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Stagecoach Field - Decision and Order, September 24, 1993

Decision and Order, September 24, 1993

NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of the Department
Staff's proposal for Gas Well Spacing
Orders and Compulsory Integration Orders
in the STAGECOACH FIELD located in Tioga
and Broome Counties pursuant to the
Environmental Conservation Law
Article 23, Mineral Resources

DECISION
AND
ORDER

This Decision and Order relates to the proposal of the Department Staff to establish well spacing in the Stagecoach Field, a find of natural gas, in portions of Broome and Tioga counties. It also relates to the Staff proposal to establish procedures for future well spacing and compulsory integration, when needed, in the Stagecoach Field. The well spacing and compulsory integration proposals are made pursuant to the Environmental Conservation Law ("ECL") Article 23 Titles 5 and 9 respectively.

A hearing on this matter was held by Administrative Law Judge ("ALJ") Francis W. Serbent. The attached hearing report (the "Report") and its recommendations are adopted as my decision in this matter subject to the comments below.

As stated in the Report, three of the interested persons who participated in the proceeding reached agreements on the matters raised in the Staff's proposals and embodied those agreements in a series of stipulations. I commend the participants for their cooperative efforts to resolve this matter.

I find that these stipulations would result in the efficient and economical development of the gas pool as a whole and are necessary to carry out the declared policy of New York State as articulated in ECL 23-0301. Accordingly, the stipulation between the Staff and Quaker State Corporation dated December 30, 1992; the stipulation between the Staff and Kidder Exploration, Inc. dated May 5, 1993; and the stipulation between the Staff and Ardent Resources, Inc. dated July 14, 1993 are hereby incorporated by reference into and made a part of this Decision and Order. They establish eleven (11) spacing units for the existing wells in the Stagecoach Field and also establish procedures for future well spacing and compulsory integration, when needed, in the Stagecoach Field.

NEW YORK STATE DEPARTMENT OF
ENVIRONMENTAL CONSERVATION
THOMAS C. JORLING, COMMISSIONER
/s/

Albany, New York
September 24, 1993

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
50 Wolf Road
Albany, New York 12233-1550

In the Matter

of the

the Department Staff's Proposal

for
GAS WELL SPACING ORDERS
and

COMPULSORY INTEGRATION ORDERS

in the

Stagecoach Field located in Tioga and Broome

Counties pursuant to the Environmental Conservation Law

Article 23, Mineral Resources

Hearing Report

- by -
/s/

Francis W. Serbent

Administrative Law Judge

PROCEEDINGS

A public hearing was held on April 29, 1992 and continued on May 25, 1993 in the Tioga County Office Building, Owego NY, to address the necessity of the New York State Department of Environmental Conservation ("Department") Staff ordering field wide well spacing rules and to address the necessity of ordering the integration of interests of the spacing units in the Stagecoach Field located primarily in the Towns of Owego and Nichols and in Tioga County and in Broome County. The Stagecoach Field produces gas from wells. The Field is a discovery of Quaker State Corp., PO Box 408, Titusville Pa., 16354, ("Quaker State"). The proposed orders would be according to the Environmental Conservation Law ("ECL") Article 23, Mineral Resources, and especially ECL Article 23 Title 5, Well Spacing in Oil and Natural Gas Pools and Fields, and ECL Article 23 Title 9, Compulsory Integration and Unitization in Oil and Natural Gas Pools and Fields, and pursuant to Title 6 of the Official Compilation of Codes, Rules and Regulations of the State Of New York ("6 NYCRR") Part 550, Promulgation and Enforcement of Rules and Regulations et seq. ECL 23-0901.2 allows the hearing for the integration of interests to be coincidental with the hearing held prior to the order for the spacing of wells. The verbatim transcript was received on June 7, 1993 and the record closed. The record was reopened on July 16, 1993 to receive Staff's stipulated agreement dated July 14, 1993 with Ardent Resources, Inc. The record closed again on July 16, 1993.

