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Pine Hill Field - Decision and Order, September 30, 2002

Decision and Order, September 30, 2002

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter

of

the 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 Pine Hill Field located in Steuben County, New York

(DEC File No. DMN 01-4)

DECISION AND ORDER

WHEREAS:

  1. This Decision and Order relates to the proposal of the New York State Department of Environmental Conservation Staff ("Department") to establish well spacing units and integrate interests in the Pine Hill Field, a discovery of natural gas, in portions of Steuben County. The well spacing and compulsory integration proposals are made pursuant to ECL Article 23, Titles 5 and 9, respectively;
  2. Pursuant to a Notice of Public Hearing published on April 24, 2002, a public hearing and an issues conference were held before Administrative Law Judge ("ALJ") Susan J. DuBois on May 23, 2002, and May 24, 2002, respectively, at the Wayland-Cohocton Central School in Wayland, New York.
  3. As stated in the Notice of Public Hearing, Columbia Natural Resources ("CNR") and Department Staff reached agreements on matters raised in the Department Staff's proposal and embodied those agreements in an executed Stipulation, dated October 26, 2001 ("Stipulation");
  4. As stated in ALJ DuBois' Summary Hearing Report ("Report") of July 10, 2002, Department Staff requested by letter dated May 22, 2002, that, because no issues had been proposed regarding the spacing and integration rules proposed for Pine Hill Field, she issue a ruling which would allow Department Staff to prepare and complete a Commissioner's Decision and Order establishing units and releasing royalties for the four units in Pine Hill Field;
  5. As further stated in ALJ DuBois' Report, no petitions for party status were received, no one appeared at the issues conference to request party status and no issues were proposed which could require an adjudicatory hearing; and
  6. ALJ DuBois' Report indicates that she granted the Department Staff's request.

NOW, THEREFORE, having found that the Stipulation will result in the efficient and economical development of the gas pool as a whole; that no disputes exist regarding the four Spacing Units the Stipulation seeks to establish for the existing wells in the Pine Hill Field; and that an order establishing spacing units and integrating acreage therein is necessary to carry out the policy provisions of ECL Section 23-0301, it is hereby ORDERED that:

  1. The Stipulation executed by CNR and Department Staff, dated October 26, 2001, and its terms and conditions, including Exhibits "A" through "D", are hereby incorporated by reference into and made a part of this Decision and Order. As set forth in the Stipulation, updated Exhibits "A" and "B1" through "B4" which reflect changes in property ownerships and descriptions may be prepared, if necessary, within 90 days of the effective date of this Decision and Order and made part hereof;
  2. The Stipulation resolves the following issues: (1) well spacing in the Pine Hill Field and (2) allocation of royalty interest due to unit owners affected by the production from existing wells in Spacing Units in the Pine Hill Field. The Stipulation applies only to natural gas and/or oil production realized from that area in Steuben County, New York, as identified on the map attached to the Stipulation as Exhibit "A," which shows those surface lands overlying the natural gas bearing pool within the Ordovician Trenton-Black River carbonates;
  3. CNR is authorized to immediately release royalty payments for the four Spacing Units established by this order and shown on Exhibits "B1" through "B4"; and
  4. As set forth in the Stipulation, CNR shall file a copy of this Order, including the Stipulation and Exhibits "A" and "B1" through "B4", with the Steuben County Clerk against all parcels in the four Spacing Units established by this Order and shall submit proof of such filing to the Director of the Department's Division of Mineral Resources by three months after the effective date of this Order.

