112-138

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND

AND ESTABLISHMENT OF FIELD RULES TO

GOVERN OPERATIONS IN THE IGNACIO-BLANCO

FIELD, LA PLATA COUNTY, COLORADO

)

CAUSE NO. 112

ORDER NO. 112-138

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 24 and 25, 1997, at 8:30 a.m. in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado (the “November Hearing”), and January 5 and 6, 1998, at 8:30 a.m. in the Boettcher Auditorium, The Colorado History Museum, 1300 Broadway, Denver, Colorado (the “January Hearing”), after giving Notice of Hearing, as required by law, the Commission considered the amended application filed by J.M. Huber Corporation ("Huber") to allow an additional well to be drilled in certain 320-acre drilling and spacing units in various sections in Townships 34 and 35 North, Range 8 West, N.M.P.M., for production from the Fruitland Coal seams (the “Application Area”).

FINDINGS AND CONCLUSIONS

The Commission finds as follows:

1. J.M. Huber Corporation, as applicant herein, is an interested party 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 embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On June 15, 1988, the Commission issued Order No. 112‑60 which established 320‑acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland Coal seams, underlying certain lands in the Ignacio‑Blanco Field, with the units to consist of a governmental half section. The order states that wells are to be located no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line. Order No. 112-61 was subsequently adopted amending Order No. 112-60 to establish additional field rules for the Fruitland Coal seams.

5. On September 8, 1997, J.M. Huber Corporation, by its attorney, filed with the Commission an application for an order amending Order No. 112-61 to allow at the discretion of the operator, an additional well in certain 320-acre drilling and spacing units, for production from the Fruitland Coal seams with the permitted wells to be located in the center of the NW¼ and SE¼ of the section, with a tolerance of 200 feet in any direction subject to the Director approving exceptions for the permitted well location for geological, topographic or surface location considerations.

6. On October 10, 1997, the Applicant filed with the Commission an amendment to the Application for the second optional well in each 320-acre unit to be drilled, completed or recompleted at the Applicant's discretion in the center of the NE¼ and/or the SW¼ of the section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line nor closer than 1,200 from any producing Fruitland Coal Formation well. Further, on October 20, 1997, the Applicant filed with the Commission a second amendment deleting certain sections in Township 35 North, Range 8 West, N.M.P.M. from the application.

7. On November 17, 1997, Timothy Flanagan (“Flanagan”) filed both a protest and an intervention stating that additional wells would create material hardships on and to his property, as well as to other residents in La Plata County, and would adversely impact public health, safety and welfare.

8. On November 17, 1997, Timothy Blake (“Blake”) filed a protest stating that approval of the Huber application would create material hardships on surface owners and would adversely impact public health, safety and welfare.

9. On November 18, 1997, The San Juan Citizens' Alliance/Western Colorado Congress ("SJCA/WCC"), by their attorney, filed a protest stating that Huber’s application failed to adequately consider the threats to the environment, and adverse effects to the public health, safety and welfare that might occur upon approval, that the application failed to adequately consider the effect of a recent court ruling regarding the ownership of federal coal in the area, and that the COGCC was without jurisdiction to decide the application.

10. On November 20, 1997, La Plata County (the “County”) filed an intervention and protest, pursuant to Rule 509.a., stating that Huber’s application did not adequately address issues related to the potential impact to public health, safety and welfare raised by the Application.

11. On November 20, 1997, the Secretary and Assistant Attorney General conducted a prehearing conference pursuant to Rules 511. and 527. of the Rules and Regulations of the Oil and Gas Conservation Commission (the “Rules”) and § 24-4-105(4) of the Administrative Procedures Act. Blake, Flanagan, SJCA/WCC and the County attended by telephone and Huber’s counsel appeared in person.

NOVEMBER HEARING RULINGS ON STANDING

12. At the November 25, 1997, hearing, the COGCC heard testimony from Flanagan, Blake and the SJCA/WCC regarding their standing in this adjudicatory proceeding.

BLAKE

13. The Commission found that Blake owns both a surface and a mineral interest in the Application Area.

14. The Commission found that Blake’s mineral interest is subject to an order for involuntary pooling and that Blake had not voluntarily relinquished his ownership rights, as defined by § 34-60-103(7), C.R.S., in the Application Area.