Environmental Quality Review

According to the ECL Article 8, Environmental Quality Review and 6 NYCRR Part 617, State Environmental Quality Review ("SEQR"), the Department Staff, as lead agency, determined that the proposed orders would not have a significant effect on the environment. The Staff issued a notice of determination of non-significance ("negative declaration") on March 4, 1992 and published a summary of the negative declaration in the ENB on March 11, 1992.

Policy

The declared State policy says, among other things, that it is in the public interest to regulate the development, production and utilization of natural gas in such a manner as will prevent waste; that a greater ultimate recovery of gas may be had and that the correlative rights of all owners, the rights of all persons including landowners and the public may be fully protected.

Summary

In summary, the existence of the Stagecoach Field was discovered in 1986 by the Quaker State Corporation. The Stagecoach Field is being developed and its finite limits have yet to be found. Thirteen natural gas wells have been completed for production. Two sets of wells are in reservoir communication (too close).

A proposed Department order for well location would establish approximately uniformed sized spacing units for the entire pool (there may be other pools in the same gas bearing geologic feature). The proposed Department order would establish spacing (a.k.a. production) units for each of the existing wells and would provide procedures for establishing spacing units for future wells. In the stipulations signed by Staff, the future spacing units would be sized between 160 and 640 acres. Existing and future spacing units would be contiguous. Staff would incorporate the same into the proposed order.

The proposed Department order would contain the procedures to be followed for compulsory integration of interests within the spacing units. The order requiring the integration of interests is contingent upon, among other things, the written approval of sixty (60%) percent or more of the owners or royalty owners. All ownership interests identified for each existing and proposed unit would be integrated so that the costs and/or proceeds for the individual units can be distributed.

The Department Staff signed stipulations with Quaker State on September 30, 1992 and December 30, 1992; with Kidder Exploration, Inc., on May 5, 1993 and with Ardent Resources, Inc. on July 14, 1993. The stipulations resolve all the issues between those who signed. The stipulations contain provisions for existing and future well spacing units and provisions for the compulsory integration of interests. Staff recommends these provisions be in the Department's order in this matter.

A Notice of Public Hearing dated March 25, 1992 ("Notice") was published on April 1, 1992 in the Vestal (Binghamton) Press & Sun-Bulletin published by the Binghamton Press Company according to the proof of publication on file. The Notice was also forwarded for publication in the Tioga County Courier. The Notice was published in the Department's Environmental Notice Bulletin ("ENB") on April 1, 1992. The Notice was mailed to those known or deemed to have an interest. ECL Article 23, among other things, describes the hearing procedures. It requires a notice published in a newspaper of general circulation in the County at least ten (10) days prior to the hearing.

A public hearing began on April 29, 1992 as noticed before Francis W. Serbent, Administrative Law Judge ("ALJ") at 2:00 PM in the auditorium of the Tioga County Office Building, 56 Main Street, Owego NY. Approximately thirty-five people attended and four (4) testified at the 2:00 PM session. The hearing continued at the same place as scheduled at 7:00 PM. Approximately forty (40) people attended the 7:00 PM session. Four parties presented sworn testimony for examination. Quaker State, a Party, presented two (2) witnesses. On May 25, 1993, the hearing resumed at the same location at 10:00 AM with approximately twenty (20) people attending. Six (6) people testified or made presentations. Three of the six people testified at the first hearing session.

Confidential Information and Access to Records

In the past, Quaker State submitted to the Staff certain information of the Stagecoach Field on the basis that it would remain confidential. The Staff agreed to keep the information confidential at the time it was submitted. Quaker State wanted to keep it confidential at this hearing. The Department Staff sought to reveal this confidential information in its testimony and evidence.