State of New York
Department of Environmental Conservation
_____________/s/_____________ERIN M. CROTTY, COMMISSIONER

Albany, New York
September 30, 2002

To: Arlene J. Lotters, Esq.
NYSDEC Division of Legal Affairs
625 Broadway, 14th Floor
Albany, New York 12233-1500

Bradley J. Field, Director
NYSDEC Division of Mineral Resources
625 Broadway, 3rd Floor
Albany, New York 12233-6500

Mary Sue Schulberg, Esq.
Senior Attorney and Assistant Secretary
Columbia Natural Resources
P.O. Box 6070
Charleston, WV 25362-0070

Christopher B. Wallace, Esq.
1602 Sunset Avenue
Utica, NY 13502

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION
Office of Hearings and Mediation Services
625 Broadway
Albany, New York 12233-1550

In the matter of the proposed well spacing rules and integration of interests
pursuant to Environmental Conservation Law Article 23 for the

PINE HILL FIELD
Steuben County, New York

File No. DMN-01-4

Summary Hearing Report

by

____________/s/_____________
Susan J. DuBois
Administrative Law Judge

July 10, 2002

PROPOSED ACTION

The New York State Department of Environmental Conservation (the "Department") proposes to establish spacing and integration rules for portions of acreage located in the Towns of Cohocton and Prattsburg, Steuben County and designated as the Pine Hill Field. Columbia Natural Resources, Inc. ("CNR"), 900 Pennsylvania Avenue, Charleston, West Virginia, 25302, has been conducting a natural gas exploration and development program on portions of leasehold acreage in the Pine Hill Field. This proposal is Division of Mineral Resources Project No. DMN-01-4.

To date, discoveries of natural gas have been realized from four wells drilled to an average depth of 7,400 feet to the Ordovician Trenton-Black River Formations. In terms of overall size of the project, CNR is focusing its drilling efforts in an area that extends from North Cohocton, southeastward for approximately 4 miles. CNR has determined that the productive extent of the reservoir in the Pine Hill Field is defined by the four existing wells. Therefore, CNR does not anticipate drilling future wells outside the field. Permits to drill were issued for the four existing wells pursuant to Section 552.1 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR 552.1").

CNR has proposed 4 production units in the Pine Hill Field which its geologists and engineers believe represent the reservoir volume likely to be drained by each well. Two production units contain a very small number of unleased parcels where the right to develop the oil and/or natural gas has not been conveyed to CNR. CNR holds oil and gas leases on 96.80% of the acreage in the four proposed units.

An order establishing spacing rules will serve to configure production units for each of the existing wells and will include procedures for future infill wells. All ownership interests identified for existing production units and proposed spacing units will be integrated so that the royalties attributable to development within each unit can be disseminated.

The Department proposed this action because the geologic conditions in the field appear to make the statewide minimum well spacing inadequate for ensuring the efficient development of the resource and protecting correlative rights, as required by Environmental Conservation Law ("ECL") Article 23. The proposed action is set forth in a stipulation dated October 26, 2001 between the Department and CNR. The Department Staff regards the stipulation as resolving the following issues: the distribution of escrowed production royalties and integration of unleased parcels contained in some of the production units.

PROCEEDINGS

A notice of hearing was published in the Department's Environmental Notice Bulletin on April 24, 2002, in the Hornell Evening Tribune on April 26, 2002. The notice was also mailed to the Supervisors and Clerks of the Towns of Cohocton and Prattsburg, to the Clerks of Steuben County and of the Steuben County Legislature, and to others believed to be interested in the proposed action. The notice stated that the hearing would be conducted pursuant to the procedures of Part 624 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR Part 624"), which are the Department's permit hearing procedures.

Pursuant to the State Environmental Quality Review Act ("SEQRA," ECL Article 8 and 6 NYCRR Part 617), the Department Staff, as lead agency, had issued a negative declaration on March 27, 2002, concluding that the proposed action would not have a significant effect on the environment and that no Draft Supplemental Environmental Impact Statement needed to be prepared. The negative declaration also noted that the Final Generic Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program, dated July 1992, provides a detailed description of well drilling and well spacing and establishes the basis for environmental reviews and approvals of Department actions subject to the Oil, Gas and Solution Mining Law.

