BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on March 25, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on the Commission’s own motion, for an order related to two Applications for Permits-to-Drill (“APDs”) filed by Magpie Operating, Inc. (“Magpie”) on June 13, 2008 that had not been approved as of the date of the hearing. 

FINDINGS

                        The Commission finds as follows:

1.       Rule 502.a. of the Commission authorizes the Commission, on its own motion, to initiate proceedings upon any questions relating to the conduct of oil and gas operations in the State of Colorado or the administration of the Colorado Oil and Gas Conservation Act by notice of 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 embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act.

4.  At its hearing on February 22, 2010, the Commission moved to initiate proceedings related to two APDs filed by Magpie on June 13, 2008 for the following locations:

                                    State Chase #33-36 Well:

Township 5 North, Range 68 West, 6^th P.M.

Section 36: NW¼ SE¼

1,874 feet from the south line (“FSL”) and 1,981 feet from the east line (“FEL”), just south of the center of the drilling window measuring 400 feet by 400 feet for the quarter-quarter section

                                    State Chase #34-36 Well:

Township 5 North, Range 68 West, 6^th P.M.

Section 36: SW¼ SE¼

597 FSL 1,798 FEL, within the drilling window measuring 400 feet by 400 feet for the quarter-quarter section

5.  The proposed wells are located on a property (“Moqui Meadows”) owned by Wendy (a.k.a., Laura) Chase and Mike Sutak (“Chase and Sutak”), which is comprised of 77.599 approximate acres located in portions of the W½ of the SE¼ of Section 36, Township 5 North, Range 68 West, 6^th P.M.  Current surface use at Moqui Meadows includes irrigated crop land and an equestrian riding, training, and competition facility.  Chase and Sutak had filed a hearing application requesting the Commission make a determination that Moqui Meadows is a Designated Outside Activity Area (“DOAA”) under the Commission Rules.  The Commission denied the Chase Sutak DOAA application at its February 22, 2010 hearing; however, the Commission instructed COGCC Staff to confer with the parties regarding locations for the wells that would mitigate potential impacts to public health, safety and welfare considering the current use of the surface estate.

6.  On March 3, 2010, COGCC Staff, including Director Neslin, East Environmental Supervisor Steve Lindbloom, and Northeast Region Field Inspection Supervisor Ed Binkley met with Chase and Sutak and representatives from Magpie and the mineral owner (the Colorado State Land Board) at Moqui Meadows to observe the site and consider locations for the proposed wells and associated production facilities.  Afterward, Director Neslin requested that Magpie provide a written proposal for the location of the wells and production facilities taking into account potential public health, safety and welfare impacts those facilities might pose in light of the current surface use of Moqui Meadows. 

By letter dated March 12, 2010 (subsequently clarified by email dated March 12, 2010), Magpie proposed to move the location of its State-Chase 33-36 Well from the 400-feet by 400-feet drilling window established by Rule 318A in the NW¼ SE¼ to the 800-feet by 800-feet drilling window in the center of the SE¼ of Section 36, Township 5 North, Range 68 West, 6^th P.M. 

Magpie proposed to access the well by a road following the eastern boundary of Moqui Meadows extending from County Road 14 north to the alternative proposed well location.

Magpie proposed to locate a tank battery consisting of not more than two, low-profile, 300-barrel tanks approximately 400 feet to the west from the southeast corner of Moqui Meadows immediately adjacent to Weld County Road 14.  Magpie asserted this location would provide convenient access to the tank battery for pumpers and would be conducive to unobstructed flow of three-phase production from the well to the tank battery.

Magpie further proposed not to locate any compression or dehydration equipment at the tank battery, provided the Commission approved Magpie’s APD for the State-Chase 33-36 Well at the alternative location for a period of two years.

Magpie further agreed to withdraw or revoke its pending APD for the State-Chase 34-36 Well while leaving open the possibility of two additional wells to be drilled on Moqui Meadows with bottomhole locations in original 400-feet by 400-feet drilling windows for the State-Chase 33-36 (directional) and the State-Chase 34-36 (vertical) Wells.

