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BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
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IN
THE MATTER OF THE PROMULGATION AND |
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CAUSE NO. 112
ORDER NO. 112-185 |
This cause came on for hearing before the Commission at 9:00 a.m. on January 9, 2006, Suite 801, in The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to allow an optional third and fourth well in the established 320-acre drilling and spacing units for certain lands in Townships 32 and 33 North, Ranges 6 and 7 West, N.M.P.M., with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no setback required to any interior quarter section line, for the production of gas and associated hydrocarbons from the Fruitland coal seams.
The Commission finds as follows:
1. XTO Energy Inc. (“XTO”) 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 pursuant to the Oil and Gas Conservation Act and the terms of the Memorandum of Understanding (“MOU”) between the Commission and the Bureau of Land Management (“BLM”).
4. On July 11, 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, including the application lands described below, with the permitted well to be located in the center of the NW¼ and the SE¼ of the section and no closer than 990 feet from the boundaries of the quarter section upon which it is located, nor closer than 130 feet to any interior quarter section line.
5. On May 15, 2000, the Commission issued Order No. 112-157, which allowed an optional additional well to be drilled for the production of gas from the Fruitland coal seams for certain lands, including the application lands described below, with the permitted well when north of the north line of Township 32 North to be located in the NW¼ and the SE¼ of each section and when south of the north line of Township 32 North to be located in the NE¼ and SW¼ of each section, no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.
6. On November 21, 2005, XTO by its attorney, filled with the Commission a verified application for an order to allow an optional third and fourth well in the established 320-acre drilling and spacing units described below for production from the Fruitland coal seams, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no setback required to any interior quarter section line:
Township 32 North, Range 6 West, N.M.P.M.
Section 6: N½, S½
Section 7: W½
Section 17: W½
Section 18: N½, S½
Township 32 North, Range 7 West, N.M.P.M.
Section 1: E½, W½
Section 2: E½, W½
Section 12: N½, S½
Township 33 North, Range 7 West, N.M.P.M.
Section 26: E½
Section 35: E½
Section 36: N½, S½
7. On December 28, 2005, La Plata County, by right in accordance with Rule 509., filed with the Commission an intervention on the application. La Plata County stated that “this Intervention is not an Intervention as to the technical merits of the application and that it does not object to the technical case being heard administratively”.
8. Testimony and exhibits presented at the administrative hearing showed a location map of the area, with the outline of the application lands, which consists of 5,088 acres in the Ignacio-Blanco Field. The application area is located approximately four miles southeast of Ignacio, Colorado.
9. Testimony and exhibits presented at the administrative hearing showed the area in which owners were notified of this application, which included the application area and a buffer area outside the application area.
10. Testimony and exhibits presented at the administrative hearing showed the surface ownership is approximately 92% fee and 8% Southern Ute Indian Tribe in the application area, that XTO is the operator in all of the application lands, with the exception of Section 18, Township 32 North, Range 6 West, N.M.P.M., which is operated by BP America Production Company, and that mineral ownership is approximately 86% fee and 14% Southern Ute Indian Tribe in the application area. Additional testimony showed the Southern Ute Indian Tribe is in support of this application.
11. Testimony and exhibits presented at the administrative hearing showed that XTO is requesting that each drilling and spacing unit have one drilling window with a six hundred and sixty (660) foot setback from the 320-acre drilling and spacing unit boundary and that the additional wells proposed in the application would be drilled horizontally from existing well pads to minimize surface disturbance.
12. Testimony and exhibits presented at the administrative hearing showed that the application area currently contains twenty-five (25) Fruitland coal seam wells that have produced a total of 15.2 BCF of gas. Additional testimony indicated that 122 BCF of gas remains in place in the Fruitland coal seams within the application area.
13. Testimony and exhibits presented at the administrative hearing showed the variability of the well performance in the application area and the lower cumulative production of wells in the application area when compared to other Fruitland coal seams wells in the San Juan Basin.
14. Testimony and exhibits presented at the administrative hearing showed the gas in place in the application area would be 186 BCF based on a coal density of 2.0 grams/cc and 432 mm tons of coal. Additional testimony and exhibits showed the gas in place in the application area would be 137 BCF based on a coal density of 1.75 grams/cc and 319 mm tons of coal.
15. Testimony and exhibits presented at the administrative hearing showed that within the application area the cumulative production of 15.2 BCF is estimated to be 11% of the original gas in place, and that additional wells are necessary to adequately drain the gas in place.
16. Testimony and exhibits presented at the administrative hearing showed that with current well density the gas recovery factor would be 43% for a total gas production of 55.8 BCF within the application area. Additional testimony indicated that the gas recovery factor will increase from 43% to 70% and that total gas production will increase by 35.9 BCF, from 55.8 BCF to 91.7 BCF, which showed that increased well density will allow incremental reserves to be produced.
