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Muck Farm 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

MUCK FARM FIELD
STEUBEN COUNTY, NEW YORK

RULINGS

After Public Hearing and ORDER of Disposition

File No. DMN 99-1

(Muck Farm 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 Muck Farm 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 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 a May 18, 1999, stipulation between the Department and Columbia, and a related map (Exhibits 4(M), 3(M)).

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 Glodes Corners Road 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.

As advertised in the Notice, public hearing sessions concerning the Muck Farm Field were convened at 7:00 PM June 21, 1999, and 10:00 AM 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 executed stipulation with Columbia (Exhibit 4(M)). The 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 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. These maps, referred to in the stipulation, had not been made available for public review. They purportedly contain the same information as the map made available for public review (Exhibit 3(M)), but with Columbia's lease holdings also identified. Columbia objected to their entry in the record at this time since Columbia was still in the process of obtaining leases on the lands, and disclosing the information would alert competitors to which lands were still unleased. The Staff and Columbia stipulated that there were lands within the spacing units as yet unleased. They also agreed that the information was not needed until a Commissioner's Order was found to be warranted. Thus, since there was no reason expressed why the specific lease holdings of Columbia were required to be in the record at that time, they were not placed the hearing record.

In addition to the Staff's testimony, sworn testimony was taken from David Whedbee for Belden & Blake Corporation.

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. A sworn statement was received from Richard W. Beardsley, for Columbia.

The relevant portions of the hearing record are summarized in the Discussion, 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 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. Had such been found, rulings would have been made identifying the information needed to make a final decision, and further proceedings would have been ordered specifying how and from whom the information would be gathered. That is not the case here, as explained below. 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 prior to the entry of a Commissioner's Order. The hearing record is reopened for this limited purpose.

Here, only Belden and Blake Company registered concern in relation to the Department's proposed action for the Muck Farm Field. Importantly, Belden and Blake objected neither to the particular spacing units designated on the publicly available map of this field, Exhibit 3(M), nor to the integration of interests therein. Thus, on this record, the proposed action relative to the spacing units shown on Exhibit 3(M) is, essentially, unopposed, and requires no further proceedings.

Nevertheless, Belden and Blake called into question the "rules" (i.e., the provisions of the stipulation, Exhibit 4(M)) proposed to be applied to areas beyond the borders of the spacing units shown on Exhibit 3(M). In particular, Belden and Blake questioned the proposed 5280 feet minimum spacing requirement for "extension wells" (see Exhibit 4(M), IV. A. 3) and the proposed 320 acre minimum size for new 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 also recommended a 150 acre minimum spacing unit size; expressed concern that the Department might not approve future units with wells not in the center of the units; and expressed concern that the field may overlap the Glodes Corners Road Field, subjecting drillers to two differing sets of rules.

Exhibit 3(M) shows that the five spacing units proposed are roughly rectangular in shape with long dimensions about twice the length of the short dimensions. Rough measurements result in unit areas varying from about 380 to 520 acres. The units are arranged in an east-west line with the exception of the two westernmost units which are north and south of each other. Other than the wells in the westernmost units which are about 3250 feet from each other, wells are spaced approximately 4600 feet to 9500 feet from each other.

Assuming that the pool uniformly extends in all directions away from the units drawn on Exhibit 3(M), 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 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 field 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 and southern unit boundary lines as they are drawn on Exhibit 3(M). Where the western two units are drawn, the graben is bifurcated by an anticline. The extent of the field on the east and west is not well defined. (Exhibit 18(M) at ¶9)

Columbia's explanation of the geology of the field puts to rest the issue of the propriety of the 5280 ft. spacing requirement. Simply put, the units already designated on the map appear to have their northern and southern boundaries determined by the local geology. The proposed 5280 feet spacing would not be applied to areas north or south of these units (and, thus, would not create the situation that concerns Belden and Blake) 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 spacings between wells (i.e., 4600 to 9500 feet) that do not have an intervening confining geologic feature (i.e., the anticline at the western end of the known field). Assuming Belden and Blake has no geological data that specifically contradicts Exhibit 18(M), at ¶9, this issue requires no further proceedings.

Belden and Blake's other concerns are not issues requiring further exploration. Although a 150 acre minimum unit size is proposed by Belden and Blake and by the Department for certain circumstances in the Glodes Corners Road Field (see Exhibit 6(G)), that size is much smaller than the units designated (and not objected to) here, and would violate the statute's intent to create approximately uniform sized units (§23-0501(3))(3). 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 4(M), 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)).

Rulings

For the reasons expressed above, the hearing record reveals no reason why the Department should not take the action as proposed. No issues were raised in the public hearing which require further proceedings.

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. The hearing record is reopened for the limited purpose of receiving appeals and replies.

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 Dispostion

Subject to any appeal which may be filed herein, this matter is remanded to the Department Staff to take all other steps necessary leading to issuance of a Commissioner's Order or Orders for the Muck Farm Field establishing field-wide rules for the spacing of oil and gas wells, and integrating the interests within the resulting spacing units. In the event that disputes arise in this process, the Staff may move to reopen this proceeding for the purpose of resolving same.

October 28, 1999
Albany, New York

_____________/s/_____________
Frank Montecalvo,
Administrative Law Judge

Appendices:

Appendix A - Exhibits List

To: Service List (attached)

1 For completeness and reference, see Matter of the Glodes Corners Road Field, Rulings After Public Hearing, October 28, 1999; and Matter of the Glodes Corners Road Field, Ruling on Motion to escrow proceeds of production or to shut-in production, October 28, 1999.

2 Muck Farm Field Stipulation (PDF, 34 Kb)

3 It is presumed that the stipulation's 320 acre minimum unit size is larger than the maximum area that can be efficiently and economically drained by one well (§23-0501(4)).

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