At the April 29, 1992 hearing session, Quaker State at first moved for an adjournment upon Staff's preliminary prehearing presentation of the proposed well spacing units. Quaker State sought time to prepare its case in response. Then, when Quaker State realized the Staff was about to reveal Quaker State's confidential information, it objected to Staff's proposed testimony. Staff's testimony would put Quaker State's confidential information into the public domain. Staff then edited its testimony with Quaker State. Staff also removed the displays on exhibit after Quaker State's objection. The Staff's displays and testimony would identify for the first time affected land properties owned or leased by interested persons.

The Staff's revised testimony deleted any portion based on confidential information supplied by Quaker State. The hearing proceeded to the extent possible without revealing any confidential information. Absent the exhibits and based on the Staff's edited testimony, interested persons at the April 29, 1992 hearing were not able to fully assess or respond to the unseen proposed order for unit configurations and compulsory integration.

Quaker State then moved for dismissal claiming the Staff did not meet its burden to produce evidence in support of its position. The motion was under advisement until the Quaker State Stipulation was signed. The Motion then became moot.

The Department Staff moved for an adjournment for a determination of the confidential status of Quaker State's information on file. Quaker State objected to an adjournment. It's property rights may be denied as leases expire and drilling would not be permitted during the pendency of this proceeding. However, the hearing session of April 29, 1992 was adjourned to allow the Department Staff and Quaker State to pursue a determination on the confidential status of certain file information according to 6 NYCRR Part 616, Access to Records.

Quaker State moved for relief from the statutory ban on drilling during this hearing, including the adjournments for confidentiality determinations and otherwise. The motion became moot when the stipulation of September 30, 1992 was signed.

Since the Staff did not comply with the time limits of 6 NYCRR Part 616, Quaker State requested, in correspondence dated July 9, 1992, that the hearing resume. The Staff's delay adversely impacted Quaker State's business enterprises. However, reconvening the hearing would not preserve the confidential nature of Quaker State's information. The ALJ denied the motion (memorandum #1 dated July 16, 1992).

On August 11, 1992, Marc S. Gerstman, Deputy Commissioner and General Counsel responded to Quaker State's request for continued confidential status of its filings with Staff. Commissioner Gerstman's response identified the documents to be released to the public at a time fifteen days after Quaker State receives his response (date unknown).

On August 21, 1992 the Staff requested a continuing adjournment of the hearing to enable ongoing discussions and negotiations. The additional time would also allow time to review Commissioner Gerstman's response. The ALJ denied the motion (memorandum #2 dated August 26, 1992) and ordered the scheduling of a reconvened hearing. It was scheduled for October 6, 1992.

The Stipulation of September 30, 1992 (see Appendix "A" for the text only)

The Staff and Quaker State signed a stipulation on September 30, 1992 agreeing, among other things, to reschedule the hearing to sometime after October 28, 1992. More importantly, the Stipulation also allows Quaker State to apply for gas well drilling permits at eight specific locations in the Stagecoach Field. Royalty amounts would be held in escrow during the pendency of this proceeding.

The hearing was rescheduled for December 9, 1992 with the agreement of both Quaker State and Staff. A Notice of Supplemental Public Hearing was published on November 27, 1992 in the Vestal (Binghamton) Press & Sun-Bulletin published by the Binghamton Press Company. The proof of publication is on file. An abbreviated notice was published in the ENB on December 2, 1992.

The Staff joined a motion to reschedule the hearing to January 6, 1993. The additional time would allow pursuit of negotiations and another stipulation with Quaker State. A notice of adjournment until January 6, 1993 was published in the Vestal (Binghamton) Press & Sun-Bulletin on December 9, 1992.

The Stipulation of December 30, 1992 (see Appendix "B" for the text only)

Quaker State and the Staff signed a second stipulation, on December 30, 1992. The stipulation resolves all issues between the Quaker State and the Staff. Staff recommends that the Department's order incorporate the provisions of the stipulation for well spacing and compulsory integration purposes.

