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Glodes Corners Road Field (Columbia NR) - Ruling after Public Hearing, October 28, 1999

Ruling After Public Hearing, October 28, 1999

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the matter of

the proposed order of field-wide well spacing rules and the integration of interests pursuant
to Environmental Conservation Law (ECL) §§23-0501 and 23-0901 for the

GLODES CORNERS ROAD FIELD,
STEUBEN COUNTY, NEW YORK

RULINGS
After Public Hearing

and
ORDER of Further Proceedings

File No.

DMN 99-1

(Glodes Cors. Rd. Field)

Proposed Action

The New York State Department of Environmental Conservation (the "Department") proposes to establish field-wide rules for the spacing of oil and gas wells, and to order the integration of interests within the resulting spacing units, in the Glodes Corners Road Field located in the Towns of Pulteney and Prattsburgh, Steuben County, New York. Columbia Natural Resources, Inc., 900 Pennsylvania Avenue, PO Box 6070, Charleston, WV 25362-0070 (Columbia, or the "developer") has been developing producing gas wells in the field. The Department proposes this action because the geologic conditions in the field appear to make the statewide minimum well-spacing requirements inadequate for protecting correlative rights and promoting the efficient and economic development of the resource. The specifics of the proposed action are set forth in the Department's draft of a proposed stipulation dated May 21, 1999, and a related map (Exhibits 6(G), 5(G)).

Proceedings

On March 31, 1999, the Department's Division of Mineral Resources Staff (the "Staff") requested that the Office of Hearings and Mediation Services (OHMS) schedule public hearings on the proposed action and on a similar action for the nearby Muck Farm Field (rulings being issued simultaneously herewith).(1) On April 9, 1999, the undersigned, Frank Montecalvo, was assigned to be the Administrative Law Judge (the "ALJ") who would hear both matters.

A combined Notice of Public Hearing (the "Notice") for both matters was issued on May 19, 1999, and was published on May 26, 1999, in the Department's Environmental Notice Bulletin, and in The Corning Leader. Notice was also directly mailed on May 24, 1999, to the supervisors and clerks of the Towns of Pulteney and Prattsburgh, the clerk of Steuben County, as well as to other persons deemed interested in this proceeding. Columbia mailed copies of the Notice to 183 individuals on June 3, 1999.

On or about June 12, 1999, the Staff served Columbia with a motion for an order requiring that Columbia immediately place the proceeds of production from existing field wells attributable to unleased parcels in the proposed spacing units into escrow and to pay royalties to existing lessors based on the oil and gas lease agreements in effect pending issuance of a final Order of the Commissioner. As an alternative, the Staff moved for an order that "shuts-in" production. Because the motion was on notice only to Columbia and, thus, the outcome could not be binding on others, it is treated in a separate ruling being issued simultaneously with this one. Since it is related to the matters considered here, it should be read in conjunction with this ruling for background. See Matter of the Glodes Corners Road Field, Ruling on Motion to escrow proceeds of production or to shut-in production, October 28, 1999.

As advertised in the Notice, public hearing sessions concerning the Glodes Corners Road Field were convened at 2:00 PM and 7:00 PM on June 22, 1999. The hearings took place at the Steuben County Civil Defense Building, State Route 54 (Bath-Hammondsport Road), Bath, NY. The Notice required that evidence that the Proposed Action would not protect correlative rights or promote the efficient and economic development of the resource was to be presented at the hearings. The Staff were represented by Arlene J. Lotters, Esq., the Department's Division of Mineral Resources program attorney. Columbia was represented by Christopher B. Wallace, Esq., of Utica, NY.

