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Kidder Exploration Inc - Decision & Order, September 30, 1993

Decision & Order, September 30, 1993

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter

- of -

the Application of KIDDER EXPLORATION, INC. for the establishment and, if necessary, the unitization
of a spacing unit for the R. Klopp No. 1 well located in the Town of Evans, Erie County.

DECISION
AND
ORDER

WHEREAS:

  1. Pursuant to a Notice of Hearing issued on August 4, 1993, an adjudicatory hearing was held before Administrative Law Judge ("ALJ") William J. Dickerson on August 31, 1993 in the Evans Town Hall, 8787 Erie Road, Angola, New York.
  2. Upon review of ALJ Dickerson's Hearing Report (copy attached), I concur in its Findings, Conclusions and Recommendations.

NOW THEREFORE, having considered this matter and being duly advised, and having found that the integration of interests in the proposed spacing unit for the Medina Group surrounding the R. Klopp No. 1 natural gas well in the Town of Evans, Erie County, is necessary, under the conditions existing in the unit, to carry out the policy provisions of the Environmental Conservation Law ("ECL") 23-0301, it is Ordered that:

  1. A spacing unit is hereby established in the Medina Group consisting of 47.84 acres surrounding the R. Klopp No. 1 well in the Town of Evans, Erie County as shown on Exhibit No. 2 submitted at the hearing. No other oil or gas well shall be drilled within this spacing unit.
  2. All operations, including the operation of the well, on any portion of the spacing unit covered by this order shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the spacing unit by the owner or several owners thereof. That portion of the production allocated to each tract included in the spacing unit covered by this order shall, when produced, be deemed for all purposes to have been produced from such tract by a well drilled thereon.
  3. In view of the stipulation among the parties at the hearing waiving the 90 day waiting period to allow for voluntary unitization and the agreement between the Applicant and the owners of the one parcel of unleased property within the unit concerning the execution of a non-drilling lease as set forth on the record at the hearing, compulsory integration of interests within the spacing unit shall become effective immediately so that the well may be put into commercial production.
  4. The landowners within the unit shall be entitled a share of the royalty interest of one eighth of the production from the R. Klopp No. 1 well in the proportion that the acreage they own bears to the total acreage in the unit, as more specifically set forth in Finding No. 4 of the Hearing Report.
  5. Kidder Exploration, Inc. shall be the unit operator and is hereby authorized to equip and operate the R. Klopp No. 1 well for the production of natural gas. As the unit operator, Kidder Exploration, Inc. shall be entitled to the seven eighths working interest share of the production from the R. Klopp No. 1 well.
  6. Kidder Exploration, Inc., as unit operator, shall file a copy of this order with the Erie County Clerk and shall submit proof of such filing to the Department's Division of Mineral Resources within 30 days of receipt of this Order.

IN WITNESS WHEREOF: the Department of Environmental Conservation has caused this Order to be signed and issued and has filed the same with all maps, plans, reports and other papers relating thereto in its office in the County of Albany, New York this 30th day of September, 1993.

For the New York State Department
of Environmental Conservation

_____________/s/_____________
By: THOMAS C. JORLING, COMMISSIONER

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION

50 Wolf Road
Albany, New York 12233-1550

In the Matter

- of the -

Application of

KIDDER EXPLORATION, INC. for the establishment and, if necessary,
the unitization of a well spacing unit for the R. Klopp No. 1 natural gas well
which is located in the Town of Evans, Erie County.

HEARING REPORT
____________/s/_____________
William J. Dickerson
Administrative Law Judge

Proceedings

Pursuant to a Notice of Hearing published in the Department's Environmental Notice Bulletin on August 11, 1993 and in the Hamburg Sun on August 19, 1993 a public hearing was held before William J. Dickerson, Administrative Law Judge at 10:00 A.M. on August 31, 1993, in the Town of Evans Town Hall, 8787 Erie Road, Angola, New York 14006 to consider the application of Kidder Exploration Inc., Pembroke Building, 421 East Second Street, Jamestown, New York 14701 (the "Applicant").

The Applicant requested the establishment and, if necessary, the unitization of a well spacing unit for the R. Klopp No. 1 natural gas well which is located in the Town of Evans, Erie County pursuant to Sections 23-0501 and 23-0901 of the Environmental Conservation Law and Part 553 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR"). The stenographic record was received on September 13, 1993 and the record was closed on that date.