Staff predicts the terms of the stipulation would provide for the orderly and uniform development of the Stagecoach Field, prevent physical and economic waste and protect the landowners. Staff recommends the terms become part of the order in this Matter, including (summarized):

  1. spacing units for each well to be no less than one hundred and sixty (160) acres and no more than six hundred and forty (640) acres based on data in the immediate vicinity of the proposed well;
  2. spacing unit boundaries are to be contiguous;
  3. affidavits must be filed stating that each owner not leasing its interests and each operator has been advised regarding the proposed spacing unit, the opportunity to voluntarily lease and that compulsory integration may occur;
  4. in the absence of voluntary integration of interests, those parcels not under lease within a proposed spacing unit will be integrated into it. If the unleased owners or operators have significant and substantive objections, ECL 23-0901 provides for a public hearing.

Staff would issue an order establishing a spacing unit if there are no facts in dispute. Any area not leased or controlled otherwise, would be integrated into the unit by order. The compulsory integration order would include the:

  1. the well location and the boundaries of the unit;
  2. a description of each owner's tract of land and the allocation of production;
  3. the name of the unit operator;
  4. the operator's share of costs for drilling and production;
  5. compulsory integration with royalty payments based on the highest fraction of any lease within the unit.

The hearing was rescheduled to February 11, 1993 and noticed to, among other things, advise the public of the Quaker State Stipulation and its availability for public review. Proof of publication on January 5, 1993 of the Notice in the Vestal (Binghamton) Press & Sun-Bulletin is on file. This notice was published in the ENB on January 13, 1993.

Program Administration

The hearing scheduled for February 11, 1993 was adjourned without date. A Notice of Adjournment was published on February 17, 1993 in the ENB and on February 10, 1993 in the Vestal (Binghamton) Press & Sun-Bulletin. Proof of publication is on file. The Notice of February 10, 1993 advises that the Governor's proposed budget directs the Department to stop administering this program. However, the final budget allowed this program to continue and another hearing was scheduled for May 25, 1993. A Notice of Supplemental Public Hearing was published on May 12, 1993 in the Vestal (Binghamton) Press & Sun-Bulletin. The proof of publication is on file.

The Stipulation of May 5, 1993 (see Appendix "C")

On May 5, 1993, the Staff signed a stipulation with Kidder Exploration, Inc. Pembroke Building, 421 East Second Street, Jamestown, NY 14701. The Kidder Stipulation includes provisions similar to the Quaker State Stipulations of September 30 and December 30, 1992 for spacing rules and the protection of the owners of unleased interests within the Stagecoach Field.

A public notice advising of the Kidder Stipulation, its availability for public review and the reconvened hearing in this Matter was published on May 12, 1993 in the Vestal (Binghamton) Press & Sun-Bulletin. The proof of publication is on file.

The Stipulation of July 15, 1993 (see Appendix "D")

The Staff and Ardent Resources, Inc., 37 Franklin Street suite 210, Buffalo, NY 14202 signed a stipulation on July 14, 1993. The stipulation includes provisions similar to the Quaker State Stipulations of September 30 and December 30, 1992 and the Kidder stipulation of May 5, 1993 for spacing rules and the protection of the owners of unleased interests within the Stagecoach Field.

The Hearing Format

The hearing procedures in 6 NYCRR Part 624 were utilized where applicable and as guidance. The hearing also complied with the ECL 23-0305 mandate that any interested person shall be heard. Testimony was under oath according to 6 NYCRR 550.4.

Public hearing registration cards were used to identify interested persons. Each interested person was sworn in and allowed to make statements, to make their presentations in narrative form, to testify and to voice their questions and complaints. Each interested person was available for cross examination while under oath.

SUMMARY OF THE TESTIMONY BY INTERESTED PERSONS

The Department Staff

Marc S. Gerstman, Esq. General Counsel and Deputy Commissioner (Arlene Lotters, Esq. of counsel) represents the Department Staff. Bradley J. Field PE, of the Department Staff, presented testimony and was cross examined.