At each hearing session, testimony was taken from Ms. Lotters and Thomas E. Noll of the Staff, who summarized the Staff's position on the proposed action. The Staff requested that the ALJ recommend that the commissioner issue an order incorporating the provisions of the Department's proposed stipulation (Exhibit 6(G)) with Columbia. The proposed stipulation, among other things, describes applications for and conditions attendant to drilling permits, when wells may produce, how production will be allocated and royalties distributed, and when the Director of the Division of Mineral Resources will sign a compulsory integration order and the contents of same. It also describes how new spacing units may be added to those currently proposed. (The Department's draft stipulation was and is available for review at the "Document Availability" locations advertised in the Notice and on the internet.(2))

The Staff requested that detailed maps of each proposed spacing unit identifying Columbia's leases therein be entered into the record before it is closed. These maps, referred to in the Department's proposed stipulation, had not been made available for public review. They purportedly contain the same information as the map made available for public review (Exhibit 5(G)), but with Columbia's lease holdings also identified. Because Columbia was still in the process of obtaining leases on the lands and no reason was expressed why the specific lease holdings of Columbia were required to be in the record at that time, they were not placed in the hearing record.

In addition to the Staff's testimony, sworn testimony was taken from the following witnesses: Mitchel Kozak, David Lachance, James Fox, David Covert, Vincent Bedient, Tracy Gingrich, Christopher Spence, Jeffrey Squires, David Whedbee (for Belden & Blake Corporation), Robert Curry, and Kevin Cronk. Some of these witnesses also submitted exhibits.

The record of the hearing was held open until July 6, 1999, in order to receive via affidavit evidence in opposition to that which was presented at the hearings. Sworn statements were received from Richard W. Beardsley (for Columbia); Kathleen and Duane Bergstresser; James R. Pizura; and Erwin J., Jr. and Alice M. Spence under cover letter of Christopher A. Spence. Also, as requested during the hearing, a plan of land certified to Kevin J. Cronk was submitted to NYSDEC Staff who forwarded it to the ALJ.

Non-Staff testimony and the post-hearing submissions are summarized in Appendix B, below. The rulings and determinations made within are based solely on the hearing transcripts and the exhibits listed on the official exhibits list (Appendix A, below). Copies of the transcripts and all exhibits are available for review at the "Document Availability" locations specified in the Notice.

Discussion

The ECL and companion regulations (6 NYCRR Part 553) call for a public hearing on the matters under review here. In situations where the public may assert facts in conflict with the Department Staff or an applicant, it is discretionary whether such facts may be resolved through adjudication or by Staff. Department practice to date demonstrates a mix of approaches, however, most involve a review of issues and the adjudication of facts when disputes arise. In that respect, the functions performed are similar to those in the Department's permit hearings, which makes the Department's Permit Hearing Procedures (6 NYCRR Part 624, see the Notice of Hearing, Exhibit 1) appropriate for procedural guidance.

The hearing record (composed of the transcripts and listed exhibits) developed thus far is only a portion of the Department's administrative record on the proposed action. The hearing record does not contain all the geologic, economic and other data that purportedly justify the proposed action. Because a comprehensive review of the proposed action for compliance with legal requirements is not possible on such a record, no recommendation is made to the Commissioner to order the proposed action. Rather, the hearing record has been examined for indications that the Department should not take the proposed action. As explained below, this is found with respect to certain matters discussed at the hearings. For these issues, rulings are made identifying the information needed to make a final decision, and an order is made specifying the proceedings and participants through which the information will be gathered. Other matters discussed at the hearings do not to warrant further exploration, and are ruled to be non-issues. As a precautionary measure, I have determined that appeals should be allowed to provide an opportunity to correct error and to ensure that no substantive and significant issue is left unconsidered.

Hearing testimony and/or post-hearing submissions were received on the following topics from the following persons:

  1. The proposed rules for well spacing and unitization (from the Department, Belden & Blake, Columbia).
  2. Dealings between the developer and property owners (from Kozak, Fox, Cronk).
  3. Statements of federal owner's rights or intent regarding leasing (from Lachance, Gingrich).
  4. Recommendations (i.e., for publishing a guide, bonding requirements, that royalties be paid from the start of well production)(from Fox, Curry).
  5. Documentation or correction of individual property tract descriptions (from Fox, Lachance, Curry, Cronk, Bergstresser).
  6. Inclusion or exclusion of property from particular units (from Fox, Covert, Squires, Bedient, Spence, Cronk, Bergstresser, Pizura).