17. Testimony and exhibits presented at the administrative hearing showed a development plan for the application area, indicating that increased well density would allow twenty-six (26) additional wells in the application area. Further testimony indicated that XTO plans to drill three (3) remaining 320-acre wells during the first quarter of 2006, thirteen (13) 80-acre infill wells during the third and fourth quarters of 2006, and the remaining thirteen (13) 80-acre infill wells during the first and second quarters of 2007.
18. Testimony and exhibits presented at the administrative hearing showed a summary of 80-acre infill drilling economics, indicating that the project would have a rate-of-return of 68% and a payout of 2.68 years.
19. Testimony and exhibits presented at the administrative hearing showed that the current wells will not be able to efficiently drain the Fruitland coal seams, that no interference is observed between the existing 320-acre and 160-acre wells, that an additional 35.9 BCF of gas reserves will be captured by drilling 80-acre infill wells, and that existing unit setbacks need to be reduced to 660 feet to efficiently drain the reservoir.
20. No protests to the application have been filed with the Commission or the Applicant. No interventions to the technical merits of the application have been filed with the Commission or the Applicant.
21. XTO Energy Inc. agreed to be bound by oral order of the Commission.
22. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to allow an optional third and fourth well in the established 320-acre drilling and spacing units for certain lands in Townships 32 and 33 North, Ranges 6 and 7 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no setback required to any interior quarter section line.
23. Based on the request by XTO to include conditions agreed upon in the MOU executed by the parties, the Commission should apply conditions to the order to protect the environment from significant adverse impacts and to protect the public health, safety, and welfare.
NOW, THEREFORE, IT IS ORDERED, that Order No. 112-157 is hereby amended to allow a total of four (4) wells to be optionally drilled in each 320-acre drilling and spacing unit for the below-listed lands, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback, utilizing a common or expanded pad with an existing well, for production of gas from the Fruitland coal seams:
Township 32 North, Range 6 West, N.M.P.M.
Section 6: N½, S½
Section 7: W½
Section 17: W½
Section 18: N½, S½
Township 32 North, Range 7 West, N.M.P.M.
Section 1: E½, W½
Section 2: E½, W½
Section 12: N½, S½
Township 33 North, Range 7 West, N.M.P.M.
Section 26: E½
Section 35: E½
Section 36: N½, S½
IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with the terms and provisions of all of the Commission’s health, safety, welfare and environmental rules and regulations now or hereafter in effect.
IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with all applicable regulations of the BLM, Bureau of Indian Affairs and the Southern Ute Indian Tribe when conducting operations on lands subject to the respective jurisdiction of each agency.
IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with certain provisions of the MOU between XTO and La Plata County, and shall comply with all terms, conditions and provisions of prior Commission Orders in Cause No. 112, including without limitation, the specific provisions of Order No. 112-157 including the Rule 508.j.(3)B. conditions attached thereto, to the extent they do not duplicate the provisions of the MOU. For convenience and ease of reference, the relevant conditions of the MOU and Order No. 112-157, including Rule 508.j.(3)B conditions, are set forth below. Conflicts between the conditions of the MOU set forth herein and the terms, conditions and provisions of Order No. 112-157 shall be resolved in favor of the MOU.
IT IS FURTHER ORDERED, that the following provisions of the MOU between XTO and La Plata County found in Article V, VI and Subsections 2.1 and 2.2 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations or orders:
Surface Density The density of Fruitland Coal Well Pads within the Infill Application Area shall not exceed four (4) within any single 640-acre governmental section of real property. Notwithstanding the foregoing, nothing contained in this provision shall be construed so as to require the closure or abandonment of any existing gas well. “Fruitland Coal Well” means a gas well drilled for the purpose of producing gas from the Fruitland coal seams under the lands described in this Order No. 112-185. “Well Pad” means the flat graveled portion of the pad area in which permanent operations for the gas well take place and shall always include, at a minimum, that portion of the pad area occupied by the drilling rig anchors. “Infill Application Area” means the lands described in this Order No. 112-185.
Well Location; Exceptions The Commission may grant a special exception allowing for a greater density of Fruitland Coal Well Pads (i.e., more than 4 per 640-acre section), at the request of XTO and after consultation with the Local Governmental Designee (“LGD”), based upon a finding by the Commission that one or more of the following factors apply in a manner such that use of an existing Well Pad is rendered impractical:
a. topographic characteristics of the site;
b. natural resource constraints (e.g., wetlands);
c. the location of utilities or similar services;
d. geologic factors or where issues concerning distances between wells are present;
e. other site conditions beyond the control of XTO; or
f. safety concerns.