15. The Commission found that Blake, as a mineral owner, received direct notice of the proceeding pursuant to Rules 508.a and 508.d.

16. The Commission found that Blake was a proper protestant to the proceedings based on his mineral ownership in the application area and his receipt of direct notice of the application.

FLANAGAN

17. The Commission found that Flanagan filed pleadings in the alternative as both a protestant and an intervenor.

18. The Commission found that Flanagan owns an interest in a portion of the surface included in the Application Area.

19. The Commission found that Flanagan owns no mineral interest in the Application Area.

20. The Commission found that Flanagan is not a proper protestant under Rule 509. because he has no mineral interest that would be affected by the proceeding, and because he did not receive direct notice of the proceeding pursuant to Rules 508.a. and 508.d.

21. The standard for determining that a party is an intervenor of right entails the same analysis used to determine whether a party is a protestant. Accordingly, the Commission found that Flanagan was not an intervenor of right.

22. The Commission considered the balance of the information contained in Flanagan’s intervention and found that Flanagan’s intervention would serve the public interest.

23. Accordingly, the Commission found that Flanagan was a proper permissive intervenor pursuant to Rule 509.b.(1).

LA PLATA COUNTY

24. The Commission found that the County is the proper entity to raise the concerns of the residents of La Plata County on issues related to public health, safety and welfare associated with the Application.

25. The Commission found that the County is a proper intervenor of right pursuant to Rule 509.b. to raise these citizen concerns.

26. At the January Hearing, Huber, Blake, Flanagan and the SJCA/WCC concurred that the County is an intervenor of right.

SJCA/WCC

27. The Commission found that SJCA/WCC owns no surface interest in the Application Area.

28. The Commission found that SJCA/WCC owns no mineral interest in the Application Area.

29. The Commission found that SJCA/WCC was not the designated representative of the Federal Government, and that a duly authorized representative of the BLM was present at the hearing.

30. The Commission found that receipt of notice by publication in a local newspaper did not create in SJCA/WCC interested party status sufficient to demonstrate that SJCA/WCC would be directly and adversely affected or aggrieved by any Commission order entered on the Application.

31. The Commission therefore determined that SJCA/WCC was not a proper protestant to the proceeding.

32. The Commission found that SJCA planned to present the testimony from La Plata County residents concerned about the potential impact that the grant of the application may have on La Plata County.

33. The Commission determined that SJCA/WCC could participate in the proceeding by offering statements from its counsel and additional witnesses pursuant to Rule 510, and that the statements would, subject to cross-examination, be made part of the administrative record.

34. After determining the legal status of the protests and interventions filed, the Commission continued this matter to the January Hearing.

JANUARY HEARING

Legal Authority For Commission Determination of Drilling Units

35. The legislative declaration of the Oil and Gas Conservation Act states that “[i]t is the intent of this article to permit each oil and gas pool in Colorado to produce up to its maximum efficient rate of production, subject to the prohibition of waste [and the protection of correlative rights].” § 34-60-102 (1), C.R.S. (the “Act”).

36. Accordingly, the Commission has authority under the Act to establish drilling units in order “[t]o prevent or to assist in preventing waste, to avoid the drilling of unnecessary wells, or to protect correlative rights.” § 34-60-116 (1), C.R.S.

37. After the Commission enters an order fixing drilling units for a subsurface horizon, drilling at any location other than the locations designated in the order is prohibited. § 34-60-116 (5), C.R.S.

38. To modify previously established drilling units the party seeking modification must apply to the Commission for such modification. § 34-60-116(4), C.R.S.

39. Section 34-60-116 (4), C.R.S. contains the standard for allowing additional wells within established spacing units, providing as pertinent:

The commission, upon application, notice, and hearing, may decrease or increase the size of the drilling units or permit additional wells to be drilled within the established units in order to prevent or assist in preventing waste or to avoid the drilling of unnecessary wells, or to protect correlative rights,....

40. The Commission acknowledges that its obligation to foster and encourage the development of oil and gas in Colorado must be undertaken in a manner that is consistent with the protection of the public health, safety and welfare.

41. The Commission has enacted extensive Rules and Regulations specifically directed to the protection of the environment and public health, safety and welfare which are presumed to adequately protect the public health, safety and welfare in the conduct of oil and gas operations.

42. An application for increased well density does not, by itself, create an increased risk of injury to the environment or to public health, safety or welfare which are protected by the Rules and Regulations of the Commission.

