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

REPORT OF COMMISSION

This cause first came on for hearing before the Commission on June 27, 2011, Elbert County Fairgrounds, Ag Building, 95 Ute Avenue, Kiowa, Colorado, for an order:  (1) approving Petroglyph's plan to terminate coal bed methane (“CBM)” operations in the Northern Raton Basin by plugging and abandoning its CBM wells;  (2) providing for interim operation of Petroglyph’s Phase Two-MIMMP Plan; (3) terminating Order 1C-6 and its predecessor orders, and (4) providing for certain installation, maintenance, monitoring, assessment and reporting activities.  The matter was continued to the Commission’s hearing on August 8, 2011, 1120 Lincoln Street, Suite 801, Denver, Colorado and subsequently continued to the September 19, 2011 hearing at Broomfield City & County Building, One Descombes Drive, Broomfield, Colorado.

FINDINGS

The Commission finds as follows:

1.     Petroglyph Energy, Inc. (“Petroglyph” or “Applicant”), 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.

4.     In June 2007, the existence of methane migration into the shallow aquifer overlying a portion of Petroglyph’s coalbed methane field in Huerfano County, Colorado, became evident, and Petroglyph voluntarily shut-in 52 CBM wells in the field at the request of the Director in July 2007.

5.     On October 16, 2007, the Commission entered Order No. 1C-4 which approved a Cease and Desist Order, negotiated by Petroglyph and the Director, related to methane migration into the shallow Poison Canyon aquifer overlying a portion of Petroglyph’s CBM field in Huerfano County, Colorado; said order was made effective for 30 days and approved the methane investigation, monitoring, and mitigation plan (“MIMMP”).

6.     On November 14, 2007, the Director of the COGCC issued Order No. 1C-5, which, among other things, required Petroglyph to keep the CBM wells shut-in until such time it applies for a Commission order and demonstrates that it can return the wells to production in a manner that protects public health and safety.

7.     On January 15, 2008, the Commission entered Order No. 1C-6, which, among other things, approved an amended MIMMP which set forth three phases designed to further monitor the impacts of methane migration and mitigate those impacts.  Petroglyph has completed the tasks outlined for Phases One  and Two of the MIMMP.  Commencement of Phase Three, which entails restoring its 52 CBM wells to production requires Commission approval.

8.     On April 28, 2011 Petroglyph, advised the Commission that, instead of seeking approval to commence Phase Three of the MIMMP, it had decided to terminate its CBM operations in the Northern Raton Basin.  Petroglyph, by its attorneys, filed a verified application (the “Application”) for an order to establish an orderly process for such termination of operations.  Said order would, among other things: (1) authorize Petroglyph to terminate its CBM operations by plugging and abandoning its CBM wells (certain ancillary wells not under the Commission’s jurisdiction may also be plugged and abandoned); and (2) provide for continued operation of Petroglyph’s Phase Two-MIMMP Plan hydraulic barrier and methane recovery system, including monitoring activities and monthly reports to the Commission, until such time as all of Petroglyph’s CBM wells have been plugged and abandoned  in accord with Rules 311 and 319, and after that time, for Petroglyph to be relieved of any further obligations under the MIMMP Plan and Order No. 1C-6, with the following exceptions:

a.     Wellhead (or vent) gas composition (% methane by volume) monitoring (quarterly for 12 months following cessation of Phase Two) of the following wells (or vents), contingent on landowner permission:

Houghtling

Hopke

Barrett

Smith

Bergman

Angely

Bounds

Bruington

Masters

b.     Water level monitoring (quarterly for 12 months following cessation of Phase Two) of the following wells, contingent on landowner permission:

Bruington

Golden Cycle Land (Goemmer #1)

Bergman

Angely

Smith

c.     Gas flux follow-up survey (on one occasion within the 8-12 months following cessation of Phase Two) of Seep 643 and Seep 644.

d.     Water quality follow-up sampling and analysis (frequency and duration to be determined in consultation with Commission Staff) of the Angely water well.

9.     On June 27, 2011, this matter was heard by the Commission, and Petroglyph presented testimony and explanations as to its proposal. Commissioners had an opportunity to resolve questions about the proposal through questions of Petroglyph and Staff. The Commission also heard comments provided by certain landowners in the affected area.  The draft order, as presented to the Commission, added a requirement for Petroglyph to conduct and submit an inventory of specified properties, describing the domestic water well delivery system, and the condition of the water at the faucet after any treatment system now in existence. Water constituents to be analyzed are dissolved methane (laboratory test), pH, temperature, specific conductance, odors, hydrogen sulfide, and effervescence of the water (by field observation).

10.   Following the June 27 hearing, Petroglyph conducted an inventory of the water delivery systems of the specified properties, as well as all properties to which it has been delivering hauled water, and, at a meeting with COGCC staff on July 14, 2011, reviewed said inventory and proposed to install vented cisterns to ensure safe delivery of domestic water at the following four properties.  Following said installation, Petroglyph agreed to conduct quarterly monitoring of the system performance for a twelve-month period, contingent on landowner agreement to provide access.

