BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF INACTIVE WELL FINANCIAL ) CAUSE NO. 1
ASSURANCE WAIVER BY THE COLORADO OIL )
AND GAS CONSERVATION COMMISSION FOR ) ORDER NO. 1-75
REX MONAHAN, MORGAN COUNTY, COLORADO )
This cause came on for hearing before the Commission at 8:30 a.m. on February 9, 1998, in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado, pursuant to the request made by Rex Monahan for a waiver of the Five Thousand dollar ($5,000) financial assurance for each excess inactive well as provided for in Rule 707.a.
The Commission finds as follows:
1. Rex Monahan ("Monahan") has requested a waiver for the Five Thousand dollar ($5,000) financial assurance for each excess inactive well as provided for in Rule 707.a. Monahan has submitted a plan for his inactive wells to be utilized for enhanced recovery or gas storage, plugged and abandoned, or returned to production in a timely manner.
2. Monahan currently operates four hundred sixteen (416) wells in Colorado. Of these wells, three hundred eighteen (318) are currently inactive as defined by the Rules and Regulations as adopted by the COGCC and ninety-eight (98) wells are active.
3. Monahan operates all of the two hundred twenty-one (221) wells in the Adena Unit located in Morgan County. Of these wells, twenty-four (24) are active and one hundred ninety-seven (197) are inactive wells.
4. The Adena Unit has produced 58,800,000 barrels of oil and 68 billion cubic feet (BCF) of gas utilizing primary and secondary production methods. The original oil in place is estimated at 135-160,000,000 stock tank barrels. An estimated 76-101,000,000 barrels of oil remains in place. With this amount of oil remaining in the reservoir, an enhanced oil recovery project could produce a significant amount of oil and the wellbores in the unit would be essential to implement the project. If an enhanced oil recovery project is successful in the Adena Unit, the technology may be used in other fields Monahan operates in Colorado.
5. The Adena Unit gas cap has produced more than 30 BCF of gas. The Adena Unit has a gas storage potential of 30-60 BCF of gas. The Adena Unit may be used for gas storage due to nearby pipelines and its proximity to the Front Range area. The existing wellbores in the unit could be used in the gas storage project. Approximately ninety percent (90%) of the Adena Unit is under gas storage easements.
6. Monahan has agreed to implement a pilot tertiary oil recovery project in the Adena Unit to recover additional oil reserves or begin gas storage operations by September 1, 1999. If the pilot tertiary oil recovery project or gas storage operations are not initiated by September 1, 1999, Monahan will submit an additional Five Thousand dollars ($5,000) per inactive well in the Adena Unit as required by Rule 707.a. by December 1, 1999.
7. Monahan operates one hundred ninety-five (195) wells outside of the Adena Unit. There are seventy-six (76) active wells and one hundred nineteen (119) inactive wells outside of the Adena Unit.
8. Outside of the Adena Unit, Monahan has agreed to plug or return to production fifty (50) wells from November 1, 1997 to May 31, 1999. This is a plugging rate of thirty-three (33) wells per year. If the May 31, 1999, obligation is not met, Monahan will submit an additional Five Thousand dollars ($5,000) per inactive well as required by Rule 707.a. by July 1, 1999.
9. Monahan has agreed to plug or return to production sixty-two (62) wells from June 1, 1999 to November 30, 2000. This is a plugging rate of forty-one (41) wells per year. If the November 30, 2000, obligation is not met, Monahan will submit an additional Five Thousand dollars ($5,000) per inactive well as required by Rule 707.a. by January 1, 2001.
10. Monahan operates seven (7) gas wells outside of the Adena Unit and will return these wells to production by December 1, 1998 or submit Five Thousand dollars ($5,000) of additional bonding for each remaining inactive gas well by January 31, 1999.
11. Monahan has plugged eight (8) wells since November 1, 1997. The cost to plug and abandon and reclaim these wells is $70,129 for an average cost of $8,766 per well. The estimated salvage value from the equipment on these wells is $107,742 for an average salvage value of $13,468. The salvage value of the eight (8) wells includes six (6) pumping units and production tubing. Many of the inactive wells do not have pumping units and production tubing. For wells without pumping units and production tubing, the salvage value of the production casing is estimated to be equal to the plugging and abandonment and reclamation cost.
12. The waiver of Rule 707.a. to require additional financial assurance for inactive wells is necessary to preserve the wellbores for tertiary recovery or gas storage in the Adena Unit and promote the development of oil and gas reserves in the state. The waiver is also necessary for the wells outside of the Adena Unit to provide Monahan the opportunity to responsibly manage the plan and utilize the plugging and abandonment services in the area.
13. Monahan has submitted an additional Seventy Thousand dollars ($70,000) to raise the total amount of financial assurance Monahan has submitted to the Commission to One Hundred Thousand dollars ($100,000) and is in compliance with Rule 706.
ORDER
NOW, THEREFORE, IT IS ORDERED, that Rex Monahan shall implement a pilot tertiary oil recovery project in the Adena Unit to recover additional oil reserves or begin gas storage operations by September 1, 1999. If the pilot tertiary oil recovery project or gas storage operations is not initiated by September 1, 1999, Monahan shall submit an additional Five Thousand dollars ($5,000) per inactive well in the Adena Unit as required by Rule 707.a. by December 1, 1999.
IT IS FURTHER ORDERED, that Monahan shall plug or return to production fifty (50) wells from November 1, 1997 to May 31, 1999. If the May 31, 1999, obligation is not met, Monahan shall submit an additional Five Thousand dollars ($5,000) per inactive well as required by Rule 707.a. by July 1, 1999.
IT IS FURTHER ORDERED, that Monahan shall plug or return to production sixty-two (62) wells from June 1, 1999 to November 30, 2000. If the November 30, 2000, obligation is not met, Monahan shall submit an additional Five Thousand dollars ($5,000) per inactive well as required by Rule 707.a. by January 1, 2001.
IT IS FURTHER ORDERED, that Monahan shall return to production seven (7) inactive gas wells by December 1, 1998 or submit Five Thousand dollars ($5,000) of additional bonding for each remaining inactive gas well.
IT IS FURTHER ORDERED, that Monahan shall provide the COGCC a written annual report detailing the status of this project. The first report shall be due on January 31, 1999.
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 March, 1998 as of February 9, 1998.
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
March 9, 1998