Topics 2,3,4 and 5:

Individual dealings between the developer and property owners, various recommendations to the agency, and statements of the federal government's rights or intent regarding leasing (topics 2, 3 and 4 in the list above) require no further proceedings. This is because these matters have not been shown to relate to the Department's statutory or regulatory requirements for ordering well spacing and integration of interests. In addition, any rights the federal government may have which are superior to the state's would not be affected by determinations here.

The documentation or correction of individual property tract descriptions (topic 5 above) requires no proceedings at this time. With the possible exception of a 2 acre discrepancy referred to by Mr. Fox, if spacing units are ordered as they appear on the field map (Exhibit 5(G) as corrected by Exhibit 17(G)), the information in the hearing record concerning individual property tracts reveals no dispute. It is expected that ownership information will be documented by the developer, verified by the owners or through public records, and corrected by the Staff before the Staff drafts a final Order for the Commissioner's signature. In the event that disputes are left unresolved after this process, referral to the ALJ for a hearing to resolve such would be appropriate. To do so now, however, would be premature. There are questions over where the unit boundaries should be drawn which need to be resolved first. Only after the unit boundaries are determined would it be possible to determine which landowners are affected.

Subject 1 - the proposed well spacing rules:

Only Belden and Blake Company registered concern over the Department's proposed "rules" (i.e., the provisions of the Department's proposed stipulation, Exhibit 6(G)) for well spacing and unitization in the Glodes Corners Road Field. In particular, Belden and Blake questioned the proposed 5280 feet minimum spacing requirement for "extension wells" (see Exhibit 6(G), IV. A. 3) and the proposed 240 acre minimum size for new "extension well"spacing units (id., IV. C. 2. (a)). The company contended that the proposed spacing could prohibit offsetting operators from drilling, even if they had sufficient acreage to form a unit of similar size to those already proposed. It was suggested that two different spacings be used: one measured in the direction of the structural strike of the field's underlying geologic feature, the other measured perpendicular to the strike. Belden and Blake recommended a 150 acre minimum spacing unit size. Belden and Blake also expressed concern that the Department might not approve future units with wells not in the center of the units; and that the field may overlap the Muck Farm Field, subjecting drillers to two differing sets of rules.

Exhibits 5(G) and 17(G) show 16 proposed spacing units, roughly rectangular in shape (with several exceptions) with long dimensions about four times the length of the short dimensions. Rough measurements indicate unit areas varying from a little less than 160 acres to a little over 260 acres with most less than 240 acres. The units are arranged in a double undulating east-west line with the exception of the three easternmost units which are northeast/ southwest of each other forming a "hook." Two units in the updated map (part of Exhibit 17(G)) show no well. Rough measurements indicate distances between wells in units adjoining on the east or west vary from about 4200 to 7400 feet. Distances between wells in units adjoining on the north or south are almost uniformly less, being as little as 2100 feet.

Assuming that the pool uniformly extends in all directions away from the units drawn on Exhibits 5(G) and 17(G), the concern that the 5280 ft. spacing requirement could prohibit offsetting operators from drilling, even if they had sufficient acreage to form a unit of similar size to those already proposed, seems valid. Wells uniformly spaced 5280 feet apart would be expected to produce square shaped units of 640 acres each - unlike the smaller, rectangular and irregular units proposed on the map. Spacing units are usually of approximately uniform size and shape for an entire pool, and wells are usually located thereon in a reasonably uniform spacing pattern (ECL §23-0501(3),(5)). If wells are spaced too far apart, reserves may be expected to either go unrecovered or require additional wells (and expense) to be recovered, contrary to the statute's intent (see §23-0301).

However, the post hearing submission by Richard Beardsley of Columbia indicates that the pool does not uniformly extend in all directions away from the proposed units. In essence, the reservoir is a structural graben bounded on the north and south by high angle normal faults, with up to 130 feet of throw, located 660 feet within the northern boundaries of the northern row of units and 660 feet within the southern boundaries of the southern row of units as they are drawn on Exhibits 5(G) and 17(G). The graben is offset by a northwest-southeast tear fault on the east side of the field between the Bergstresser, Radigan and Pizura wells, which intersects the Egressi well. The extent of the field on the east and west is not well defined. (Exhibit 17(G) at ¶9).

