September 20, 2004

The Oil and Gas Conservation Commission met on September 20 and 21, 2004 at 9:00 a.m. in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for a hearing in Cause Nos. 1V, 1R, 232 and 499, and 524.

Those present were:

Peter Mueller Chair

Brian Cree Vice Chair

John Ashby Commissioner

Kimberlee Gerhardt Commissioner

Mike Klish Commissioner

Carol Harmon Assistant Attorney General

Brian Macke Director

Patricia Beaver Hearings Manager

Morris Bell Operations Manager

Executive Director’s Report: Shane Henry, Department of Natural Resources (DNR) Assistant Executive Director offered congratulations to Brian Macke as the new Director of the Colorado Oil and Gas Conservation Commission ("COGCC") and to Kimberlee Gerhardt as a new Commissioner. Thanks were extended to Chair Mueller for his participation in the process to select a new Director.

He stated that say there was nothing new to report regarding the Roan Plateau. Mr. Henry described a conference call with Senator Isgar regarding the pooling issue and that a draft rule will be prepared for consideration.

&#Director’s Report: Director Macke provided a written report and discussed the following: Statistics show twenty-seven hundred (2700) Applications for Permit-to-Drill ("APD") are predicted to be approved this year.

The Northwest Oil and Gas Forum held August 26, 2004, at the Fairgrounds in Rifle was well-attended. A viewing of Linda Flis’ video "From Drillbit to Burner Tip" provided a basic overview on the oil and gas industry.

There was discussion on whether the Deputy Director position would be filled, and Director Macke described the long range planning process to determine the need to fill the Deputy Director position versus reallocating the position resources to other areas.

Director Macke advised that In the Northwest Colorado area, reports from local governments show that in general, they are receiving much more money from oil and gas production than in the past. Referencing a Severance Tax Payment letter, he described how much money local governments are currently receiving.

Director Macke gave an update on the Mamm Creek gas seep. No benzene, toluene, ethylbenzene and xylenes (BTEX) has been found since April, 2004, therefore the air sparging system has been removed.

COGCC staff will ask for a continuance of the public projects proposals until the October, 2004 hearing.

Director Macke referenced a Las Animas County newspaper article describing the amount of money coming into the county resulting from natural gas development.

There was discussion on the Enforcement of Requirements for Survey Plats that are submitted with APDs. There will be a blanket waiver through the end of September 2004 to allow APDs to be approved with incomplete plats. A corrected plat must be submitted with the completion report. Next month’s Staff Report will include the number of variances granted regarding the survey plats.

Director Macke advised that the State Fair was well-attended and that the COGCC booth was staffed every weekend. The National Association of Royalty Owners (NARO) was recently held in Denver. COGCC staffed a booth there and Director Macke was a speaker. In addition, Director Macke made a presentation to the Moffat County Land Use Board.

Director Macke announced that a new Chancery Building lease was signed the day after the previous lease expired. He also advised that Forms 2 and 4 have been revised and are available on the website.

Director Macke advised that a variance has been granted to Order No. 146-3 to expand the distance for notice provided by COGCC staff to water well drills near the Leyden Gas Storage Facility.

Assistant Attorney General’s Report: AAG Harmon advised that most of the legal matters are fairly quiet at the moment. She stated that the Brownstein firm has withdrawn from the BDS case, as Gunnison Energy is also represented by Brownstein, resulting in a conflict.

Commissioner Comments: Commissioner Ashby extended congratulations to AAG Harmon on her presentation at the last hearing. He also congratulated the COGCC staff. Chair Mueller agreed with the congratulations, stating that the list of items he wanted addressed at the hearing were addressed.

Audience Comments: Ken Wonstolen, Colorado Oil and Gas Association (COGA), offered congratulations to Director Macke and Commissioner Gerhardt, stating he was looking forward to working with both of them. He then extended an invitation to all the Commissioners and senior COGCC staff to attend their 20th Annual Meeting at noon on November 16, 2004. He requested that those who wish to attend to let him know as soon as possible.

Mr. Wonstolen said he wondered if the end of September is enough time to grant survey plat variances, that he hasn’t had a chance to discuss it with his members, but they may want to extend the variance until the end of October. He went on to say that nothing much has happened with the COGA/Local Government pipeline rule. He stated that Garfield County is still struggling with what it is trying to regulate regarding pipelines. He related a recent decision in Pueblo Water Court; that CBM water is considered waters of the State while in the ground, but that once it is in a pit, it is considered waste water, only becoming waters of the State once it is removed from a pit. Mr. Wonstolen advised there are three (3) air quality meetings set for the fall, at which he will be participating. He said the Environmental Protection Agency (EPA) has commented on a control plan, and has suggested that operators provide notice to COGCC prior to the installation of air emission devices. A hearing on this will be held in December, and intervention will most likely be in late October. Mr. Wolstolen will send the hearing notice to Director Macke and AAG Harmon when he receives it.