The Department of Environmental Conservation (the "Department"), as lead agency pursuant to Environmental Conservation Law ("ECL") Article 8 (State Environmental Quality Review Act) ("SEQRA") and the companion regulations in 6 NYCRR Part 617, determined that the proposed action would not have a significant effect on the environment and issued a Negative Declaration on March 26, 1993.

The Applicant was represented at the hearing by the law firm of Wright, Wright and Hampton, Esqs. (Mark I. Hampton, Esq. of Counsel). The Department Staff was represented by Arlene J. Lotters, Esq., Senior Attorney. Donald and Derrik Decker were represented by the law firm of Hurst, Brothman and Yusick, Esqs. (Andrew D. Yusick, Jr., Esq., of Counsel).

Position of the Applicant

The Applicant had been unable to lease all lands within 660 feet of the proposed well location, in particular a 1.15 acre parcel of land then owned by Mr. David Gleason. The Applicant was administratively granted a variance from the provisions of 6 NYCRR Part 553.1 on March 16, 1993. The variance allowed the well to be drilled less than 660 feet from any boundary line of the lease, integrated leases or unit subject to certain conditions.

These conditions required the Applicant to notify the Department in writing of its intent to produce the well within 60 days of completion of the well and noted that if the Applicant were unable to reach agreement on the unleased parcel within that time period, the Department would schedule a hearing for compulsory integration and unitization of the spacing unit. The variance specifically prohibited commercial production of the well prior to an integration order.

The Applicant drilled the R. Klopp No. 1 natural gas well approximately 660 feet north of Wisconsin Road and approximately 900 feet southeast of New York State Route 5 in the Town of Evans, Erie County. The Applicant now seeks the establishment and, if necessary, the unitization of spacing unit for the R. Klopp No.1 natural gas well so that the well can be produced.

Position of the Department Staff

The Department Staff supports the establishment the proposed spacing unit and, if necessary, the unitization of the spacing unit for the R. Klopp No. 1 natural gas well.

Position of Donald and Derrik Decker

Donald and Derrik Decker recently purchased the David Gleason property. At the hearing, Messrs. Decker agreed to execute a non-drilling lease with the Applicant and stipulated to that agreement on the record. [ ALJ Note: The non-drilling lease would have the effect of forming a voluntary unit when it is executed.]

Stipulation

In view of the agreement reached between the Applicant and the Deckers, all parties at the hearing agreed to a stipulation waiving the 90 day waiting period to allow for voluntary unitization which would normally be incorporated into a compulsory unitization Order. In effect, the parties are requesting the Commissioner to issue a compulsory order so that the well may be put into commercial production immediately.

Findings of Fact

  1. The R. Klopp No. 1 well was drilled to the Medina Group and is capable of gas production from both the Grimsby and the Whirlpool sandstones. [ALJ Note: The Medina Group consists of four sands or sandstone units; the Medina, the Thorold, the Grimsby and the Whirlpool.] The R. Klopp No. 1 well has a 33 foot section of the Grimsby sand with an average porosity of 6.8 per cent and 13 foot section of the Whirlpool sand with an average porosity of 4.8 per cent.
  2. The R. Klopp No. 1 well is expected to yield 1,373,496 SCF/acre [standard cubic feet per acre] of natural gas of which 1,163,518 SCF/acre will come from the Grimsby sand and 209,978 SCF/acre will come from the Whirlpool sand. These yields indicate a low gas recovery when compared to other Medina wells, especially those in the area of Erie County where the well is located. Medina wells in Erie County usually yield about twice as much gas as is expected from the R. Klopp No. 1 well.
  3. Based on a production test of the well, the average gas saturation for the Grimsby is 39.6 % and for the Whirlpool is 25.7%. As a result of these low gas saturations, the projected production from the R. Klopp No. 1 well is expected to be 50,545 MCF [thousand cubic feet] over a 15 year period. During the early production test, the well produced a large amount of water. The presence of a large amount of formation water will inhibit the potential for inflow of gas to the well from an area greater than 40 acres surrounding the well. Based on other Medina wells in the area, it is doubtful if the amount of gas expected from the R. Klopp No. 1 well could be produced from an area even as large as 40 acres.
  4. The proposed unit consists of an irregularly shaped area approximately 1540 feet from north to south and approximately 1440 feet from east to west and contains 47.84 acres as shown on Exhibit No. 2 submitted at the hearing. The owners of the 1/8 royalty interest within the proposed unit, the breakdown of the acreage within the proposed unit and the percentage of the unit that each parcel contains is as follows:
    Landowner Acres % of Unit
    Francis/ Helen Blake 3.54 7.40
    John/Carol Palkowski 2.0 4.18
    Anthony/Sandra Anzalone 2.0 4.18
    James/Kathy Klopp 5.1 10.66
    Richard/Cynthia Klopp 7.59 15.87
    Joseph/Patricia Kovalewski 2.49 5.20
    Paul/Laura Moran 4.98 10.41
    Walter/Cynthia Mayo 4.98 10.41
    John/Sally Armbruster 1.1 2.30
    Donald/Derrik Decker 1.15 2.40
    Eckis Realty 1.38 2.885
    Demetrious Tsirtsakis 1.38 2.885
    Eckis Realty 10.15 21.22
    Total 47.84 100
  5. At the time of the hearing, the Applicant held leases on all of the parcels of land within the proposed unit except for the 1.15 acre parcel now owned by the Deckers. This parcel constitutes 2.4 per cent of the proposed unit. There are no other working interest owners within the proposed unit.
  6. The total cost of drilling, completing and testing the R. Klopp No. 1 well was $120,000 and the expected monthly operating costs are $300.

