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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 ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO |
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CAUSE NO. 112
ORDER NO. 112-193 |
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on September 18, 2006, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver Colorado, for an order to allow an optional third or fourth well, for a total of up to four (4) wells, to be drilled in each 320-acre drilling and spacing unit for production of gas from the Fruitland coal seams, for certain lands in Township 33 North, Range 7 West, N.M.P.M., with the permitted well to be located no closer than 660 feet from the unit boundary, with no interior section line setback. The surface location of each of the optional wells shall be located on a common or expanded pad with the existing well such that a total of four (4) Fruitland coal well pads shall be authorized in each governmental section.
FINDINGS
The Commission finds as follows:
1. Maralex Resources, Inc. (“Maralex”) and Gosney & Sons, Inc. (“Gosney”), 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”).
5. On May 15, 2000, the Commission issued Order No. 112-157, which allowed an optional second Fruitland coal seam well to be drilled in each 320-acre drilling and spacing unit with such additional well being located no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line, including certain lands in Township 33 North, Range 7 West, N.M.P.M.
6. On July 31, 2006, Maralex and Gosney, by their attorney, filed with the Commission a verified application for an order to allow an optional third or fourth well, for a total of up to four (4) wells, to be drilled in each 320-acre drilling and spacing unit for production of gas from the Fruitland coal seams, for the below-listed lands with the permitted well to be located no closer than 660 feet from the unit boundary, with no interior section line setback. The surface location of each of the optional wells shall be located on a common or expanded pad with the existing well such that a total of four (4) Fruitland coal well pads shall be authorized in each governmental section.
Township 33 North, Range 7 West, N.M.P.M
Section 2: N½, S½
Section 3: N½, S½
Section 9: E½
Section 11: E½, W½
Section 12: N½
The Applicants further state that the requested additional wells can be developed in a manner consistent with protection of public health, safety and welfare. To this end, the Applicants shall propose to incorporate a portion of a proposed Memorandum of Understanding with La Plata County into the Commission’s Order as a Health, Safety and Welfare Plan (“HS&W Plan”) which shall apply to operations on lands not within the jurisdiction of the Southern Ute Indian Tribe. The Applicants request a finding by the Commission that such HS&W Plan adequately addresses concerns related to the environment and public health, safety and welfare not otherwise addressed by Commission rule on such non-tribal lands. Moreover, Applicants will commit to the Southern Ute Indian Tribe that new compressor installations shall use the best available emission control technology and shall also provide a plan to the Southern Ute Indian Tribe to evaluate the modification of older compression installation emission technology in the field over the next five (5) years.
7. On August 30, 2006, La Plata County filed with the Commission an intervention raising environmental and public health, safety and welfare concerns on the application. The intervention is not concerning the technical merits of the application, and La Plata County does not object to the technical case being heard or reviewed administratively.
8. On September 1, 2006, Maralex Resources, Inc. and Gosney & Sons, Inc., by their attorney, filed with the Commission a written request to approve the application based on the merits of the verified application and the supporting exhibits.
9. On September 15, 2006, the Bureau of Land Management (“BLM”), on behalf of the Southern Ute Indian Tribe, submitted a letter concurring with the application.
10. Testimony and exhibits submitted in support of the application showed that the subject lands are located approximately two (2) miles east of the town of Ignacio, Colorado, and are over ten (10) miles from the Fruitland outcrop so the drilling of the infill wells on the subject lands will not impact the outcrop.
11. Testimony and exhibits submitted in support of the application showed that the wells in Sections 2, 3, 9 and 11 are operated by Maralex, and the wells in Section 12 are operated by Gosney.
12. Testimony and exhibits submitted in support of the application showed that there are fee, Southern Ute Indian Tribal and Southern Ute allotted mineral and surface lands within the application area.
13. Testimony and exhibits submitted in support of the application showed that Maralex and Gosney are proposing to drill the 80-acre optional infill wells from existing, staked, or proposed well locations.