Storm Water Management and Spill Prevention Containment and Control Even if not required to do so by any applicable regulation or law, XTO agrees to utilize best management practices for all pad expansions and new pads and for road and pipeline development or improvements. “Best management practices” means schedules of activities, prohibitions of practices, maintenance procedures, and other management practices intended to prevent or reduce the pollution of waters of the State of Colorado as described in the regulations of the Colorado Department of Public Health and Environment, as amended from time to time.
Water Well Monitoring If a conventional gas well exists within one quarter (¼) mile of the bottom hole location of a proposed Infill Well, then the two (2) closest water wells within a one-half (½) mile radius of a conventional gas well shall be sampled by XTO as water quality testing wells. If possible, the water wells selected shall be on opposite sides of the existing conventional gas well not exceeding one-half (½) mile radius. “Infill Well” means wells drilled pursuant to this Order No. 112-185. “Conventional gas well” means a well producing from a non-coalbed methane formation found in the San Juan Basin, such as the Mesaverde or Dakota Sandstone Formation.
If water wells on opposite sides of the conventional gas well cannot be identified, then the two (2) closest wells within one-half (½) mile radius shall be sampled. If two (2) or more conventional gas wells are located within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the conventional gas well closest to a proposed Infill Well shall be used for selecting water wells for sampling.
If no conventional gas wells are located within one quarter (¼) mile radius of the bottom hole location of the proposed Infill Well, then the selected water wells shall be within one quarter (¼) mile of the bottom hole location of the proposed Infill Well. In areas where two (2) or more water wells exist within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the two (2) closest water wells shall be sampled by XTO. Ideally, if possible, the water wells selected shall be on opposite sides of the bottom hole location of the proposed Infill Well.
If water wells on opposite sides of the bottom hole location of the proposed Infill Well cannot be identified, then the two (2) closest wells within one quarter (¼) mile radius shall be sampled by XTO. If two (2) water wells do not exist within one quarter (¼) mile radius, then the two closest water wells within a one-half (½) mile radius shall be selected. If no water well is located within a one quarter (¼) mile radius area or if access is denied, two water wells within one-half (½) mile of the bottom hole location of the Infill Well shall be selected. If there are no water quality testing wells meeting the foregoing criteria, then sampling shall not be required. If the BLM or the Commission have already acquired data on a water well within one quarter (¼) mile of the conventional gas well, but it is not the closest water well, it shall be given preference in selecting a water quality testing well. The “initial baseline testing” described in this paragraph shall include all major cations and anions, total dissolved solids (“TDS”), iron and manganese, nutrients (nitrates and nitrites), selenium, dissolved methane, pH, presence of bacteria and specific conductance and field hydrogen sulfide.
If free gas or a methane concentration level greater than 2 milligrams/liter (“mg/L”) is detected in a water quality testing well, compositional analysis and isotopic analyses of the carbon and hydrogen of the methane shall be performed to determine gas type (thermogenic, biogenic or an intermediate mix of both). If the testing results reveal biogenic gas, no further isotopic testing shall be done. If the carbon isotope test results in a thermogenic or intermediate mix signature, annual testing shall be performed thereafter and an action plan shall be drafted by XTO to determine the source of the gas. If the methane concentration level increases by more than 5 mg/L between sampling periods, or increase to more than 10 mg/L, an action plan shall be drafted to determine the source of the gas.
The initial baseline testing shall occur prior to the drilling of the proposed Infill Well. Within one (1) year after completion of the proposed Infill Well, a “post completion” test shall be performed for the same parameters above and repeated three (3) and six (6) years thereafter. If no significant changes from the baseline have been identified after the third test (the six year test), no further testing shall be required. The testing schedule shall restart after the drilling of a new Infill Well on an existing Well Pad if the wells to be tested include those tested for the 160 acre infill program. Additional “post completion” test(s) may be required if changes in water quality are identified during follow-up testing. The Director of the Commission may require further water well sampling, which may include water quantity monitoring, at any time in response to complaints from water well owners.
Within three (3) months of collecting the samples used for the test, copies of all test results described above shall be provided to the Commission and the County and the landowner where the water quality testing well is located.
Plugged and Abandoned Wells/Soil Gas Vapor Survey A soil gas vapor-monitoring program shall be designed to determine a possible lack of zonal isolation along wellbores of plugged and abandoned wells. XTO shall attempt to identify any plugged and abandoned wells located within one quarter (¼) mile of the bottom hole location of any Infill Well. Any plugged and abandoned well within one quarter (¼) mile of the bottom hole of an Infill Well shall be assessed for risk, taking into account cementing practices reported in the plugged and abandoned reports. XTO shall notify the Commission of all results of all risk assessments of plugging procedures. The Commission may appropriate funds under Rule 701. (the Environmental Response Fund) to conduct soil gas monitoring tests to further define the risks. If the monitoring reveals a possible lack of zonal isolation, the Commission may then conduct or order any necessary remediation or other authorized activities.
