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County Line Field

February 20, 2003

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
NOTICE OF PUBLIC HEARING AND
NOTICE OF NEGATIVE DECLARATION
PROPOSED WELL SPACING AND INTEGRATION OF INTERESTS

DEC Project No. DMN-02-5

PROPOSED PROJECT: The New York State Department of Environmental Conservation ("DEC" or "Department") proposes to establish field-wide spacing and integration rules for portions of acreage located in the Town of Catlin, Chemung County, the Towns of Dix and Montour, Schuyler County, and the Town of Hornby, Steuben County, New York, identified as the County Line Field (the "Field"). The Field extends in a southwest-northeast direction, and is situated between Chambers and Millport, New York. The County Line Field produces natural gas from the Ordovician Trenton-Black River formations. Please consult the maps of this Field for a more precise description (see "Document Availability," below).

BACKGROUND AND PURPOSE: Fairman Drilling Company ("Fairman") and East Resources, Inc. began development of the Field in July 2000. In May, 2002, Pennsylvania General Energy Corp. ("PGE") commenced drilling operations in the Field. Fairman's interests and PGE's interests have been conveyed to Fortuna Energy, Inc. ("Fortuna"), 1519 Olean-Portville Road, Olean, New York 14760. Fortuna continues to complete and produce wells to develop the existing Field and to identify similar producing reservoirs in adjacent areas. At the present time, four wells have been successfully drilled in the Field. Permits to drill were issued for the four existing wells pursuant to Section 552.1 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR 552.1").

In order to ensure that all affected interest owners receive fair and equitable compensation upon issuance of a final spacing order, the DEC required that Fairman and PGE escrow royalties generated as a result of this production, which Fortuna has agreed to continue and maintain. Five production units are proposed in the Field. Some production units contain a small number of unleased parcels where the right to develop the oil and/or natural gas has not been conveyed to Fortuna. The DEC Staff has determined that compulsory integration is necessary to incorporate the unleased parcels into the proposed spacing unit for the purpose of distributing escrowed and future royalties.

The DEC Staff seeks a public hearing to allow all interested parties the opportunity to discuss the issues and facilitate a decision addressing the establishment of field-wide spacing and compulsory integration rules for the County Line Field. According to DEC Staff, the primary issues to be addressed at the hearing are the establishment of fair and equitable production units for existing wells, development of a well spacing plan governing future well drilling in the field, integration of interests within all spacing units, including the designation of the unit operator, and allocation of well production to integrated owners.

The DEC has entered into a Stipulation, dated December 30, 2002, with Fairman Drilling Company and Pennsylvania General Energy, which is binding upon Fortuna as successor to Fairman and PGE. It is DEC Staff's position that this Stipulation, a copy of which is available as indicated below under "Document Availability," resolves issues pertaining to field wide spacing rules and establishes procedures for future wells. According to DEC Staff, the Stipulation's provisions are based upon an analysis of available geologic, engineering and seismic data from wells within the County Line Field and from similar reservoirs in the vicinity.

STATE ENVIRONMENTAL QUALITY REVIEW ACT (SEQRA) STATUS: The Department, as lead agency, has reviewed the establishment of field wide spacing rules and the integration of interests within units for the County Line Field in accordance with the criteria set forth in 6 NYCRR Section 617.7. A Notice of Determination of Non-Significance (Negative Declaration) was issued on January 6, 2003, after the DEC determined that the establishment of field wide spacing and integration rules within the units will have no significant adverse impact on the environment.

PUBLIC HEARINGS: All persons, organizations, corporations or government agencies which may be affected by the proposed project are invited to comment. A legislative hearing will be held on Tuesday, March 25, 2003 at 7:00 p.m. at the Holiday Inn, 304 South Hamilton Street, Painted Post, New York 14870, telephone number (607) 962-5021, to receive unsworn statements from the public. All persons, organizations, corporations or government agencies who may be affected by the proposed project are invited to attend the legislative hearing and to submit oral comments on the proposed project. It is not necessary to file a written request in advance to speak in this portion of the hearing. Lengthy comments should be submitted in writing at the hearing. Written comments may also be filed with the Office of Hearings and Mediation Services, at the address indicated below, on or before the date of the legislative hearing. Equal weight will be given to oral and written statements.

The hearing location is reasonably accessible to persons with a mobility impairment. Interpreter services will be made available to deaf persons, at no charge, upon written request to the Administrative Law Judge named below at least five business days prior to the date of the hearing.