Magpie further agreed to the following proposed conditions of approval recommended by COGCC Staff in its January 4, 2010 memo:

a.             Drilling and completion activities shall occur between October 31 and March 31, outside irrigation season.

b.             Interim reclamation shall commence immediately following well drilling and completion.

c.             Implementation by operator of all practicable measures to ensure minimizing the disruption to the surface owners’ irrigation practices. 

d.            In addition to the required notice for site preparation, drilling, and completion, operator shall provide 30 days’ notice to the surface owners for any non-emergency workover or well treatment.  If the surface owners fail to notify the operator of a scheduled equestrian event 14 days in advance of the scheduled work, the operation may proceed.  Otherwise, if there is a conflict, the operator shall work with the surface owners to avoid the work during the surface owners’ scheduled equestrian events.

7.  Chase and Sutak responded to Magpie’s March 12 proposal on March 17, 2010.  Chase and Sutak opposed Magpie’s proposed well location in the center 800’ x 800’ window, and proposed locating two wells on the eastern edge of Moqui Meadows approximately 820 feet north of the centerline of Weld County Road 14.  The location Chase and Sutak proposed for the State-Chase 33-36 Well is approximately 110 feet south of the location proposed by Magpie and is not within any Rule 318A drilling window.  They requested that any wells to be located on Moqui Meadows be drilled in immediate sequence.  They strongly objected to locating a tank battery on Moqui Meadows due to concerns that noise and visual distractions from operations of those facilities would increase the risk of public health, safety and welfare impacts to users of the surface estate. 

Chase and Sutak agreed to a twelve-foot wide road on the east property edge running from their proposed well site location to Weld County Road 14 and a horse safe 6 bar 2-inch Powder River access gate that is kept locked at all times with separate locks for Chase/Sutak and Magpie.

Chase and Sutak proposed that all flowlines run under the access road easement, as Magpie had proposed in one of their discussions.

Chase and Sutak further proposed the following conditions of approval for drilling permits:

a.            Drilling should occur between November 15 and March 1.

b.            Reclamation and reseeding with compatible grasses should commence immediately following well drilling and completion with seed and seeding method picked by Chase.

c.            The operator shall implement all practicable measures to ensure the disruption to the surface owners’ irrigation practices are minimized.

d.            There should not be any open pits, land farming of drilling tailings, or discharged water on the property.

e.            Routine access to the well sites should occur only before 8:00 a.m. to minimize conflicts and potential injuries and surface owners’ risk of lawsuits.

f.             In addition to the required notice for site preparation, drilling, and completion, the operator shall provide 30 days’ notice to surface owners for any non-emergency workover or well treatment.  If the surface owners fail to notify the operator of a scheduled use on their property 14 days in advance after notification of scheduled work, then the operation may proceed.  Otherwise, if there is a conflict the operator shall work with the surface owners to avoid work during the surface owners’ scheduled events.

8.  On March 18, 2010, the Colorado State Board of Land Commissioners, as the mineral owner of the property, submitted a letter to the Commission in support of Magpie’s March 12, 2010 proposal.

9.  On March 23, 2010, the COGCC Staff submitted its analysis and recommendation, a copy of which is attached hereto as Exhibit A and is incorporated by reference into this Order as if set forth in full.  The COGCC Staff recommendation is based on the site visit on March 3, 2010; review and consideration of Magpie’s APDs and subsequent well and associated equipment location proposals; review and consideration of Chase and Sutak’s opposition to the APDs and subsequent proposals; meetings between COGCC Staff and the parties; knowledge of the current surface use of Moqui Meadows based on Chase and Sutak’s Application for DOAA status for Moqui Meadows and the February 22, 2010 Commission hearing on their DOAA Application, as well as site visits; knowledge of the geology of the mineral formations underlying Moqui Meadows, as well as the applicable drilling and spacing units and setback requirements in the area; and consideration of the legislature’s direction to foster the responsible and balance development of oil and gas, consistent with the protection of public safety and welfare. 

