August 16, 2004

The Oil and Gas Conservation Commission met on August 16, 2004 at 10:00 a.m. in the Birch Banquet Room, Ramada Inn & Suites, 124 W., 6th Street, Glenwood Springs, Colorado, for a hearing in Cause Nos. 1V (4 matters), 105, 112 and 429.

Those present were:

Peter Mueller Chair

John Ashby Commissioner

Tom Ann Casey Commissioner

Mike Klish Commissioner

Tom Reagan Commissioner

Lynn Shook Commissioner

Carol Harmon Assistant Attorney General

Tim Monahan Assistant Attorney General for the Commission

Brian Macke Acting Director

Patricia Beaver Hearings Manager

The Commission unanimously approved the minutes from the July hearing. Commissioner Klish recused himself from the hearing.

Executive Director’s Report: There was no report.

Director’s Report: Acting Director Macke provided a written report and advised that two variances were granted last month for setbacks.

Audience Comments: Ken Wonstolen, Colorado Oil and Gas Association (COGA), extended appreciation to Chair Mueller and Acting Director Macke for their participation in the Outstanding Operations Award presentation at the COGA Natural Gas Conference. He also thanked Commissioners Reagan and Casey for attending the conference.

Assistant Attorney General’s Report: There was no report.

Cause No. 1, Docket No. 0407-EX-03, request for an order allowing an exception to the permitted location for the Duncan #B-14 Well to be located at a proposed location of 1531' FNL and 1167' FEL in Section 20, Township 12 North, Range 100 West, 6th P.M. was withdrawn.

Cause No. 334, Docket No. 0407-EX-05, request for an order allowing an exception to the permitted location for the Meyers 14-32 Well to be located at a proposed location of 995' FSL and 450' FWL in Section 32, Township 10 North, Range 93 West, 6th P.M. was withdrawn.

Cause No. 1, Docket No. 0408-GA-05, request for an order requiring Patina Oil & Gas Corporation to plug and abandon the Huron "H" Unit No. 1 Well, located in the SW¼ SW¼ of Section 15, Township 1 South, Range 68 West, 6th P.M. was continued to the September hearing.

Cause No. 112, Docket No. 0302-UP-01, request to respond to the pending motions to dismiss the previously filed pooling application and discovery requests was continued to the October hearing.

The Consent Agenda was unanimously approved by the Commission which included the following:

Cause No. 1V, Docket No. 0408-OV-28, request to approve an Administrative Order by Consent finding EnCana Oil & Gas (USA) in violation of Rule 303.b., failure to have an approved Application for Permit to Recomplete the Sheffield No. 6209 Well located in the NE¼ SW¼ of Section 17, Township 6 South, Range 99 West, 6th P.M. to the Williams Fork Formation.

Cause No. 1V, Docket No. 0408-OV-29, request to approve an Administrative Order by Consent finding EnCana Oil & Gas (USA) Inc. in violation of Rule 303.b., failure to have an approved Application for Permit to Recomplete the Shaeffer No. 12-6B (F12) Well located in the SE¼ NW¼ of Section 12, Township 7 South, Range 93 West, 6th P.M. to the Williams Fork Formation.

Cause No. 1V, Docket No. 0408-OV-30, request to approve an Administrative Order by Consent finding EnCana Oil & Gas (USA) Inc. in violation of Rule 303.a., failure to obtain an Approved Application for Permit-to-Drill prior to commencement of operations with heavy equipment for the Kelly 34-12C (M34NE) Well and the Kelly 34-11C (M34NE) Well, both located in the SW¼ SW¼ of Section 34, Township 6 South, Range 92 West, 6th P.M.

A hearing was held in Cause No. 1, Docket No. 0408-OV-27, request for an order Request for an Order Finding Violation finding EnCana Oil and Gas (USA) Inc. in violation of Rules 209., 301., 317.i., 324A., 327., and 906.b.(3), failure to prevent the contamination of fresh water by gas, failure to notify the Director when public health or safety is in jeopardy, failure to pump cement 200' above the top of the shallowest producing horizon, impacts to water quality, loss of well control and allowing an underground blowout, and failure to report a release to the Director for the Schwartz 2-15B Well, located in the SW¼ SE¼ of Section 2, Township 7 South, Range 92 West, 6th P.M. The following were present at the hearing: Carol Harmon, COGCC staff attorney, Erika Enger, EnCana Oil & Gas (USA) Inc. ("EnCana") attorney, Don DeFord, Board of County Commissioners ("BOCC") of Garfield County attorney, Sean McAllister and Carolyn Lamb, Western Colorado Congress/Grand Valley Citizens Alliance ("WCC/GVCA") attorneys.