The Staff determined that the minimum well spacing requirements prescribed by 6 NYCRR Part 553 (i.e. 660 feet from a boundary and 1320 feet from the closest well in the pool) are inadequate to fulfill the ECL mandate to insure that gas wells are developed so as to prevent waste, to provide for the greater ultimate recovery of gas and to protect the correlative rights of landowners and the public.

On April 29, 1992, Bradley J. Field opined and concluded that:

  1. wells in the Stagecoach Field have the capacity to produce large volumes of gas;
  2. the Statewide minimum spacing of wells would not protect correlative rights and would be wasteful;
  3. the lands in the Stagecoach Field not controlled by Quaker State would benefit from the proposed well spacing unit areas for the protection of correlative rights;
  4. well spacing units for existing wells would be the drainage area of gas based on operating data where available;
  5. when operating data is not available, well spacing units for existing wells would be the drainage area of gas based on theoretical production rate estimates and other determinations;
  6. the well spacing units for existing wells are not uniform;
  7. a well would have to be developed before it's drainage area and other characteristics can be determined;
  8. the geographical boundary of the Stagecoach Field is unknown.

Benjamin E. Dean

Benjamin E. Dean, a land owner, testified and was cross examined at both hearing sessions. Mr. Dean presented no specific testimony that relates to the necessity for the orders for well spacing or the integration of interests.

Mr. Dean concludes that:

  1. an independent consulting geologist should determine field data and be made available for public questioning. Mr. Dean has no confidence in the Staff's determinations (251);
  2. he is quite certain there is an important geological fault under his land;
  3. gas is being taken from his land;
  4. there is a question whether Quaker State is directional drilling.

He complains that:

  1. he cannot find a qualified experienced lawyer that is available and not already working for an oil company;
  2. Quaker State did not restore two reflectors/poles and
  3. Quaker State did not return a drainage end cap at his driveway.

Mr. Dean requests that the Stipulation of December 31, 1992 not be adopted until after the Stagecoach Field is defined.

David L. Copley

David L. Copley, 370 Berrywood Drive, Angola NY, is President of Ardent Resources, a Buffalo based oil and gas exploration company. Ardent Resources controls leased land in the vicinity of the Stagecoach Field. Mr. Copley testified at both hearing sessions and was cross examined on April 29, 1992.

Mr. Copley advises that:

  1. gas production from Quaker State's wells in the Stagecoach Field is reported and is public information;
  2. well logs and information are released periodically;
  3. information in the public domain can aid in determining the quality and quantity characteristics of a reservoir;
  4. a well would have to be developed before it's drainage area and other characteristics can be determined;
  5. uniform spacing of wells prior to drilling would not assure who should participate in the drainage area.

Until he signed a stipulation on July 14, 1993, he sought a redefinition of "Stagecoach Field" consistent with the American Association of Petroleum Geologists and the American Petroleum Institute classifications. In the stipulation he signed on July 14, 1993, Stagecoach Field is defined to include that area within five (5) miles of any well in Broome and Tioga Counties capable of producing or has produced gas from the lower Devonian stratigraphic interval. Prior to the stipulation, Mr. Copley claimed the five (5) mile limit is arbitrary and beyond practice defined by the American Association of Petroleum Geologists and the American Petroleum Institute. In some instances, a wildcat well in a new field may be only two (2) miles away from the nearest productive area. The stipulation resolves all disputes with Ardent Resources Inc.

Mr. Copley concludes that based on the available scientific and geologic information, the Stagecoach Field would not extend beyond two (2) miles from the nearest productive area.

Gordon W. Slater

Gordon W. Slater, RD #1, Box 474, Nichols, NY 13812 has a lease arrangement with Quaker State. He objects to the rectangular configuration of the production unit as being inequitable. There was no examination of his testimony offered on April 19, 1992. On May 25, 1993, Mr. Slater repeated his concern and added a request for information on the basis for determining a rectangular unit as fair. The ALJ requested Staff to provide Mr. Slater a written rationale used to determine the spacing of gas wells and to determine the rectangular unit boundaries (drainage area). The letter to Mr. Slater is dated June 3, 1993 and a copy is attached hereto as Appendix "E".