Discussion

It is the policy of the State of New York to regulate the development, production and utilization of natural resources of oil and gas in such a manner as will prevent waste; to authorize and to provide for the operation and development of oil and gas properties in such a manner that a greater ultimate recovery of oil and gas may be had, and that the correlative rights of all owners and the rights of all persons including landowners and the general public may be fully protected. [ECL s 23-0301]

ECL 23-0501 requires that an order establishing a spacing unit shall specify the size and shape of the unit which will result in the efficient and economic development of the pool and shall cover all lands determined or believed to be underlaid by such pool. No unit shall be smaller than the maximum area that can be efficiently and economically drained by one well. An order establishing a spacing unit shall specify the procedure to be followed for compulsory integration of interests within the individual spacing unit consistent with the provisions of subdivisions 2 and 3 of 23-0901. The order also shall provide for a time interval of not less than 90 days, nor more than that which the Department regards as consistent with the objectives of well spacing and unitization, during which voluntary integration pursuant to 23-0701 shall be permitted before the compulsory integration procedure of subdivision 3 of 23-0901 becomes effective. As noted above, all parties to this proceeding agreed to waive the 90 day waiting period in view of the agreement between the Deckers and the Applicant, so that the Department order could become effective immediately and the well could be produced.

ECL 23-0901 requires the Department to find, after detailed study and analysis, notice and hearing, that the integration of interests in a spacing unit, under conditions then existing in the state, or in the field or pool affected, is necessary to carry out the policy provisions of ECL 23-0301 set forth above, prior to making any order requiring the integration of interests in any spacing unit.

Conclusions

  1. In this particular case, because the Applicant does not hold leases on all properties within 660 feet of the R. Klopp No. 1 well, the establishment of a spacing unit and the integration of the interest within the unit is necessary so that the policy of the State as set forth in ECL s 23-0301 can be carried out. An Order should be issued establishing a spacing unit for the R. Klopp No. 1 well consisting of 47.84 acres, as more particularly described in Exhibit No. 2 received at the hearing. Such a unit will encompass all lands underlain by the Medina Group which will drain to the well and, based on the test of the R. Klopp No. 1 well, will not be smaller than the maximum area drained by the R. Klopp No. 1 well.
  2. The compulsory integration of all tracts and interests within the spacing unit will be necessary to carry out the policy of the State, especially with respect to providing for the greater ultimate recovery of natural gas and protecting the correlative rights of the owners (operators) and landowners.
  3. The order should provide for the operation of the well by Kidder Exploration Inc. as the operator of the unit by virtue of the fact that Kidder Exploration Inc. holds 97.6 % of the working interest of the proposed unit. There are no other operators in the proposed unit. It is anticipated that Kidder Exploration will hold 100 % of the working interest in the proposed unit when the Deckers execute the non-drilling lease. The order should also provide that the owners of the royalty interests within the unit shall participate in the royalty income from the unit well in the relation that the acreage owned by each individual landowner bears to the total acreage in the unit as set forth in Finding No. 4.
  4. Based on the gas saturations, the production of large amounts of water during the production test and the characteristics of surrounding Medina wells, the proposed unit is not smaller than the maximum area that can be efficiently and economically drained by the R Klopp No. 1 well. No other well should be drilled within the unit.
  5. The total costs of the well are set forth in Finding No. 6 and are reasonable for this type of well.

Recommendation

In view of the foregoing Findings of Fact, Discussion and Conclusions, I recommend that the Department issue an Order establishing a 47.84 acre spacing unit for the R. Klopp No. 1 well providing for the compulsory integration of interests within the unit as described above.

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