At the time of the hearing, Commissioner Klish recused himself from the proceedings as a voting Commissioner.

After comments provided by Mr. DeFord and an objection by Ms. Enger to participation in the violation phase, the Commission voted unanimously to accept the BOCC’s Motion for Intervention to allow the County to intervene in both the violation phase and the penalty phase of the hearing.

After comments provided by Mr. McAllister, an objection by Ms. Enger stating a lack of showing that the intervention is in the public interest, and a concern raised by Ms. Harmon, regarding the scope of participation, the Commission voted unanimously to accept the WCC/GVCA Motion for Intervention to allow WCC/GVCA to intervene in both the violation phase and the penalty phase of the hearing.

After discussion on EnCana’s Motion in Limine to exclude evidence regarding WCC/GVCA’s requested relief which it believes goes beyond the scope of the hearing, the Commission determined that rather than make a ruling at the beginning of the hearing, they would address these issues as they arise during the course of the hearing.

After opening statements were presented by the parties, COGCC staff witnesses Jaime Adkins, COGCC Northwest Engineer and Debbie Baldwin, COGCC Environmental Supervisor presented the stipulated recommended order, including supporting exhibits, to the Commission.

COGCC staff witness Scott Klarich, Colorado Department of Public Health and Environment Water Quality Control Division ("WQCD") Enforcement Team Leader testified as to the Memoranda of Agreements between the WQCD, WQCC and the COGCC. He indicated his agency’s agreement with the actions taken in response to the gas seep by COGCC staff.

COGCC staff witness Greg Nagle, WQCD Ground Water Quality Coordinator testified as to the standards established by the WQCC and his agency’s agreement with the COGCC staff’s recommended order.

COGCC staff witness Mark Beeunas, a gas isotope expert, testified regarding interpretation of stable isotopes and compositional analysis collected from water wells and gas wells which corroborated COGCC staff’s interpretation of the source of the gas seeping into West Divide Creek.

COGCC staff witness Richard Moore, consulting geologist, testified that he had no changes to the data and conclusions presented in his expert report after his review of the other expert reports provided. He concluded that there was a strong likelihood that the West Divide Creek gas seep was caused by improper completion procedures at the Schwartz Well.

Ms. Enger indicated EnCana’s concurrence with the COGCC’s staff presentation. Mr. DeFord indicated the BOCC had no objections to the Commission accepting Finding Nos. 1 through 39 of the stipulated recommended order, although the BOCC objected to the number of days EnCana was found in violation of Rules 324A. and 207. Mr. McAllister presented a written objection to the stipulated recommended order.

After discussion, Ms. Harmon proposed that Finding No. 38 be amended to include both Rule 324A.a. and Rule 324A.b. This amendment was agreed to by the parties and the Commission.

Commissioner Ashby asked Mr. Adkins if he had reviewed the CBL run after the remedial cementing was performed. Mr. Adkins testified that the CBL showed a good cement job and that the bradenhead test showed no pressure. All exhibits presented, including the second CBL, were admitted.

After comments from BOCC and WCC/GVCA on the number of days of violation of Rules 324A. and 910.a., the Commission deliberated and voted unanimously to accept Finding Nos. 1 through 39 and previous Finding No. 41 (now Finding No. 64), including the revision to Finding No. 38. to find EnCana in violation of Rule 209. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of Rule 301. from February 16, 2004 until March 30, 2004 for forty-three (43) days of violation (failure to report bradenhead pressure) and from February 16, 2004 until March 23, 2004 for thirty-six (36) days of violation (failure to report fall of cement top); in violation of Rule 317.i. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of Rule 324A. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of Rule 327. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of Rule 910.a. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of the permit conditions from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation; in violation of §34-60-107, C.R.S. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of violation.

Having determined that violations existed, the Commission moved into the penalty phase of the hearing by having testimony presented first by WCC/GVCA witness Herman Lucero who testified about the sampling process he utilized in the West Divide Creek area, the results from his water sampling and his observations in the area.