Columbia's explanation of the geology of the field indicates that the field does not extend north of the northern boundaries of the northern row of units, or south of the southern boundaries of the southern row of units, as shown on the map. Thus, the proposed 5280 feet spacing would not be applied to areas north or south of these units simply because those areas are outside the field. To the extent that the field may extend to the east or west of the designated units, the proposed spacing is consistent with the current east-west spacings between wells (i.e., 4200 to 7400 feet), but inconsistent with the smaller north-south spacings. In addition, the proposed minimum spacing unit size of 240 acres is larger than almost all of the proposed units. Simply put, the rule would not replicate the "double line" spacing pattern reflected by the well locations and unit boundaries placed on the maps.(3) This raises questions about the proposal's compliance with "uniform pattern" requirements in §23-0501(3) and (5). In contrast, on this record, Belden and Blake's proposals to apply two different spacing intervals with reference to the strike of the geological structure, and a minimum unit size of 150 acres, suggest that results similar to what has already been drawn would be produced. Thus, the proposed spacing and minimum unit size rules' compliance with statutory requirements needs to be established.

Belden and Blake's other concerns are not issues requiring further exploration. Although there is a concern that the Department might not approve future units with wells not centrally located, the stipulation indicates otherwise when other criteria are involved. (Exhibit 6(G), at IV. C. 2. (b)). Lastly, at this point there is no reason to assume the Muck Farm Field and the Glodes Corners Road Fields overlap. The reservoir testing and geological analysis required by the proposed rules for both fields would determine the field and set of rules applicable to a particular well before the well goes into production (see Exhibits 4(M) and 6(G) at IV. C. 2. (d)).

Subject 6 - Inclusion or exclusion of property from units

How unit boundary lines are drawn may be perceived as injurious to particular land owners because the distribution of royalties will be affected. See Matter of Reiss v Kilbourne, 56 Misc 2d 303, 305; rev'd other grounds 33 AD2d 885 (4th Dept., 1969). Therefore it is important that when questioned by affected landowners, unit boundaries must be supported on the record by substantial evidence. Although the affidavit of Mr. Beardsley (Exhibit 17(G)) sheds light on the northern and southern limits of the field, it does not substantiate how the size, shape and locations of the units were determined. Here, the boundaries in three areas of the Glodes Corners Road Field have been questioned.

Mr. Covert (and Mr. Squires on his behalf) pointing to what he called "dry" or "useless" wells in the units immediately to the east and west of the proposed unit containing his well (Covert No. 1, #622302), disputed that the reservoir drains as implied by the map. Essentially, Mr. Covert contended that Covert Well No. 1 drains only his property and, thus, the area of his lease should not be unitized with the neighboring properties as shown. On the other hand, Mr. Cronk, who owns almost 62 acres in the proposed unit immediately south of the unit containing Covert No. 1, related that he had once been told that the gas from beneath his property would be taken through Covert No. 1. It's noted that Exhibit 17(G) now shows a well, Covert No. 2, in the unit containing Mr. Cronk's property, where Exhibit 5(G) showed none. A record needs to be made to establish the areas that will be drained by Covert Wells Nos. 1 and 2, and the appropriateness of the unit boundaries that have been proposed.

Mr. Fox contended that the unit containing Well C. Fox No 1 should be shifted to the east, excluding a 45 acre parcel on the west side of Gay Road. Based on the map, that would seems to require excluding additional properties west and south of the parcel, making the unit adjoining on the west larger. It would also put the Fox Well further from the unit's center than now proposed, and shrink the unit adjoining on the east, which currently does not have a designated well. Such reorganization seems to make the proposed units less uniform, contrary to statute. Nevertheless, since the record does not establish how this unit's lines were drawn (except, perhaps, the southern boundary) the record needs to be developed to show that they were drawn appropriately and in conformance with statutory requirements.

Finally, in the eastern part of the field, it was questioned why the Bedient and Spence properties were excluded from the unit containing the Bergstresser well (#623268), while properties to the east that are further from the well have been included. Mr. Pizura (in Exhibit 15(G)), questioned why the proposed unit containing his well (#623143), which is south of the Bedient and Spence properties, has a "sharp southerly turn, " questioned the geology behind the unit shapes and, noting the location of the Bergstresser well, opined that the unit around that well should be shifted westward. The Bergstressers explained (in Exhibit 14(G)) that the well was placed in its location at their request to avoid a vineyard. That does not explain, however, why the unit does not surround the well symmetrically. Again, the record needs to be developed to substantiate the unit configurations proposed.

