Drumm 1 (Fortuna Energy, Inc.)
April 4, 2008
STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
NOTICE OF PUBLIC LEGISLATIVE HEARING AND ISSUES CONFERENCE
The Department of Environmental Conservation (the "Department") hereby gives notice, pursuant to Environmental Conservation Law ("ECL") § 23-0901(3)(d), that a public hearing will be held at the time and place stated below to address compulsory integration of interests in the following wells:
|Well Name||Town||County||API Number|
|Drumm J. 1||Thurston||Steuben||31-101-23985-00-00|
Well Operators: Fortuna Energy Inc., 203 Colonial Drive, Suite 101, Horseheads, New York 14845 (Contact: Ms. Janice Hart) (All wells except Usack 1).
Chesapeake Appalachia, LLC, 900 Pennsylvania Avenue, Charleston, WV 25302 (Contact: Mr. James Grey) (Usack 1 only).
Project Description and Departmental Action Proposed: The Department proposes to issue compulsory integration orders pursuant to ECL 23-0901 integrating mineral interests within the spacing unit for each well listed above. Objections to the draft orders for each well listed were raised at a compulsory integration hearing, which resulted in the referral to the Department's Office of Hearings and Mediation Services for adjudicatory proceedings.
Among the potential issues for adjudication are access to well data and site access (Drumm J. 1, Winkky 1, and Winter 1-A); application of the risk penalty to proposed integrated participating owners (Drumm 1, SRA3 1, Usack 1); assessment of well costs for wellbores drilled prior to integration (Winter 1-A), and the well operator's authority to commence drilling prior to completion of integration process (Winter 1-A). Additional issues may be identified at the issues conference described below. Hearings for the above listed wells will be conducted on a joint record.
Department Staff Position: Staff's position on the various issues is summarized as follows:
Well data and site access -- ECL 23-0901(3)(f) establishes that all operations on a spacing unit covered by an order of integration are deemed to occur upon each separately owned tract by the owner or several owners thereof. The statute further provides that all production allocated to a tract of land in the spacing unit is presumed to be produced from that tract of land as if a well had been drilled. In Department staff's view, integrated participating and non-participating owners have the same rights of ownership to the data as the operator of the well. Therefore, integrated participating and non-participating owners cannot be denied access to the data collected on the unit. Department staff also take the position that the integrated participating and non-participating owners are entitled to operator-supervised well site access during the collection of data. Although site access must not unreasonably interfere with the conduct of operations nor conflict with the well operator's established safety protocols, participating and non-participating owners are nevertheless entitled to observe operations that are deemed to be conducted on their land.
Risk penalty -- Department staff's position is that assessment of a risk penalty against costs incurred prior to an election to participate in a well permitted before the effective date of the current statute is just and reasonable and conforms to the intent of the legislation that risk be addressed. ECL 23-0901(3)(a)(4) provides the opportunity to buy out of the risk penalty prior to recoupment and become a participating owner by paying "the full amount subject to recoupment," which includes the risk penalty incurred up to that point in time.
Assessment of well drilling costs - Staff's position is that assessment of well costs for the Winter 1-A proceeding (draft order DMN 08-04) should have pertained only to operations associated with the Winter 1-A. Drilling of the Winter 1-A followed drilling of the Winter 1, which was addressed by Order DMN 06-30 issued on August 29, 2006. The dispute pertains to the Huntington parcel, which was identified as controlled by Fortuna in Exhibit B to Order DMN 06-30. Therefore, costs attributable to that parcel were assessed to Fortuna, as the lessee of record as the time. Upon issuance of the permit to drill the Winter 1-A, Whitmar was identified as having leased the Huntington parcel after Fortuna's lease expired. Staff's position is that because Whitmar was not identified as an uncontrolled owner nor given the opportunity to elect participation in the Winter 1, Whitmar should not be assessed costs already allocated to Fortuna under Order DMN 06-30.
Commencement of drilling prior to completion of integration process - Staff's position is that the law does not prohibit drilling prior to completion of the integration process unless the proposed path of the wellbore penetrates an uncontrolled tract.
SEQRA Status: Department staff published a Final Generic Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program in July 1992. On September 1, 1992, Department staff issued a SEQRA (ECL article 8) findings statement concluding that the conduct of compulsory integration hearings pursuant to ECL article 23 would have no significant impact on the environment. Department staff, on behalf of the Department as lead agency, determined that these proceedings are being carried out in conformance with the conditions and thresholds established for compulsory integration hearings in the GEIS and the findings statement. Accordingly, no further action is required under SEQRA (see 6 NYCRR 617.10[d]).