Carolyn Lamb, Oil & Gas Accountability Project (OGAP) stated she wants to make comments on the noise policy at the appointed time.

Dan Randolph, San Juan Citizens Alliance (SJCA) said he supports reconvening of the 3M Technical Committee.

Cause No. 1V, Docket No. 0409-OV-31, request to approve an Order Finding Violation finding Richmond Petroleum in violation of Rule 1004., failure to reclaim the surface location at the Gosney 33-7 No. 1 Well located in the SW¼ SW¼ of Section 10, Township 33 North, Range 7 West N.M.P.M. was continued to the October hearing.

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

Cause Nos. 232 and 499, Docket No. 0409-SP-12, request to segregate the 320-acre drilling and spacing unit consisting of the N½ of Section 22, Township 5 North, Range 67 West, 6th P.M. into two 160-acre drilling and spacing units consisting of the NW¼ and the NE¼.

Cause No. 524, Docket No. 0409-SP-13, request to establish a 320-acre drilling and spacing unit, allowing up to 8 wells and pooling all non-consenting owners for the E½ of Section 6, Township 7 North, Range 59 West, 6 P.M. in the University 9-1 Well for the development and operation of the "D" Sand and "J" Sand Formations.

Cause No. 1, Docket No. 0409-GA-06, establish a bradenhead monitoring area in Townships 6-9 South, Ranges 91-93 West, 6th P.M.

Cause No 1V, Docket No.0409-OV-31, request to approve an Order Finding Violation finding Richmond Petroleum in violation of Rule 1004., failure to reclaim the surface location at the Gosney 33-7 No. 1 Well located in the SW¼ SW¼ of Section 10, Township 33 North, Range 7 West, N.M.P.M.

Following an introduction by Brad McKim, attorney for British Petroleum (BP), Rusty Riese made a presentation in which he referred to an order that required monitoring of the outcrops. Mr. Riese stated that he has met with the Southern Ute Indian Tribe and La Plata County to discuss his findings, which he had wanted to do prior to making a presentation to the Commission. Mr. Riese’s work shows down basin production is not affecting seepage, and that generalizations cannot be made outside each area by projecting to other areas.

Mike Matheson, consultant to La Plata County on oil and gas technical issues, described why he felt the 3M Technical Committee should be reconvened. He also stated the La Plata County staff has recommended budgeting up to $100,000.00 to fund any projects. He went on to say that La Plata County considers the Fruitland coal and Menafee outcrops to be geological hazards.

Hearing Officer Bell agreed the Committee should reconvene in order to address items that have changed or are new, and has scheduled a scoping meeting for October 7-8, 2004. He also provided an overview of why the 3M Project was begun. Commissioner Ashby stated he would like a review of costs and orders to date to assist in determining what should be done, and Chair Mueller would like to have goals and timeframes specified. The Commission wants more definition prior to approving reconvening of the 3M Technical Committee.

Brad McKim and Dan Randolph support reconvening the 3M Technical Committee. Mr. Randolph suggested including Archuleta County. Mr. Matheson indicated that Archuleta County is hoping La Plata County will assist them by providing technical support.

Chair Mueller stated the October 7, 2004 meeting should convene, with an update provided at the November 29-30, 2004 hearing, along with a plan for the 3M Committee to be reviewed by the Commissioners, and a decision made at that time.

An update on the policy to clarify noise control regulations was given. Director Macke described the history behind the changes proposed to the rule, and the policy proposed to address the changes. The Commissioners are in agreement to allow COGCC staff to hold 1 or 2 meetings to try to gain consensus on the policy. Carolyn Lamb, OGAP, stated the main concern with the policy is that it is more of an interpretation, and thus a rule rather than a policy. She went on to say that the policy is inconsistent with State noise statues, and that she wants the Commission to consider establishing an agricultural standard and change the noise rule. Ken Wonstolen said he believes the Commission adopted noise regulations so that parties wouldn’t have to go to court.

Nancy Lauro, La Plata County Land Use Planner, provided three (3) letters: one from the La Plata County Commission, one from the original complainant, and one from the Cattleman’s Association explaining that six (6) decibels doubles the noise levels. She urges the Commission to be inclusive with all folks in the discussion. Dan Randolph added that he felt there was a need to take a comprehensive look at noise levels since COGCC has always rigorously defended itself as the agency in charge of noise standards.

Dan Corcoran, Chair of the Professional Land Surveyor ("PLS") Board made a request that COGCC rules be changed to require a PLS to prepare survey plats. He said he would be available to meet with COGCC staff for further discussions. Commissioner Ashby stated he felt numbers 9-12 were the most important items on the plat checklist to be addressed. Director Macke said he would extend deadline for one (1) month on granting variances for APDs and well location plats.