Rulings

  1. The proposed minimum 5280 ft. spacing and 240 acre unit size requirements and their compliance with applicable statutory requirements need to be substantiated on the record.
  2. The size, shape and location of the proposed units and their compliance with statutory requirements need to be substantiated on the record. In this regard, the substantiation should address the particular concerns over inclusion or exclusion of particular parcels of land from units which were voiced by Mr. Covert (and Mr. Squires as his attorney), Mr. Cronk, Mr. Fox, Mr. Bedient, Mr. Spence, and Mr. Pizura.
  3. All requests not expressly ruled upon herein are found to be non-meritorious and are denied.

Appeals

Any appeal of the determinations herein must be filed with the Commissioner in writing, to be received at the address below no later than November 15, 1999. Copies of the appeal must also be sent in the same manner to the ALJ and the attorneys for the Department Staff and Columbia. Replies must be filed no later than November 29, 1999.

Appeals to the Commissioner are to be sent to the following address: Commissioner John P. Cahill, c/o James H. Ferreira, Assistant Commissioner, New York State Department of Environmental Conservation, 50 Wolf Road, Albany, NY 12233-1550. (See the Service List attached for other addresses).

Order of Further Proceedings

Subject to the Commissioner's determination of any appeals which might be filed herein, additional proceedings are ordered as follows:

  1. The Department Staff shall place on the record the information specified in Rulings 1 and 2 above through "prefiled testimony" as that term is described in 6 NYCRR §624.7(e). The Staff's prefiled testimony shall be filed with the undersigned, sent to Columbia and to the persons who raised the matters upon which the record will be developed (specifically, Belden and Blake, Inc., Mr. Squires (on behalf of Mr. Covert), Mr. Cronk, Mr. Fox, Mr. Bedient, Mr. Spence, Mr. Pizura, and Mr. and Ms. Bergstresser), and made available for public inspection at the "Document Availability" locations specified in the Hearing Notice, no later than Monday, December 13, 1999.
  2. Persons who have an interest that may be affected will be permitted to place opposing information on the record through prefiled testimony. Such prefiled testimony, which must identify the filer's interest that may be affected, shall be filed with the undersigned with copies sent simultaneously to the Staff and to Columbia, no later than Friday, January 14, 2000. Staff and Columbia will have 5 days thereafter to submit comments on the filings.
  3. If opposing filings indicate that there is a material conflict with the Department Staff's information, a hearing will be scheduled for formal entry of the prefiled testimony into the record, cross examination, and for taking rebuttal testimony as needed. If no material conflict is found, there will be a ruling that no substantive and significant issues requiring further proceedings exist, and the matter will be remanded to Department Staff to take the steps needed to implement the proposed action.
  4. The proceedings ordered herein may be modified by the ALJ upon motion for good cause shown.

For the New York State Department
of Environmental Conservation

_____________/s/_____________
By: Frank Montecalvo,
Administrative Law Judge

Dated: October 28, 1999

Albany, New York

Appendices:

Appendix A - Exhibits List

Appendix B - Summary of Non-Staff Testimony and Post Hearing Submissions

TO: Service List (attached))

1 For completeness and reference, see Matter of the Muck Farm Field, Rulings After Public Hearing, October 28, 1999.

2 STATE OF NEW YORK DEPARTMENT OF ENVIRONMENTAL CONSERVATION STIPULATION: GLODES CORNERS ROAD FIELD Steuben County, New York

3 The situation here appears different from that in the Muck Farm Field in two respects: (1) Muck Farm has only a single row of proposed spacing units, except for the westernmost pair which are explained by an intervening anticline. The reason for the double row in Glodes Corners Road is unknown on this record. (2) The minimum unit size for Muck Farm is smaller than all the proposed units. For Glodes Corners Road, the minimum unit size is larger than most of the proposed units.

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