IT IS FURTHER ORDERED, that the following terms, conditions and provisions of Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations:
Well Permit Limitations A Commission hearing shall be required before a drilling permit may be issued for a well site located within one and one-half (1½) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations. The purpose of the hearing shall be to address potential adverse impacts to the Fruitland outcrop.
Gas and Oil Regulatory Team The Director shall ensure that the La Plata County Gas and Oil Regulatory Team (“GORT”) continues to meet as appropriate, but no less than semiannually. GORT meetings may be scheduled more frequently if the members believe a meeting is appropriate. (GORT includes invited member representatives from La Plata County, BLM, SUIT, industry operators and Commission. Its meetings are open and typically attended by interested area residents.)
3M Mapping, Modeling and Monitoring Project The Director shall ensure that the 3M Technical Peer Review Team is invited to meet as appropriate, but no less than semiannually to review proposals and results related to the 3M Mapping, Modeling and Monitoring Project. 3M Technical Peer Review Team meetings may be scheduled more frequently if the members believe a meeting is appropriate.
Post Completion Pressure Build-Up Tests In addition to obtaining a bottom hole pressure on all wells drilled under this order, the operator shall conduct pressure build-up two (2) to three (3) months after initial production begins and once every three (3) years thereafter. The operator shall provide the data acquired, an evaluation of the data and the procedures utilized to conduct the pressure build-up tests to the Director within thirty (30) days of the conclusion of each test. After reviewing the quality of the pressure buildup data and the adequacy of the geographic distribution of the data, the Director may reduce the number of wells for which pressure build-up testing is required.
IT IS FURTHER ORDERED, that the following Rule 508.j.(3)B. conditions from Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable Commission Rules and Regulations:
1.) Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the surface well location is proposed to be sited within any subdivision that has been approved by La Plata County. The Director shall conduct an onsite inspection if the surface well location is within two (2) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations and an onsite inspection is requested by the surface owner, LGD, operator, or Director.
2.) Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the operator and the surface owner have not entered into a surface use agreement. If the reason the surface use agreement has not been executed is related to surface owner compensation, property value diminution, or any private property contractual issues between the operator and the surface owner, then no onsite inspection shall be required.
3.) The purpose of the onsite inspection shall be to identify any potential public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction regarding the proposed surface location that may not be adequately addressed by Commission rules or orders. The onsite inspection shall not address matters of surface owner compensation, property value diminution, or any private party contractual issues between the operator and the surface owner.
4.) When the Director conducts onsite inspections under the conditions in 1.) and 2.) above, the Director shall invite the representatives of the surface owner, the operator and LGD to attend. The Director shall attempt to select a mutually acceptable time for the representatives to attend. The inspection shall be conducted within ten (10) days, or as soon as practicable thereafter, of either the date the LGD advises the Director in writing that the proposed surface well site location falls within an approved subdivision or the date the operator advises the Director in writing that a surface use agreement has not been reached with the surface owner. If requested by the operator, the Director may delay the onsite inspection to allow for negotiation between the operator and surface owner or other parties.
5.) Following the onsite inspection, the Director shall apply appropriate site specific drilling permit conditions if necessary to prevent or mitigate public health, safety and welfare or significant adverse environmental impacts taking into consideration cost-effectiveness and technical feasibility and relevant geologic and petroleum engineering conditions as well as prevention of waste, protection of correlative rights, and promotion of development.
6.) Examples of the types of impacts and conditions that might be applied if determined necessary by the Director in 5.) above include (this list is not prescriptive or all inclusive):
a.) visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening
b.) surface impacts – moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of future reclamation activities; utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas
c.) noise impacts – installing electric motors where practicable; locating or orienting motors or compressors to reduce noise; installing sound barriers to achieve compliance with Commission rules; confining cavitation completion operations (excluding flaring) to the hours of 7 a.m. to 7 p.m. and notifying all area residents within one-half (½) mile at least seven (7) days before cavitation is commenced
d.) dust impacts – watering roads as necessary to control dust during drilling and completion operations
e.) ground water impacts – collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data
f.) safety impacts – soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment
g.) outcrop impacts – performing outcrop gas seep surveys; performing produced water quality analysis; periodic pressure transient testing of high water/gas ratio wells; limiting water production in wells with anomalously high water rates and water/gas ratios; funding investigative reservoir modeling under the Director’s supervision
h.) wildlife impacts – limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant
7.) If the operator objects to any of the conditions of approval applied under 6.) above, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.
8.) If the Director has reasonable cause to believe that any existing or proposed oil and gas operations are causing, or are likely to cause, public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction that may not be adequately addressed by Commission rules or orders, the Director may properly notice and set the matter for the next regularly scheduled Commission hearing to order appropriate investigative or remedial action. Reasonable cause may include, but is not limited to, information from the 3M Mapping, Modeling and Monitoring Project.
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.
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