Mary Alice Natishak

Mary Alice Natishak, 954 Beach Road, Apalachin, NY 13732 testified on April 29, 1992 as a property owner. She expressed her concerns in the subjects of; the impact of gas wells on her water supply, noise, odors, family safety, traffic safety and deflating property values. She did not offer any testimony regarding the necessity for ordering well spacing or ordering the integration of interests. There was no response to the call for cross examination.

John Whiting

John Whiting, 1985 Forest Hill Road, Apalachin, NY 13732 testified on April 29, 1992 as a property owner. He affirmed the concerns of Ms. Natishak. He also sought protection under local zoning and advice on how to oppose well construction. He offered no testimony regarding well spacing orders or orders for the integration of interests. He was cross examined.

George M. Misner

George M. Misner, 1984 Forest Hill Road, Apalachin NY on April 29, 1992 submitted a written statement listing objections to the construction of a gas well. His objections concern:

  • the quantity and quality of potable water;
  • the changing character of the neighborhood from residential to commercial;
  • securing mortgages where leases are involved;
  • well noises;
  • the carcinogenic radio active wastes from wells;
  • the gas belongs to all the people in the State so the amount of money Quaker State pays the State for the gas should be made known;
  • safety from gas explosions;
  • the use of workers from out of state and
  • reduced property values without reduced property taxes.

Gregg Gibbs

Greg Gibbs, 524 Grippen Avenue, Endicott, NY on April 29, 1992 read his prepared testimony. There was no response to the call for cross examination. He proposes revised regulations that would provide:

  1. one-sixth royalty payment when forced pooled;
  2. a two thousand (2,000) foot distance from a wildcat or peripheral well to the spacing unit boundary and
  3. surface restrictions regulating directional drilling.

Herman Mantei and Kenneth Mantei

Levene, Gouldin & Thompson, PO Box F-1706, Binghamton, NY 13902-0106 (David M. Gouldin of Counsel) represents Herman Mantei, and his nephew Kenneth Mantei, (the "Manteis") 2221 Vestal Road, Vestal NY 13850. No testimony or evidence was given. Comments were made at the hearing and a written statement by Herman Mantei was filed.

The Manteis question whether the parties have a true opportunity to be heard in this proceeding. They think the notice was did not allow enough time prior to the hearing.

The Manteis believe that Quaker State has not negotiated fair leases in good faith. The amount of land discussed at negotiations changed from time to time.

Mr. Herman Mantei opines that:

  1. an independent geologist should be provided to the lessors as hiring a geologists and an attorney is an unjust burden;
  2. it is unfair to draw large amounts of gas from a few wells;
  3. Quaker State provides the Staff with biased information;
  4. minimal amounts of distorted information is supplied by Quaker State to the landowners;
  5. Quaker State's leases are unfair;
  6. another hearing is needed to present evidence that the proposed production units do not accurately reflect or approximate the true Stagecoach Field.

Wes E. John Bulmer

Mr. Bulmer,PO Box 844 Batavia NY 14021 advises that information about gas wells is available to the public, including well logs, environmental impact statements, preliminary definitions of unit boundaries, and technical data from finished wells. Seismic data belongs to the people who caused the survey and is public at the owner's discretion.

Quaker State

John H. Heyer, Esq., PO Box 588, 604 Exchange National Bank Building, Olean, NY 14760 represents Quaker State. David Wozniak, PE, Quaker State's District Engineer and Scott Billingsley, Quaker State's District Geologist presented testimony and each was cross examined.

Quaker State controls approximately ninety (90%) percent of the current Stagecoach Field in New York. Four (4%) percent is controlled by another oil and gas company. Six (6%) percent of the gas field is unleased. Proposed spacing units that are fully leased would allow voluntary integration and unitization.

Quaker State has not based a well unit on minimum spacing allowed by 6 NYCRR 553.1. It believes spacing size should be determined with information generated from drilled wells. The spacing determination should be prior to the first royalty payments.