10.  The Staff’s recommendation is intended to minimize public health, safety and welfare impacts to users of the surface estate, including the surface owners, given the current use of the surface estate as an equestrian riding, training and competition event center while allowing the mineral resources to be developed efficiently. 

11.  With minor suggested changes, the COGCC Staff’s recommended location for State-Chase Well 33-36 and associated conditions of approval should be adopted by the Commission.  The oil and gas resources should be developed, and the conditions of approval will balance the development of the resources with public health, safety and welfare.

ORDER

WHEREFORE, IT IS ORDERED, that the following alternate location for the State-Chase 33-36 Well proposed by the COGCC Staff along the eastern edge of Moqui Meadows, approximately 820 feet north of the centerline of Weld County Road 14, in the SE¼ of Section 36, Township 5 North, Range 68 West, 6^th P.M.) is hereby approved with the following conditions of approval to be applied to the Application for Permit-to-Drill submitted by Magpie Operating, Inc. for such well:

1.     Drilling and completion activities shall occur between November 15 and March 1.

2.     The State Chase 33-36 Well shall be located along the eastern property boundary at the location preferred by the landowner, approximately 110 feet south of the location proposed by the operator.

3.    Interim reclamation shall commence immediately following well drilling and completion.  An appropriate seed mix and seeding method shall be selected by the surface owner.

4.    The operator shall implement all practicable measures to ensure that disruption to the surface owners’ irrigation practices are minimized.

5.    Drill cuttings and other exploration and production waste shall be disposed of offsite.

6.    Access to the well location shall be from Weld County Road 14 via an access road along the eastern property boundary, as proposed in Magpie’s sketch.  The road shall be no wider than is reasonably necessary for safe maneuvering of equipment and trucks.

7.    A horse safe 6 bar 2-inch Power River access gate shall be installed across the access road to prevent unauthorized entrance.  The gate shall be equipped with a lock that can be opened and locked by both the surface owners and Magpie.

8.    In addition to the required notice for site preparation, drilling and completion, the operator shall provide 30 days’ notice to the surface owners for any non-emergency workover or well treatment.  If the surface owners fail to notify the operator of a scheduled event 14 days in advance of the scheduled work then the operation may proceed.  Otherwise, if there is a conflict, the operator shall work with the surface owners to avoid the work during the surface owners’ scheduled equestrian events.

9.    If the tank battery cannot be located off the surface of Moqui Meadows, the following conditions shall apply:

a.    The tank battery shall be located at the site designated by the operator along the south property boundary, approximately 400 feet west of the southeast corner of the property adjacent to Weld County Road 14.

b.    The operator shall, to the extent practicable, minimize the size of the tank battery by using among other methods, corrugated steel containment structures rather than soil berms around surface equipment.

c.    The operator shall install no more than two low profile tanks.

d.    The tank battery shall not include any compression or dehydration equipment.

e.    The operator shall install a minimum eight foot privacy fence around the tank battery to mitigate visual impacts and to prevent unauthorized access to the facility.  The construction and finish of the fence shall be reasonably acceptable to the surface owner.

f.     The operator shall use best efforts to ensure that operations and maintenance activities at the tank battery do not occur during scheduled equestrian events, provided that the operator receives at least 14 days’ notice in advance of the event.  This requirement shall not apply to emergency operations necessary to protect human health, safety, welfare, or the environment.

IT IS FURTHER ORDERED, that Magpie Operating, Inc. shall withdraw its pending Application for Permit-to-Drill the State-Chase 34-36 Well.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

                        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.

                        IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

                        IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

                        ENTERED this                     day of April, 2010, as of March 25, 2010.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

                                                                        By                                                                  

                                                                                   Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

April 24, 2010