From: Rich Griebling

To: COGCC Commissioners

Date: April 15, 2004

Subject: My Recommendations for Future COGCC Action Regarding Natural Gas Seepage Near the Fruitland Formation Outcrop and My Observations Regarding Certain Fruitland Formation Issues in the San Juan Basin

After an operator made a presentation to you at the last hearing regarding methane gas seepage near the Fruitland Formation outcrop as it related to certain areas operated by that company in La Plata County, there was interest in my recommendations for future action on this subject in the larger context of the Colorado portion of the San Juan Basin. Substantial resources and expertise have been dedicated to geologic mapping of the outcrop, monitoring of several parameters along the outcrop, and modeling natural gas seepage along the outcrop of the Fruitland Formation in the San Juan Basin. Several monitoring wells continuously measure pressure in the Fruitland Formation near the outcrop. These efforts have been undertaken to assist in the prevention and mitigation of potential impacts from methane gas seepage near the outcrop. My recommendations for future COGCC action are listed below, and my observations regarding certain Fruitland Formation issues follow those recommendations.

Recommendations for Future COGCC Action

1. Continue to both directly monitor and oversee the monitoring of methane gas seepage along the Fruitland Formation outcrop in the Colorado portion of the San Juan Basin.

2. If methane gas seepage near the Fruitland Formation outcrop threatens to impact the property of individuals, operators may enter into private party contractual settlements to address them. In certain situations, operators may need to be encouraged to address these matters.

3. If methane gas seepage near the Fruitland Formation outcrop threatens to impact the public health, safety and welfare, thoroughly investigate all of the options available to prevent or mitigate such impacts. Certain options may need to be pilot-demonstrated and/or further refined before being applied.

4. Experience and the acquisition of considerable data over the past few years has shown that methane seepage near the Fruitland Formation outcrop is scientifically complex. It is, at best, questionable whether shutting in a particular well or wells could or would eliminate certain outcrop seepage. Focus on practical solutions with high probabilities of success in order to prevent or mitigate potential impacts to public health, safety and welfare.

Observations Regarding Certain Fruitland Formation Issues

· Underground Coal Fires

Geologic evidence from detailed surface reconnaissance and investigation of the Fruitland Formation outcrop area indicates that underground coal fires have burned in the area for millennia. Many active underground coal fires are documented to be currently burning in several areas of Colorado. Detailed Fruitland Formation outcrop surveys led to “discoveries” of previously-unknown underground coal fires in areas of the San Juan Basin that experience little current human activity. As more information was gathered, it became apparent that underground coal fires were active long before the San Juan Basin was developed. Assertions that underground coal fires in the San Juan Basin are caused by coal bed methane development ignore historical and scientific evidence.

· Natural Gas Production from the Fruitland Formation in La Plata County

Natural gas production from the Fruitland Formation in La Plata County in 2003 averaged approximately 1.3 BCFD (Billion Cubic Feet per Day). This yields an equivalent direct production value of roughly $2 Billion per year. The indirect value has not been formally determined, but it’s estimated to be several times that. Ad valorem taxes from natural gas production account for most of the County’s property tax revenue. In the future it is hoped that the significant benefits of natural gas production to La Plata County will help inspire creative solutions to the challenges that its development presents.

· Well Density in the Fruitland Formation in the San Juan Basin

The areas of Fruitland Formation development with the highest natural gas recoveries per unit area are commonly referred to as the “Fairway”. In Colorado the Fairway includes a generally northwest-southeast trending area in the southwest portion of the basin. In the Fairway an average well density of 1 well per 320 acres is currently adequate to economically and efficiently develop the Fruitland Formation.

The areas of Fruitland Formation development in Colorado outside of the Fairway were subject to spacing orders issued in 2000 that established an average well density of 1 well per 160 acres. Current indications are that this well density will be adequate in much of this area to economically and efficiently develop the Fruitland Formation. Portions of this area will probably need greater well density in order to be economically and efficiently developed.

· Directional and Horizontal Development of the Fruitland Formation

Directional wells have been shown to be technically feasible and economically justifiable in particular geologic formations of certain areas around Colorado. They haven’t been shown as such in the Fruitland Formation in the San Juan Basin. In general the shallow vertical depths, relatively high horizontal distances between wells, and the need to artificially lift produced liquids currently preclude the technical feasibility and cost effectiveness of directional wells in the Fruitland Formation. Horizontal drilling is not applied in most Fruitland Formation areas because of the need to complete wells in multiple coal layers, rather than in a single coal bed.