):
Visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening
Surface impacts – moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of future reclamation activities; utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas
Noise impacts – installing electric motors where practicable; locating or orienting motors or compressors to reduce noise; installing sound barriers to achieve compliance with Commission rules; confining cavitation completion operations (excluding flaring) to the hours of 7 a.m. to 7 p.m. and notifying all area residents within one-half (˝) mile at least seven (7) days before cavitation is commenced
Dust impacts – watering roads as necessary to control dust during drilling and completion operations
Ground water impacts – collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data
Safety impacts – soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment
Outcrop impacts – performing outcrop gas seep surveys; performing produced water quality analysis; periodic pressure transient testing of high water/gas ratio wells; limiting water production in wells with anomalously high water rates and water/gas ratios; funding investigative reservoir modeling under the Director’s supervision
Wildlife impacts – limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant
If the operator objects to any of the conditions of approval applied above, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.
If the Director has reasonable cause to believe that any existing or proposed oil and gas operations are causing, or are likely to cause, public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction that may not be adequately addressed by Commission rules or orders, the Director may properly notice and set the matter for the next regularly scheduled Commission hearing to order appropriate investigative or remedial action. Reasonable cause may include, but is not limited to, information from the 3M Mapping, Modeling and Monitoring Project.
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 June, 2009, as of June 11, 2009.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert A. Willis, Acting Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
June 18, 2009