BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF ALLEGED VIOLATIONS OF THE ) CAUSE NO. 1
RULES AND REGULATIONS OF THE COLORADO OIL )
AND GAS CONSERVATION COMMISSION BY MARTIN ) ORDER NO. 1-72
EXPLORATION MANAGEMENT COMPANY AND PATINA )
OIL & GAS CORPORATION, ADAMS COUNTY, COLORADO )
This cause came on for hearing before the Commission at 8:30 a.m. on August 5, 1997, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on the Commission's own motion pursuant to Rule 502.a., to determine the party(ies) responsible for contamination of a water well and to determine proper mitigation and mitigation liability, in accordance with Rule 524.
The Commission finds as follows:
1. Martin Exploration Management Company ("Martin") and Patina Oil & Gas Corporation ("Patina") are interested parties 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 and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.
4. On February 20, 1990, the Commission received complaints from the North Washington Water Users Association of Adams County ("NWWUA") regarding an explosion and subsequent fire which had destroyed the pump house of their water well located in the SE¼ SE¼ of Section 10, Township 1 South, Range 68 West, 6th P.M. (the "Water Well"). The explosion and fire were caused by high levels of natural gas in the water. COGCC staff collected gas samples from the Water Well and nearby "J" Sand Formation gas wells for carbon isotope analysis. The gas in the Water Well was found to be "J" Sand gas which staff has reasonable cause to believe comes from nearby "J" Sand wells. The gas has caused and continues to threaten to cause a significant adverse environmental impact to water and biological resources.
5. At its July 1, 1997 hearing the Commission, on its own motion pursuant to Rules 502.a., directed staff to docket a hearing for August 4-5, 1997 to determine the party(ies) responsible for contamination of the Water Well in accordance with Rule 524. The Commission directed staff to issue a hearing notice to the appropriate potentially responsible parties including Martin and Patina.
6. On July 29, 1997, the NWWUA filed with the Commission a Motion to Intervene in this matter. At the time of the August 5, 1997 hearing, the Commission determined that the NWWUA has proper legal standing under Rule 509.b. to intervene.
7. In 1958, the NWWUA drilled the Water Well in the SE¼ SE¼ of Section 10, Township 1 South, Range 68 West, 6th P.M. This well currently supplies water to approximately fifty (50) households for domestic use and livestock watering.
8. In April 1989, an explosion and fire caused by high levels of natural gas in the water destroyed the Water Well pump house. The pump house was rebuilt and the casing was vented to the atmosphere. In February 1990, high levels of natural gas present in the water caused another explosion and small fire at the pump house.
9. Martin drilled and operated the below-listed wells from the spud dates through December 30, 1992, during the explosions and fires, hereinafter collectively referred to as the “`J’ Sand Wells.”
Well Name Location API Number Spud Date
1-10 Sharpe SE¼ SE¼ 10-1S-68W API# 001-08512 9/7/84
2-11 Bydalak SE¼ SW¼ 11-1S-68W API# 001-08881 10/18/88
14-5 Shannon NW¼ NW¼ 14-1S-68W API# 001-08842 10/19/87
1-14 Schnieder NE¼ SW¼ 14-1S-68W API# 001-08381 2/20/84
1-15 Pergola NE¼ SE¼ 15-1S-68W API# 001-08797 12/5/86
10. Gerrity Oil and Gas Corporation (now a wholly owned subsidiary of Patina) purchased the “J” Sand Wells on December 30, 1992, and assumed operations thereof on January 1, 1993.
11. The methane gas that caused the explosions and fires is "J" Sand gas from the "J" Sand underlying one of the “J” Sand Wells located within close proximity to the Water Well.
12. The release of the methane gas is likely due to poor well completion or lack of wellbore integrity.
13. Due to the presence of gas, the Water Well is not capable of being the primary source and supply of water to the fifty-two (52) households currently served by the NWWUA. In addition, the presence of gas constitutes a safety hazard at the pump house and in the surrounding area.