Public Hearing: A legislative hearing to receive unsworn comments about the proposed integration orders will be held at 1:00 PM on Tuesday, May 13, 2008, at Schuyler County Human Services Complex, 323 Owego Street, Montour Falls, New York 14865 (Contact telephone for directions: 607-535-8111). Written comments may also be submitted to the Office of Hearings and Mediation Services, at the address below, in advance of the legislative hearing. All persons, organizations, corporations, or government agencies that may be affected by the outcome are invited to attend the hearing and to submit oral or written comments. Interpreter services will be made available to deaf persons, at no charge, upon written request to the administrative law judge ("ALJ") at least five business days prior to the date of the hearing. The hearing location is reasonably accessible to persons with a mobility impairment.
Issues Conference: A pre-adjudicatory hearing issues conference will be held at Schuyler County Human Services Complex, 323 Owego Street, Montour Falls, New York 14865 (Contact telephone for directions: 607-535-8111) immediately following the legislative hearing. The purpose of the issues conference is to define, narrow, and resolve, if possible, the proposed issues for adjudication. Any persons requesting party status must appear or be represented at the issues conference in order that all proposed issues may be fully discussed.
Party Status: Pursuant to a ruling of the ALJ (see Matter of Dzybon 1, et al., ALJ Ruling on Procedural Issues, June 6, 2007 [available online at www.dec.ny.gov/hearings/34993.html]), the well operator and all uncontrolled mineral rights owners in the spacing unit for each well listed above are automatic full parties to the adjudicatory hearing with the status of an applicant (see 6 NYCRR 624.5[a]). Uncontrolled owners are mineral interest owners in a spacing unit who have not entered into a voluntary lease or participation agreement with the well operator, including potential participating owners, non-participating owners, and royalty owners (see ECL 23-0901[a]).
All automatic full parties wishing to participate in the adjudicatory hearing must file a written notice of appearance. The notice of appearance must fully identify the party together with the name(s) of the person(s) who will act as the party's representative(s), the issues the party seeks to address (whether in support of or in opposition to the proposed integration orders), the scope of the issue raised, and the nature of the factual proof, if any, the party intends to present. Please see 6 NYCRR 624.4(c)(1)(i) and (ii) and 624.5(a) for further information on automatic full party status and identification of issues.
All other persons wishing to participate in the adjudicatory hearing must file a written petition requesting party status, pursuant to 6 NYCRR 624.5(b) (also see 6 NYCRR 624.4[c]). The petition must fully identify the proposed party together with the name(s) of the person(s) who will act as the proposed party's representative(s), the proposed party's interest in the proceeding, any interest relating to the statutes administered by the Department relevant to the proposed action, whether the request is for full party status or amicus status, and the precise grounds for opposing or supporting the proposed integration orders. Mere opposition to the proposed integration orders is not a sufficient basis to be granted party status. Please see 6 NYCRR 624.4 and 624.5 for further information on party status and identification of issues.
Petitions for full party status must demonstrate that substantive and significant issues exist concerning the proposed integration orders. Please see 6 NYCRR 624.4 and 624.5 for further information about requesting full party status and identifying issues for adjudication.
All notices of appearance and all petitions requesting full party or amicus status to participate in the adjudicatory hearing must be received at the Office of Hearings and Mediation Services at the following address no later than 4:00 PM on Wednesday, April 30, 2008. Telefaxed or emailed copies will be accepted, provided a hard copy is sent by first class mail and postmarked no later than April 30, 2008. Notices of appearance and petitions must be submitted to: James T. McClymonds, Chief 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).
All persons filing notices of appearance or petitions for party status must also send a copy of their notice or petition at the same time and in the same manner to: Jennifer Hairie, Esq., Associate Attorney, New York State Department of Environmental Conservation, Office of the General Counsel, 625 Broadway, 14th Floor, Albany, New York 12233-1500 (Telephone: 518-402-9507). A copy of the notice of appearance or petition must also be sent to all persons on the service list for the well at issue. A copy of the service lists are available from the ALJ or Department staff, or at the location listed under "Document Availability" below.
Document Availability: All filed documents, including the draft integration order for the spacing units for each well listed above, are available for inspection during normal business hours at New York State Department of Environmental Conservation, Horseheads Suboffice, 276 Sing Sing Road, Suite 1, Horseheads, New York 14845 (Telephone: 607-739-0809, Attn: Joy Brewer [appointment recommended]), and at the Office of Hearings and Mediation Services at the Albany address above. A copy of 6 NYCRR part 624 (Permit Hearing Procedures) may be obtained from the Office of Hearings and Mediation Services at the address above, or online at www.dec.ny.gov/permits/6234.html.
Statutory and Regulatory Provisions: ECL article 1 (General Provisions); article 3, title 3 (General Functions); article 8 (State Environmental Quality Review); article 23 (Mineral Resources); and 6 NYCRR part 550 (Mineral Resources);part 617 (State Environmental Quality Review); and part 624 (Permit Hearing Procedures).
James T. McClymonds
Chief Administrative Law Judge
Albany, New York
April 4, 2008