Mr. Adkins described the penalty and remedial action proposed in the stipulated recommended order, describing the total maximum allowable fine amount of $464,000.00 reduced by ten percent (10%) per mitigating factor, for a total of twenty percent (20%) fine reduction, for a total monetary penalty of $371,200.00. The COGCC staff recommended that EnCana proceed under the Site Investigation and Remediation Workplan, Form 27 approved by COGCC staff on May 13, 2004, and that EnCana should submit to the COGCC staff for approval a Site Investigation and Remediation Workplan, Form 27, for the investigation, remediation, and monitoring of ground water to meet the required allowable concentrations. In addition the COGCC staff maintain the moratorium on drilling and completion operations within a two (2) mile radius of the seep at West Divide Creek until the COGCC staff evaluates the effectiveness of the Notice to All Operators Drilling Wells to the Mesaverde Group or Deeper in the Mamm Creek Field, Garfield County drafted and implemented July 23, 2004 ("2004 Notice") and determines when the moratorium can be lifted.

EnCana witness Kimberley Kaal, Senior Geologist for Cordilleran Compliance Services, testified as to the environmental sampling and monitoring conducted at the West Divide Creek gas seep area to date and the plan for future studies.

EnCana witness Karmen King, Program Administrator, Natural Resource Management Institute, Colorado Mountain College, testified on the study she conducted on aquatic life in the West Divide Creek after the discovery of the gas seep. She testified about the scope, purpose, and four (4) sampling events (between May 10 and July 21, 2004) of the study. Ms. King testified about BTEX and methane measurements of surface water samples and seep samples. She also testified that one (1) of the four (4) data sets of benthic macroinvertebrates had been analyzed and showed no impact attributable to the seep. Ms. King further testified that a fifth sampling event was scheduled for August, 2004 and that three (3) data sets of benthic macroinvertebrates were still to be analyzed.

BOCC witness Doug Dennison, Garfield County Oil & Gas Auditor testified about the photographs he had taken at the West Divide Creek gas seep and its impact on public health, safety and the environment of Garfield County citizens, and on the number of Notices of Alleged Violation issued by the COGCC staff to EnCana in the past year.

BOCC witness Jeffery Thyne, Research Professor in the Department of Geology and Geological Engineering at the Colorado School of Mines testified about his independent review of the data available at the COGCC office and his belief that the gas seep was caused by incomplete cementation during completion of the Schwartz well, that the longer term impacts of contamination have not been evaluated, nor the extent of the contamination been determined, and that Garfield County should be involved in the review of additional data gathered.

WCC/GVCA witness Pepe Langegger testified about his personal experience with the gas seep on his property and potential impacts affecting his elk herd population, and his belief that there is not enough oversight of drilling.

WCC/GVCA witness Nancy Jacobsen testified about living in proximity to four (4) gas wells, the need to hold EnCana accountable for the gas seep, and her belief that EnCana should be required to comply with the relief requested in the WCC/GVCA intervention.

WCC/GVCA witness Bill Griffin, spokesperson for the neighborhood association, testified that he wants the moratorium on drilling and completion to be extended until a complete study can be performed. He testified that it may be necessary to curtail drilling completely throughout the area, and that COGCC staff should inspect all EnCana wells prior to completion.

WCC/GVCA witness Matt Sura, Director of Western Colorado Congress testified about his experience working with oil and gas issues over the past two (2) years, his belief that additional monitoring and mitigation of the gas seep at West Divide Creek are needed prior to lifting the moratorium on drilling, and his preference for a joint effort with EnCana to determine potential public projects in lieu of a fine.

A sworn statement was made pursuant to Rule 510. by Hermann Stauffer who testified to express his concern about preserving the land and water.

A sworn statement was made pursuant to Rule 510. by Ken Wonstolen, General Counsel for the Colorado Oil and Gas Association who testified that he believes Rule 209. and Rule 324A. address the same issue. He testified that he had concern over the penalty calculations but would not bring it up because of the stipulated recommended order.

A sworn statement was made pursuant to Rule 510. by Sher Long, Community Relations Consultant for EnCana who testified that she lives on the Deitrich property and feels comfortable using the water from the well and living in the area near the gas seep.

A sworn statement was made pursuant to Rule 510. by Matt Sura, Director of Western Colorado Congress to describe why there were so few Rule 510. statements made at the hearing, indicating that citizens for the most part could only attend one day of the hearing and the time for making Rule 510. statements was not determined well in advance of the hearing.