ISSUES CONFERENCE: A pre-adjudicatory hearing issues conference will be held on Wednesday, March 26, at 9:00 a.m. at the Holiday Inn, 304 South Hamilton Street, Painted Post, New York. The purpose of the issues conference is to define, narrow, and, if possible, resolve proposed adjudicable issues concerning the proposal. Participation in the issues conference is limited to the Applicant, DEC Staff, and persons who have petitioned for party status as discussed below. IT IS IMPORTANT THAT ANY PERSONS REQUESTING PARTY STATUS APPEAR OR BE REPRESENTED AT THE ISSUES CONFERENCE IN ORDER THAT ALL VALID ISSUES MAY BE FULLY DISCUSSED.

PETITIONS FOR PARTY STATUS: Those seeking to participate at this issues conference and at any subsequent adjudicatory hearing to challenge the DEC proposed field wide spacing and integration rules must file a written petition requesting party status, pursuant to 6 NYCRR 624.5 and 624.5(c). Acceptable scientific support for a petition for party status would include, but is not limited to: seismic and/or geologic data, reservoir engineering analysis and well testing results specific to the County Line Field. Section 624.4(c)(4) of 6 NYCRR places the burden of persuasion that an issue is adjudicable on the participant presenting the issue, and a demonstration must be made that the issue is substantive and significant. Please see 6 NYCRR 624.4 and 624.5 for further information on party status and identification of issues.

All petitions requesting party status to participate in an adjudicatory hearing on this proposal must be received at the Office of Hearings and Mediation Services no later than the close of business on Thursday, March 20, 2003. Such filings must be submitted to Susan J. DuBois, Administrative Law Judge, New York State Department of Environmental Conservation, Office of Hearings and Mediation Services, 625 Broadway, Albany, New York 12233-1550; telephone number (518) 402-9003. Filings by telecopier transmission will not be accepted. At the same time, all persons must also send a copy of their petition to John H. Heyer, Esq., 604 Exchange Bank Building, P.O. Box 588, Olean, New York 14760; Fortuna Energy Inc., 1519 Olean-Portville Road, Olean, New York 14760, attn: Harv Rasmussen, Senior Landman; and to Arlene J. Lotters, Esq., NYS Department of Environmental Conservation, Division of Legal Affairs, 625 Broadway, 14th Floor, Albany, New York 12233-1500, telephone (518) 402-9222.

DOCUMENT AVAILABILITY: The Stipulation of December 30, 2002 with attached exhibits, and other relevant documents are available for public review at the following locations:

1. NYSDEC Office of Hearings and Mediation Services, 625 Broadway, First Floor, Albany, New York 12233-1550, contact Susan J. DuBois, (518) 402-9003.

2. NYSDEC Division of Mineral Resources, 625 Broadway, Third Floor, Albany, New York 12233-6500, contact Thomas E. Noll, (518) 402-8056.

3. NYSDEC Region 8 Headquarters, 6274 East Avon-Lima Road Avon, New York 14414-9519, contact Randall Nemecek, (585) 226-2466.

4. NYSDEC Region 8 Sub-Office, 276 Sing Sing Road, Suite 1, Horseheads, New York 14845, contact Joseph Yarosz, (607) 739-0809.

5. Town of Hornby Supervisor, 10749 Rogers Road, Corning, New York 14830, contact Donald Borden, (607) 936-3347.

6. Town of Catlin Supervisor, Town Hall, 1448 Chambers Road, Beaver Dams, New York 14812, contact Joachim Varga, (607) 962-7930.

7. Town of Montour Supervisor, 408 West Main Street, Montour Falls, New York 14865, contact Kenneth Dillon, (607) 535-9476.

8. Town of Dix Supervisor, Town Office, 304 7th Street, Watkins Glen, New York 14891, contact Frank Ganung, (607) 535-7973.

APPLICABLE STATUTORY AND REGULATORY PROVISIONS: Environmental Conservation Law Article 1 (General Provisions); >Article 3, Title 3, (General Functions); Article 8 (Environmental Quality Review); Article 23, Titles 3, 5 and 9 (Mineral Resources); Title 6 of the New York Compilation of Codes, Rules and Regulations (6 NYCRR) Parts 550 (Promulgation and Enforcement of Rules and Regulations), 552 (Permits to Drill, Deepen, Plug Back or Convert Wells), 553 (Well Spacing) and 624 (Permit Hearing Procedures).

ALL PERSONS HAVING AN INTEREST IN THE PROPOSED PROJECT ARE URGED TO ATTEND THE HEARING OR BE REPRESENTED EITHER INDIVIDUALLY OR COLLECTIVELY.

Jo Anne W. Di Stefano
Assistant Commissioner for
Hearingsm and Mediation Services

Albany, New York
February 20, 2003

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