14. Testimony and exhibits submitted in support of the application showed that the Maralex/Gosney acreage is in an area of good cumulative gas production and that this acreage has been proven to be productive from the Fruitland coal seams, that the net coal thickness ranges from fifty (50) feet to greater than sixty (60) feet, and that “clean” Fruitland coal beds exist in the area and have been productive in and around the Maralex/Gosney leases.
15. Testimony and exhibits submitted in support of the application showed that the Fruitland Coal Formation is recognized as a common source rock and gas trap in the San Juan Basin on the Maralex/Gosney leases. Additional testimony showed that previous studies in the area of the Maralex/Gosney leases indicate that due to compartmentalization of the amount of methane that can be drained by any one well, increasing well density to 80 acres will result in greater gas recovery from the Fruitland Formation.
16. Testimony and exhibits submitted in support of the application showed that pressure interference is not occurring on 160-acre well spacing in nearby areas.
17. Testimony and exhibits submitted in support of the application showed an average coal thickness of 45.5 feet, with an average OGIP (160 acres) of 8.2 BCF. Additional testimony showed an average recovery factor of 25.6%, illustrating that current 160-acre Fruitland coal well density will not adequately drain the gas reserves in this area.
18. Testimony and exhibits submitted in support of the application showed that additional wells are economic with payout occurring in 1.2 years. Additional testimony showed that each 80-acre infill well is projected to recover additional reserves, not recoverable by the existing wells, which represent 80% of the parent 160-acre well reserves.
19. Testimony and exhibits submitted in support of the application showed the loss of considerable Fruitland coal seam gas without the 80-acre infill program which would constitute waste of these resources, and no adverse effect on correlative rights of adjacent owners will occur with well setbacks of 660 feet from the 320-acre unit boundaries.
20. The above-referenced testimony and exhibits show that the proposed increased well density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.
21. Maralex Resources, Inc. and Gosney & Sons, 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 based on the Hearing Officer review of the application under Rule 511.b., the Commission should enter an order to allow an optional third or fourth well, for a total of up to four (4) wells, to be drilled in each 320-acre drilling and spacing unit for production of gas from the Fruitland coal seams, for certain lands in Township 33 North, Range 7 West, N.M.P.M., with the permitted well to be located no closer than 660 feet from the unit boundary, with no interior section line setback. The surface location of each of the optional wells shall be located on a common or expanded pad with the existing well such that a total of four (4) Fruitland coal well pads shall be authorized in each governmental section.
NOW, THEREFORE, IT IS ORDERED, that additional third or fourth wells are hereby allowed to be optionally drilled, for a total of up to four (4) wells, in each 320-acre drilling and spacing unit for production of gas from the Fruitland coal seams, for the below-listed lands with the permitted well to be located no closer than 660 feet from the unit boundary, with no interior section line setback. The surface location of each of the optional wells shall be located on a common or expanded pad with the existing well such that a total of four (4) Fruitland coal well pads shall be authorized in each governmental section.
Township 33 North, Range 7 West, N.M.P.M
Section 2: N½, S½
Section 3: N½, S½
Section 9: E½
Section 11: E½, W½
Section 12: N½
IT IS FURTHER ORDERED, that the order incorporate a portion of a proposed Memorandum of Understanding (“MOU”) with La Plata County into the Commission’s Order as a Health, Safety and Welfare Plan (“HS&W Plan”) which shall apply to operations on lands not within the jurisdiction of the Southern Ute Indian Tribe.
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 Maralex 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 Maralex 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. 112-193. “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. 112-193.
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 Maralex 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 Maralex; 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, Maralex 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 Maralex 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. 112-193. “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 Maralex. 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 Maralex. 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 Maralex to determine the source of the gas. If the methane concentration level increases by more than 5 mg/L between sampling periods, or increases 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. Maralex 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. Maralex 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 tests 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.
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.
ENTERED this__________day of October, 2006, as of September 18, 2006.
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
October 12, 2006