Lisa Bracken and her father Robert Eicher had wished to make a sworn statement pursuant to Rule 510. but had to leave early. They asked Ms. Harmon to relay to the Commission their approval with the process occurring over the two (2) days of hearing, and their concurrence with the direction the hearing seemed to be headed.

EnCana response witness Anthony Gorody, Consulting Geologist, testified on his analysis of gas samples gathered from the West Divide Creek seep, from surface water, from the Schwartz Wells and from other wells in the vicinity of the seep. He testified about methods for identifying the source of gas seeping into West Divide Creek, the localized impact of the seep on aquifers, the influence of fractures in the a1rea on the extent and direction of the seep, and EnCana’s plan to conduct a nine (9) square mile study to detect methane at the surface, including the corridor between the Schwartz 2-15B Well and West Divide Creek.

EnCana response witness Eric Marsh, Vice President-Southern Rockies, testified about his company’s corporate philosophy, new procedures put in place regarding cementing practices and bradenhead testing, and the plan to provide more oversight from field personnel, the amount of money EnCana has spent to date on investigating, mitigating, and monitoring the seep, and EnCana’s commitment to continue following the program required by the COGCC staff until it is complete.

After deliberation, the Commission approved the remainder of the stipulated recommended order, with several amendments.

The meeting adjourned at 5:15 p.m.

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The Secretary was therefore authorized to issue the following orders:

Order No. 105-42, McClave Field, Bent County: Approves the request for an order to allow an additional well to be drilled and completed in the 640-acre drilling and spacing unit consisting of Section 11, Township 21 South, Range 48 West, 6th P.M. for the production of gas and associated hydrocarbons from the McClave Sand Formation.

Order No. 112-176, Ignacio-Blanco Field, La Plata County: Approves the request for an order allowing a second well to be completed in the 320-acre drilling and spacing units consisting of the W½ of Sections 6 and 7, Township 33 North, Range 6 West, N.M.P.M. at the discretion of the operator, with the permitted well to be located in the center of the quarter section with a tolerance of 200 feet in any direction for the production of gas and associated hydrocarbons from the Fruitland coal seams.

Order No. 429-02, Brush Creek Field, Mesa County: Approves the request for an order to allow up to three (3) additional wells to be drilled and completed in the 160-acre drilling and spacing units in certain sections of Township 9 South, Range 94 West, 6th P.M. for the production of gas and associated hydrocarbons from the Mesaverde Formation.

Order No. 1V-276, Garfield County: Approves the amended stipulated order finding EnCana Oil & Gas (USA) in violation of Rules 209., 301., 317.i., 324A., 327., and 906.b.(3), for failure to prevent the contamination of fresh water by gas, failure to notify the Director when public health or safety is in jeopardy, failure to pump cement 200' above the top of the shallowest producing horizon, impacts to water quality, loss of well control and allowing an underground blowout, and failure to report a release to the Director for the Schwartz 2-15B Well, located in the SW¼ SE¼ of Section 2, Township 7 South, Range 92 West, 6th P.M.

Order No. 1V-277, Garfield County: Approves the request for an Administrative Order of Consent finding EnCana Oil and Gas (USA) Inc. in violation of Rule 303.b., for failure by to have an approved Application for Permit to Recomplete the Sheffield No. 6209 Well located in the NE¼ SW¼ of Section 17, Township 6 South, Range 99 West, 6th P.M. to the Williams Fork Formation.

Order No. 1V-278, Garfield County: Approves the request for an Administrative Order by Consent finding EnCana Oil and Gas (USA) Inc. in violation of Rule 303.b., for failure to have an approved Application for Permit to Recomplete the Shaeffer No. 12-6B (F12) Well located in the SE¼ NW¼ of Section 12, Township 7 South, Range 93 West, 6th P.M. to the Williams Fork Formation.

Order No. 1V-279, Garfield County: Approves the Administrative Order by Consent finding EnCana Oil and Gas (USA) Inc. in violation of Rule 303.a. for failure to obtain an Approved Application for Permit-to-Drill prior to commencement of operations with heavy equipment for the Kelly 34-12C (M34NE) Well and the Kelly 34-11C (M34NE) Well, both located in the SW¼ SW¼ of Section 34, Township 6 South, Range 92 West, 6th P.M.

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Patricia C. Beaver, Secretary

Approved:

 

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Peter M. Mueller, Chair