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Columbia Natural Resources, LLC and Fortuna Energy, Inc. (Langdon Hill Field)

October 20, 2004



DEC Project No. DMN 04-7

APPLICANTS: Columbia Natural Resources, LLC
900 Pennsylvania Avenue
Charleston, West Virginia 25302

Fortuna Energy, Inc.
203 Colonial Drive, Suite 101
Horseheads, New York 14845

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 Towns of Van Etten, Erin, Elmira, Horseheads and Baldwin, Chemung County, New York, designated as the Langdon Hill Field (the "Field"). The Field produces natural gas from the Middle Ordovician Trenton and Black River formations. Please consult the maps of this Field for a more precise description (see "Document Availability," below).

BACKGROUND AND PURPOSE: Development of the Field commenced in June 2000 with the successful drilling and completion of the Monahan well, API No. 31-015-22838-00, by Columbia Natural Resources, Inc., predecessor to Columbia Natural Resources, LLC ("Columbia"). In August 2003, Fortuna Energy, Inc., ("Fortuna") successfully drilled a horizontal well to the east of the Monahan well, named the Konstantinides 1 well, API No. 31-015-23023-00. The Field, as currently defined, is situated between the villages of Erin and South Erin, New York. At the present time, five wells have been drilled in the Field which are capable of producing natural gas. Permits to drill were issued for the five existing wells pursuant to part 552 of title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR part 552"). Columbia and Fortuna continue to evaluate the wells and seismic data to develop the existing Field and to identify additional drilling locations.

DEC, Columbia and Fortuna have executed a stipulation which contains provisions that form the basis for DEC staff's proposed field wide spacing and integration order. According to DEC staff, the stipulation's provisions regarding spacing unit configuration are based upon an analysis of available geologic and engineering data from the wells within the Field, data from similar reservoirs in the vicinity, and from seismic data collected across the Field. In accordance with the terms of the stipulation, DEC staff has proposed additional provisions for specific procedures for future permitting and compulsory integration in the Field ("Attachment A"). Copies of the stipulation and Attachment A are available as indicated below under "Document Availability."

In order to ensure that all affected interest owners receive fair and equitable compensation upon issuance of a final spacing order, DEC staff required that Columbia and Fortuna place in an interest bearing account royalties generated as a result of this production. The stipulation requires Columbia and Fortuna, by November 8, 2004, to release such royalties attributable to parcels they control in each proposed spacing unit where production has commenced. Any underpayments must be corrected within 45 days of issuance of a Commissioner's order. Some of the proposed production units contain parcels where the right to develop the oil and natural gas has not been conveyed to Columbia or Fortuna. These parcels are either not leased or leased to another entity. The stipulation requires Columbia and Fortuna to continue to escrow in an interest-bearing account 1/8 of production revenue attributable to these parcels until issuance of a Commissioner's order. Pursuant to ECL 23-0301, DEC staff has determined that field-wide spacing and integration rules are necessary to regulate the development, production, and utilization of the natural resources of oil and gas of the Field in such a manner as will prevent waste, and fully protect the correlative rights of all owners and the rights of all persons, including landowners and the general public.

DEC staff seeks a public hearing to allow all interested parties the opportunity to discuss the issues, and to facilitate a decision addressing the establishment of field-wide spacing and compulsory integration rules for the Field. According to DEC staff, the primary issues to be addressed at the hearing are the establishment of fair and equitable spacing units for existing wells, development of well spacing rules and permitting procedures for future well drilling in the Field, integration of interests within the existing proposed spacing units for existing wells, and allocation of well costs and production, or royalties, to integrated owners.

STATE ENVIRONMENTAL QUALITY REVIEW ACT (SEQRA) STATUS: The Department, as lead agency, reviewed the establishment of field wide spacing rules and the integration of interests within units for the Field in accordance with the criteria set forth in 6 NYCRR 617.7 and determined that the proposed action would not have any significant adverse environmental impact. A Notice of Determination of Non-Significance (Negative Declaration) was issued on September 24, 2004.

PUBLIC HEARING: All persons, organizations, corporations or government agencies that may be affected by the proposed project are invited to comment thereon. A legislative hearing will be held on Tuesday, November 16, 2004, at 7:00 p.m. at the Radisson Hotel, 125 Denison Parkway East, Corning, New York 14830, telephone number (607) 962-5000, 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 at 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, November 17, 2004, at 9:00 a.m. at the Radisson Hotel, 125 Denison Parkway East, Corning, New York 14830, telephone number (607) 962-5000. 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 Columbia, Fortuna, 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 624.4(c). When appropriate to the issue being raised, acceptable scientific support for a petition for party status could include seismic data, or geologic data, or reservoir engineering analysis, or well testing results specific to the 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 at the issues conference and any subsequent adjudicatory hearing on this proposal must be received at the Office of Hearings and Mediation Services no later than the close of business on Wednesday, November 10, 2004. Such filings must be submitted to Richard R. Wissler, Administrative Law Judge, New York State Department of Environmental Conservation, Office of Hearings and Mediation Services, 625 Broadway, Albany, New York 12233-1550; telephone (518) 402-9003. Filings by telecopier transmission will not be accepted. At the same time, all persons requesting party status must also send a copy of their petition to John H. Heyer, Esq., 604 Exchange National Bank Building, P.O. Box 588, Olean, New York 14760, telephone (716) 372-0395; to Christopher B. Wallace, Esq., 1602 Sunset Avenue, Utica, New York 13502, telephone (315) 735-4599; 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 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 ALJ Richard R. Wissler, (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, contact Linda Collart, (585) 226-5376.

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

5. Supervisor of the Town of Baldwin, Town Hall, 622 Breesport-North Chemung Road, Lowman, New York 14861, contact Wayne L. Cuer, (607) 732-3035.

6. Supervisor of the Town of Elmira, 1255 West Water Street, Elmira, New York 14905, contact Howard C. Lapple, (607) 734-2031.

7. Supervisor of the Town of Erin, Town Hall, 1138 Breesport Road, Erin, New York 14848, contact Donald N. Bower, (607) 739-8681.

8. Supervisor of the Town of Horseheads, 150 Wygant Road, Horseheads, New York 14845, contact Michael Edwards, (607) 739-8743.

9. Supervisor of the Town of Van Etten, Town Office, 83 Main Street, Van Etten, New York 14889, contact George Keturi, (607) 589-4435.

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).


James T. McClymonds
Chief Administrative Law Judge

Albany, New York October 20, 2004

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