        Angely

        Bounds

        Smith

        Houghtling

11.   Petroglyph further agreed to conduct an assessment of the condition of the water, as specified above, at the faucet or wellhead of the following additional properties:

        Coleman

        Derowitsch

        Hopke

        Bruington

        Masters

        Barrett

        Bergman

12.   Petroglyph agreed to be bound by oral order of the Commission. 

13.   Based on the facts stated in the verified Application, and based on the testimony heard by the Commission at its June 27 and September 19, 2011 hearings, the Commission should enter an order: (1) approving Petroglyph's plan to terminate coal bed methane operations in the Northern Raton Basin by plugging and abandoning its CBM wells in accordance with Rules 311 and 319;  and (2) terminating Order 1C-6 and its predecessor orders; (3) providing for certain installation, maintenance, monitoring, assessment and reporting activities and (4) providing for the continuing jurisdiction of the Commission.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that Petroglyph’s plan to terminate its coal bed methane operations in the Northern Raton Basin as described by its Application and as provided for in this order is hereby approved.

IT IS FURTHER ORDERED, that except as provided herein, Petroglyph shall be relieved of further obligation pursuant to the approved methane investigation, monitoring, and mitigation plan and Orders 1C-4, 1C-5, and 1C-6, and said orders are hereby terminated.

IT IS FURTHER ORDERED, that Petroglyph or Petroglyph’s consultants, shall, at Petroglyph’s expense, engage in the following activities pursuant to this Order:

a.     Wellhead (or vent) gas composition (% methane by volume) monitoring (quarterly for 12 months following cessation of Phase Two) of the following wells (or vents), contingent on landowner permission:

Houghtling

Hopke

Barrett

Smith

Bergman

Angely

Bounds

Bruington

Masters

b.     Water level monitoring (quarterly for 12 months following cessation of Phase Two) of the following wells, contingent on landowner permission:

Bruington

Golden Cycle Land (Goemmer #1)

Bergman

Angely

Smith

c.     Gas flux follow-up survey (on one occasion within the 8-12 months following cessation of Phase Two) of Seep 643 and Seep 644.

d.     Water quality follow-up sampling and analysis (frequency and duration to be determined in consultation with Commission Staff) of the Angely water well.

e.   Petroglyph shall continue to provide hauled water to the Angely, Bounds, Smith and Houghtling properties until their methane treatment systems are installed and properly functioning pursuant to paragraph f below.  

f.   Complete the design and installation of methane treatment systems for the delivery of domestic water into the Angely, Bounds, Smith and Houghtling homes. These systems shall reduce the content of dissolved methane to 5 milligrams per liter of water or less.  Further, Petroglyph shall, quarterly for one year following installation of said systems, submit a report to Commission Staff stating, at a minimum, whether each landowner has permitted Petroglyph to access their property, and stating the status of Petroglyph’s testing activities related to the methane treatment system.  The design, installation and testing shall be contingent upon the agreement of the owner to provide controlled access to the home.  Petroglyph shall promptly notify the Commission and each homeowner, in writing, that the methane treatment systems have been installed and shall report the results of all monitoring and assessments of water condition.  Following installation and the initial demonstration of effectiveness, Petroglyph shall test each methane treatment system annually for continuing effectiveness.  If the continuing effectiveness of the systems is not demonstrated by the annual testing, then maintenance, repairs or modifications to the system will be performed by Petroglyph or its contractors to restore the effectiveness of the treatment system such that the content of dissolved methane is 5 milligrams per liter or water or less. Provided, however, that Petroglyph’s responsibility to maintain the Angely, Bounds, Smith and Houghtling’s systems shall terminate in the event that:  the Angely, Bounds, Smith or Houghtlings materially alter or impair their respective systems; or Petroglyph proves to the Commission that the systems are no longer necessary for the protection of public health and safety; or Petroglyph proves to the Commission staff that the landowner has accepted responsibility for maintenance of the treatment systems. 

                                    g.  By September 30, 2011, conduct an assessment of the condition of the well water as delivered to a faucet in or at the Coleman, Derowitsch, Hopke, and Bruington  homes, and at the wellhead of the Masters, Barrett and Bergman properties.  The assessment shall test for dissolved methane (laboratory test), and other parameters as determined and recorded in the field, including pH, temperature, specific conductance, odors (hydrogen sulfide) and effervescence of the water.   The testing shall be contingent upon the agreement of the owner to provide controlled access to the home or property.  Petroglyph shall promptly notify the Commission and each homeowner, in writing, of the results of all assessments of water condition.  In the event the assessments warrant further action necessary for the protection of public health and safety, the Commission reserves its right to order and require Petroglyph to install and maintain appropriate methane treatment systems for the benefit of the Coleman, Derowitsch, Hopke, and Bruington homes, and the Masters, Barrett and Bergman properties. Provided, however, that Petroglyph’s responsibility to maintain the previously mentioned systems shall terminate in the event that:  the owners materially alter or impair their respective systems; or Petroglyph proves to the Commission that the systems are no longer necessary for the protection of public health and safety or Petroglyph proves to the Commission staff that the landowner has accepted responsibility for maintenance of the treatment systems.

IT IS FURTHER ORDERED, that the Commission shall retain ongoing jurisdiction with respect to the provisions of this Order, including in response to any conditions that may constitute a danger to public health, safety and welfare.  The Commission’s ongoing jurisdiction extends to all property owners potentially affected by Petroglyph’s operations regardless of whether the property owner is specifically referred to herein.       

IT IS FURTHER ORDERED, that 12 months following cessation of Phase Two, the Commission Staff shall report to the Commission the results of the monitoring and analyses set forth in paragraphs (a) through (g) above.

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

                        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 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    23^rd   day of September, 2011, as of September 19, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

September 23, 2011