43. Issues related to significant adverse impacts to the environment or to the public health, safety and welfare may however be considered by the Commission in its discretion when deciding the merits of an application for increased well density.

Evidence Related to the Application

44. At the January Hearing, Huber presented testimony from recognized experts in the fields of land, geology, engineering and hydrology regarding the productive capabilities of the Application Area and the effect that additional drilling operations may have on the environment and public health, safety and welfare.

45. At the January Hearing the County presented testimony from recognized experts in the fields of engineering, environmental impact analysis related to methane production and land planning, and factual testimony from a La Plata County Commissioner regarding the possible impacts that additional wells may have on the public health, safety and welfare of the residents of La Plata County.

46. At the January Hearing Blake testified as to his view of the potential effect that additional wells may have on his interest in the Application Area and on public health, safety and welfare.

47. At the January Hearing Flanagan testified as to his view of the potential effect that additional wells may have on the public interest.

48. At the January Hearing members of the SJCA/WCC, Dan Randolph, Travis Stills and Gwen Lachelt made statements pursuant to Rule 510. as to their view of the potential effect that additional wells may have on the environment and on public health, safety and welfare. SJCA/WCC’s attorney also offered a statement on its position that any Commission decision is subject to additional obligations under federal law.

49. At the January Hearing Ms. Burkett made a statement pursuant to Rule 510. as to her view of the potential effect that additional wells may have on her interest in the Application Area.

50. At the January Hearing Mr. Clary made statements pursuant to Rule 510. as to his view of Huber’s conduct of operations in the area.

51. Prior to the January Hearing, the Commission received 89 letters of concern or opposition to the Huber application and 126 letters in support of the Huber application.

52. Based on the facts stated in the amended application and the testimony and exhibits presented by Huber at the hearing the Commission finds that the request to amend Order No. 112-61 to allow an additional wells to be drilled in the center of the NE¼ and/or the SW¼ of the section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line nor closer than 1,200 from any producing Fruitland Coal Formation well in the above-described 320-acre drilling and spacing units for production from the Fruitland Coal seams should be approved.

53. Before the Director can approve any Application for Permit to Drill an additional well pursuant to this Order, the Applicant, the County and Commission staff shall prepare and present to the Commission for approval a plan of development to address the public health, safety and welfare concerns raised by the County, the protestant, the intervenor and the 510. parties present at the hearing (the “Development Plan”).

54. The Development Plan should be presented to the Commission for approval at its March, 1998 hearing. Until the Commission approves a proposed Development Plan the Director should not approve any applications for permits to drill in the Application Area which are submitted pursuant to this Order.

55. This Order specifically acknowledges that any additional wells drilled in the Application Area pursuant to the increased drilling density approved herein does not relieve Huber of its obligation to operate the well in accordance with Commission Rules promulgated to protect public health, safety and welfare.

ORDER

NOW, THEREFORE, IT IS ORDERED that Order No. 112-61 is hereby amended to allow the drilling of an additional well in each of the 320-acre drilling and spacing units listed below for production from the Fruitland Coal seams. The permitted wells shall be located in the center of the NE¼ or the SW¼ of the section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line nor closer than 1,200 from any producing Fruitland Coal Formation well subject to the Director approving exceptions for the permitted well location for geological, topographic or surface location considerations.

Township 34 North, Range 8 West, N.M.P.M. (NUL)

Sections 3 - 4: All

Section 5: E½

Section 6: All

Section 9: W½

Section 10: W½

Township 35 North, Range 8 West, N.M.P.M. (NUL)

Sections 24: All

Section 25: N½

Section 26: All

Section 27: E½

Sections 31 - 33: All

Section 34: N½

All located in La Plata County, Colorado

IT IS FURTHER ORDERED, that a Development Plan to address public health, safety and welfare shall be prepared and presented by Huber, the County and COGCC staff to the Commission for approval at the regularly scheduled March, 1998 hearing.

IT IS FURTHER ORDERED, that no Application for Permit to Drill ("APD") submitted pursuant to this Order shall be approved by the Director until the Commission has approved the Development Plan.

IT IS FURTHER ORDERED that the provisions contained in the above order shall become effective forthwith, as the party agreed to accept the verbal order of the Commission.

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 February, 1998.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 5, 1998