Pursuant to the notice, a hearing for unsworn public comments convened on May 23, 2002 at 7:00 P.M. at the Wayland-Cohocton Central School, before Administrative Law Judge ("ALJ") Susan J. DuBois. In addition to the representatives of the DEC Staff and CNR, two persons made statements for the record at the hearing. Approximately 30 persons attended the hearing.

An issues conference took place on May 24, 2002 at 9:00 A.M. at the same location. CNR was represented by Mary Sue Schulberg, Esq., CNR, Charleston, West Virginia, and by Christopher B. Wallace, Esq., Utica. The Department Staff was represented by Arlene J. Lotters, Esq., DEC Division of Legal Affairs, Albany.

The notice of hearing had stated that petitions for party status to participate in an adjudicatory hearing, if one was necessary, would need to be received at the Department's Office of Hearings and Mediation Services by close of business on May 17, 2001 (sic). No petitions for party status were received. In addition, no one appeared at the issues conference to request party status after the deadline. No issues have been proposed which could require an adjudicatory hearing regarding this proposal.

On May 22, 2002, John K. Dahl, Director of the Bureau of Oil and Gas Regulation, sent me a letter requesting that, in the absence of any adequate late filed petitions, a ruling be made which allows DEC Staff to immediately prepare and complete a Commissioner's Decision and Order establishing units and releasing escrowed royalties generated by production to date in the Pine Hill Field. At the issues conference, I granted this motion.

At the hearing on the evening of May 23, Larry T. Shafer, a landowner in two of the units, brought to CNR's attention a possible error in an interior property boundary in one of the units. On June 4, 2002, Ms. Schulberg sent me a letter stating that CNR had reviewed Mr. Shafer's survey and CNR's records, and had determined that Mr. Shafer's information was correct. The letter stated that CNR had revised Exhibit B1 of the stipulation (the S&D Farms #2 Unit) and the ownership tabulation to reflect this information, and transmitted copies of the revised documents to be made part of the record.

The transcript of the hearing was received on June 28, 2002 and the record of the hearing closed on that date.

COMMENTS AT LEGISLATIVE HEARING

Representatives of the DEC Staff and CNR described the proposed action, and two members of the public made statements for the record. On behalf of CNR, Ms. Schulberg stated that the discovery well of the Pine Hill Field was completed in May, 1999 and the three other wells were completed prior to August, 2000. She stated that pipeline construction began in August, 2000 and three of the wells were turned into line in November, 2000, with royalties from these wells held in an interest-bearing escrow account pending an order of the Commissioner authorizing release of the funds. Ms. Schulberg described the interaction between CNR and the DEC Staff in arriving at the stipulation, and stated that CNR believes the stipulation complies with DEC's legislative mandate.

On behalf of the DEC Staff, Ms. Lotters stated that the standard gas well spacing is inadequate for this field in order to meet the goals of ECL Article 23. She stated that it is the position of the DEC Staff that the October 26, 2001 stipulation satisfies the requirements of the ECL relative to preventing waste of the resource, providing for greater ultimate recovery and protecting the correlative rights of all owners of the resource. Thomas E. Noll, Mineral Resources Specialist, DEC Division of Mineral Resources, described the field and its discovery, and discussed the provisions of the stipulation.

Paul Wolcott, Cohocton, stated that he had some questions regarding why the units are larger than the traditional size. He also expressed concern about why the wells had been producing gas since November, 2000 but the hearing did not take place until May, 2002, and stated that communication from CNR and the DEC had been "less than stellar." During a recess in the hearing, Mr. Wolcott discussed his question regarding the size of the units with the DEC Staff, and then stated that he was not going to contest this subject further.

Benji Carr, who resides near the Pine Hill Field, stated that he was concerned about the security of potable water and the aquifer, and that there should be sensitivity to this resource in drilling wells.

RECOMMENDATION

I recommend that the Decision and Order which the DEC Staff is preparing be issued by the Commissioner, incorporating the provisions set forth in the October 26, 2001 stipulation.

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