14. That “J” Sand Wells were operated in a manner to allow contamination of the Water Well in violation of §34-60-106(c), C.R.S., which grants the Commission authority to require “the drilling, casing, operation, and plugging of seismic holes or exploratory wells in such manner as to prevent the escape of oil or gas from one stratum into another, the intrusion of water into oil or gas stratum, the pollution of fresh water supplies by oil, gas, salt water, or brackish water; and measures to prevent blowouts, explosions, cave-ins, seepage and fires” (emphasis supplied). The Commission finds that this statutory proscription applied to the operation of the “J” Sand Wells at all times pertinent to the NWWUA complaint. The Commission further finds that such contamination has caused a significant adverse environmental impact to water and biological resources.
15. That Rule No. 209., Protection of Coal Seams and Water bearing Formations and Rule 324.a. (now Rule 324A.a.), Pollution were in effect when Martin drilled the “J” Sand Wells.
16. That Martin and Patina are responsible parties as defined in §34-60-124(8), C.R.S. for the significant adverse environmental impact caused by operations on the “J” Sand Wells.
17. That as responsible parties Martin and Patina are liable to mitigate the significant adverse environmental impact caused by their operations on the “J” Sand Wells.
18. That appropriate mitigation includes: (i) reimbursement of the NWWUA for its out-of-pocket expenditures associated with repair of the pump house damaged in 1989 and again in 1990; (ii) providing an alternate source of drinking water for the NWWUA; and when appropriate, (iii) plugging and abandonment of the Water Well.
19. That in accordance with §34-60-124(8), C.R.S. and Rule 524.d., the Commission finds that Martin, as operator during the drilling and completion of the “J” Sand Wells and operator when the explosions occurred, is responsible for NWWUA’s mitigation costs incurred to rebuild and repair the water well pump house, to the extent those costs exceeded NWWUA’s insurance reimbursement.
20. That based on the testimony presented by the NWWUA, the costs to rebuild and repair the water well pump house that were not reimbursed by insurance and were incurred by NWWUA totaled Nine Thousand Twenty-Three Dollars and Seventy-Five Cents ($9,023.75).
21. That the most cost-effective way to mitigate the continuing significant environmental impact to the Water Well is to provide an alternative source of water for the NWWUA through the drilling and completion of a properly designed replacement well.
22. That based on the testimony presented by a groundwater hydrologist present at the hearing on behalf of NWWUA, the estimated cost to drill the replacement well ranges from One Hundred Ninety-Seven Thousand Four Hundred Sixty-Nine Dollars and Fifty-Six Cents ($197,469.56) to Three Hundred One Thousand Ninety-Four Dollars and Forty-Five Cents ($301,094.45). The Commission finds it appropriate for Martin and Patina to bear the cost to drill a replacement well which the Commission estimates at Two Hundred Forty-Nine Thousand Two Hundred Eighty-Two Dollars and Six Cents ($249,282.06), calculated by taking the average of the estimated high cost and the estimated low cost. To the extent actual costs either exceed or are less than the estimated replacement well cost Martin and Patina shall either pay the additional costs or be reimbursed any amount not expended in accordance with their proportionate mitigation liability established below.
23. That the existing Water Well be reviewed to determine the most appropriate disposition once the replacement water well becomes operational.
24. That in accordance with the factors set forth in Rule 524.d. the Commission has considered Martin’s and Patina’s respective shares of production from the “J” Sand Wells, their respective contributions to the problems and other factors serving in the interest of fairness.
25. That based on the factors set forth in Rule 524.d. that Martin and Patina should share in all of the mitigation costs associated with the drilling and completion of a replacement well and the plugging and abandonment of the Water Well with Martin bearing ninety percent (90%) of such mitigation costs and Patina bearing ten percent (10%) of such mitigation costs.
26. That the Commission, through its staff, should oversee operations to drill and complete the replacement well and to plug and abandon the Water Well in order to ensure the operations are conducted to maximize mitigation of the identified significant adverse environmental impacts. That the Commission’s oversight shall include, but not be limited to, review and approval of any drilling proposals or contracts, review and approval for all proposed procedures for the drilling and completion of the water well and review and approval of all invoices for expenses incurred in the drilling and completion of the water well and plugging and abandonment of the Water Well, if appropriate.
NOW, THEREFORE, IT IS ORDERED, that Martin Exploration Management Company and Patina Oil & Gas Corporation are responsible parties under §34-60-124 (7) and (8), C.R.S., for the contamination of the Water Well, and as such shall share in the costs to mitigate the significant adverse environmental impact associated with the contamination.