Discussion followed on the Public Projects proposed in accordance with Order No. 1V-276. Attending via telephone were John Martin, Tresi Haupt, Larry McCown, Ed Green and Mildred Alsdorf from Garfield County.

Don DeFord, attorney for Garfield County, described why Garfield County thinks it should administer the projects. Director Macke expressed COGCC staff’s concern on the three (3) proposed projects and proposed guidelines for the Commission’s adoption. Further discussion was continued to the October meeting to adopt guidelines and approve any public project(s).

The meeting adjourned at 4:25 p.m. and reconvened on Tuesday September, 21, 2004.

A hearing was held in Cause No. 1R, Docket No. 0409-RM-02, a request to add new Rule 318B. to provide a special well location rule allowing 4 wells to be drilled in any quarter section, 1 well per quarter-quarter section, located at least 560 feet from the outer boundary of said quarter section for certain lands in Townships 1 through 6 North and 1 through 4 South, Ranges 44 through 48 West, 6th P.M.

The following were present at the hearing: Mike Wozniazk, Rosewood Resources, attorney, Bill Odell, J-W Operating, attorney. Qualified witnesses sworn in included: Ken Read, Engineer with J-W Operating, Exploration and Production Manager, Steve VonFeldt, Geologist with Rosewood Resources, Jack McCartney, Consulting Petroleum Engineer and John Wells, Consulting Landman for J-W Operating.

After opening statements were provided by Mr. Wozniak regarding the need for proposed Rule 318B. allowing one (1) well per forty (40) acre tract, 560 feet from the section line and 200 feet from the lease line, he stated that the rule does not change, alter or establish spacing units, nor does it increase the number of wells in unspaced areas, based on the depth of the formation. In addition, Mr. Wozniak stated that what is being requested is more flexibility on well locations so that fewer dry holes will be drilled based on seismic exploration. Notice was provided to approximately 1566 mineral owners, and if known, to unleased mineral owners, in addition to being published in the two required newspapers, and other local newspapers.

Ken Read testified by providing an overview of the area and the intent of the proposed rule.

Steve VonFeldt testified as to the geological interpretation of the area, the 160 square miles of seismic that Rosewood Resources has participated in, and the flexibility needed to locate wells in accordance with the seismic data.

Jack McCartney testified as to the reservoir properties of seventeen fields in the application area.

John Wells testified as to his experience negotiating leases and determining well locations with surface owners, and the need to have more flexibility to meet the needs of surface owners, resulting in the drilling of fewer wells and less surface disturbance.

Statements were made by Martin Brophy, landowner and mineral owner, and by Desmond Brophy, landowner and mineral owner, regarding disposal of salt water, irrigated lands, and the economics of drilling more gas wells. Statements were also made by Jim Brophy and Mary Lou Brophy, landowners and mineral owners, regarding fracing procedures used and thanking everyone for responding to questions.

Martin Brophy presented testimony regarding surface use of meter sheds, transportation lines, saltwater collection facilities, pipelines and electrical lines. Mr. Brophy presented letters from other landowners concerning the proposed rule.

After a closing statement was made by Bill Odell, the Commission deliberated and unanimously approved the proposed rule.

The meeting adjourned at 12:13 p.m.

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The Secretary was therefore authorized to issue the following orders:

Order Nos. 232-238 and 499-76, Wattenberg Gas Spaced Area, Weld County: Approves the request by Blue Chip Oil, Inc. to segregate the 320-acre drilling and spacing unit consisting of the N½ of Section 22, Township 5 North, Range 67 West, 6th P.M. into two 160-acre drilling and spacing units consisting of the NW¼ and the NE¼ for the production of oil, gas and associated hydrocarbons from the "J" Sand and Dakota Formations.

Order No. 524-1, Caretaker Field, Weld County: Approves the request by Diversified Operating Corporation establish a 320-acre drilling and spacing unit, allowing up to eight (8) wells and pooling all non-consenting owners for the E½ of Section 6, North, Range 59 West, 6th P.M. for the production of oil, gas and associated hydrocarbons from the "J" Sand and Dakota Formations.

Order No. 1R-95, Yuma and Philips Counties: Approves the request by Rosewood Resources, et al, to add new Rule 318B. to provide a special well location rule allowing four (4) wells to be drilled in any quarter section, one (1) well per quarter quarter section, located at least 560 feet from the outer boundary of said quarter section for certain lands in Townships 1 through 6 North and 1 through 4 South, Ranges 44 through 48 West, 6th P.M.

 

 

 

 

 

 

 

 

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Patricia C. Beaver, Secretary

Approved:

 

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Peter M. Mueller, Chair