IT IS FURTHER ORDERED, that mitigation shall include payment of the costs associated with the repair and replacement of the Water Well pump house damaged in 1989 and 1990, the costs incurred to provide an alternate source of drinking water to the North Washington Water Users Association of Adams County, and as appropriate, the costs to plug and abandon the Water Well in accordance with their respective mitigation liability set forth below.
IT IS FURTHER ORDERED, that Martin Exploration Management Company shall be responsible for One Hundred percent (100%) of the reimbursement costs incurred by the North Washington Water Users Association of Adams County to rebuild and repair the Water Well pump house in the amount of Nine Thousand Twenty-Three Dollars and Seventy-Five Cents ($9,023.75). This amount represents the expenses associated with the repair and replacement of the destroyed pump house not reimbursed by insurance.
IT IS FURTHER ORDERED, that Martin Exploration Management Company shall submit the sum of Nine Thousand Twenty-Three Dollars and Seventy-Five Cents ($9,023.75) to the Oil and Gas Conservation Commission by check or money order made payable to the North Washington Water Users Association of Adams County no later than thirty (30) days from the date this order is entered.
IT IS FURTHER ORDERED, that a properly designed replacement well shall be drilled, including the necessary related facilities, for the North Washington Water Users Association of Adams County as the most cost-effective way to provide an alternative source of water, and that the associated cost for the replacement well is estimated at Two Hundred Forty-Nine Thousand Two Hundred Eighty-Two Dollars and Six Cents ($249,282.06).
IT IS FURTHER ORDERED, that Martin Exploration Management Company is responsible for Ninety percent (90%) of all mitigation costs and that Patina Oil & Gas Corporation is responsible for Ten percent (10%) of all mitigation costs, including but not limited to the costs to drill and complete the replacement well and, as appropriate, to plug and abandon the Water Well.
IT IS FURTHER ORDERED, that Martin Exploration Management Company shall submit the sum of Two Hundred Twenty-Four Thousand Three Hundred Fifty-Three Dollars and Eighty-Five Cents ($224,353.85) to the Oil and Gas Conservation Commission by check or money order made payable to the Director, Colorado Oil and Gas Conservation Commission for deposit in an escrow account to be established at the State Treasurer’s Office, no later than thirty (30) days from the date this order is entered.
IT IS FURTHER ORDERED, that Patina Oil & Gas Corporation shall submit the sum of Twenty Four Thousand Nine Hundred Twenty-Eight Dollars and Twenty-One Cents ($24,928.21) to the Oil and Gas Conservation Commission by check or money order made payable to the Director, Colorado Oil and Gas Conservation Commission for deposit in an escrow account to be established at the State Treasurer’s Office, no later than thirty (30) days from the date this order is entered.
IT IS FURTHER ORDERED, that to the extent the costs to drill and complete the replacement well and to plug and abandon the Water Well exceed the estimate of Two Hundred Forty-Nine Thousand Two Hundred Eighty-Two Dollars and Six Cents ($249,282.06), that Martin Exploration Management Company and Patina Oil & Gas Corporation shall share in such additional costs in the proportions set forth above for such additional expenditures up to a total amount not to exceed Three Hundred One Thousand Ninety-Four Dollars and Forty-Five Cents ($301,094.45), unless otherwise directed by the Commission. If the costs to drill and complete the replacement well are less than the estimate of Two Hundred Forty-Nine Thousand Two Hundred Eighty-Two Dollars and Six Cents ($249,282.06) any funds remaining in the escrow account upon completion of operations shall be promptly returned to Martin Exploration Management Company and Patina Oil & Gas Corporation in accordance with their respective contributions.
IT IS FURTHER ORDERED, that the Commission and its staff shall have oversight over all operations undertaken to drill and complete the replacement well and to plug and abandon the Water Well, and shall further have control over all expenditures from the escrow account established at the State Treasurer’s Office, incurred in order to conduct such operations.
IT IS FURTHER ORDERED, that once the replacement well becomes operational that North Washington Water Users Association of Adams County, Martin Exploration Management Company and Patina Oil & Gas Corporation shall review the status of the Water Well to determine its most appropriate disposition, and so advise the Commission in writing with respect to any recommendation for additional operations or the plugging and abandonment thereof.
IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective on the date the order is entered.
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.
ENTERED this ___________ day of August 1997, as of August 5, 1997.
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
August 13, 1997