Voluntary pooling (e.g. integration and unitization) for existing wells is the best way to get all the data before deciding the size and shape of a spacing unit.

Staff now proposes procedures for establishing future well spacing units rather than ordering fixed field wide spacing for future wells. On April 29, 1992, David Wozniak, Quaker State's district petroleum engineer, opined that a field wide spacing order for future wells:

  1. does not apply because of the great variations in the Stagecoach Field's subsurface characteristics;
  2. would lead to less gas recovery;
  3. would be inefficient in gas production and
  4. would not protect correlative rights.

On April 29, 1992, Scott Billingsley, Quaker State's district geologist, offered the following as testimony:

  1. the porosity characteristic of the gas bearing layer and the thickness of the layer in the Stagecoach Field varies considerably from place to place;
  2. the thickness and porosity of the gas bearing layer cannot be predicted until wells are drilled;
  3. there are no wells in the Stagecoach Field with a production unit area as small as the minimum forty (40) acres allowed by 6 NYCRR 553.1.

He opined that a field wide spacing order for future wells:

  1. would inhibit the selection of the predicted best places to drill wells;
  2. would lead to less gas recovery;
  3. would waste gas and
  4. would not protect correlative rights of landowners.

FINDINGS OF FACT

The Need for Spacing Units

  1. The minimum well spacing pursuant to 6 NYCRR 553.1 is 660 feet from any lease boundary line and 1320 feet from any other well in the same pool (e.g. in the middle of a forty acre square of land). Existing gas wells in the Stagecoach Field are farther apart than the minimum.
  2. The porosity characteristic and the thickness of the gas bearing layer in the Stagecoach Field varies considerably from place to place. The porosity and thickness can not be reliably predicted and can be determined at the well site only after the well is drilled.
  3. Well spacing units proposed for existing wells are based on the drainage area. The drainage area is estimated from operating data where available. The drainage area is different for each well.
  4. The Stagecoach Field exhibits great variations in its subsurface characteristics. If there is an order for field wide spacing units for future wells, a permitted well driller would not have the flexibility to use technical information to try to optimize well site locations, optimize production and royalty payments.
  5. With field wide spacing for future wells, if the well spacing is too large, gas yield would take an unreasonable time and discourage well development. If the spacing is too small there may be more wells than necessary to get the gas (i.e. or the well locations, if drilled, would not be in optimum locations).
  6. The geographical boundary of the entire Stagecoach Field is unknown.

The Proposed Order

  1. The proposed order would incorporate the terms of the stipulations. The proposed order would provide a procedure to establish spacing units after a well is drilled and site specific data is generated. The data would be available before the spacing unit is established.
  2. The order establishing well spacing can be modified according to ECL 23-0501.
  3. With voluntary integration of all owners in a spacing unit, no compulsory integration order is needed for that unit.
  4. With compulsory integration, affected owners would receive royalty payments based on the highest fraction contained in any lease within the unit.
  5. At least sixty (60%) percent of the owners of interest in the unit area must approve of the plan within six months of the order or the plan is abandoned, according to ECL 23-0901.6.

CONCLUSIONS

The Need for Spacing Units

  1. The minimum well spacing prescribed by 6 NYCRR Part 553 (i.e. 660 feet from a boundary and 1320 feet from the closed well in the pool) to be used for future wells in the entire Stagecoach Field would be grossly inefficient and would not fully protect correlative rights.
  2. There is no way to exactly determine the drainage area or spacing unit boundaries of an existing or future well in the Stagecoach Field. Uniform spacing for future wells would not necessarily coincide with the drainage area of a well. Once a well is drilled and data is generated and considered with what is known otherwise, then there is some basis to guess the limits of drainage from the area adjacent to the well and to then describe a corresponding spacing unit. The spacing unit would provide a basis for determining a fair and just share for the benefit of each owner of the proceeds from the gas produced.
  3. In the absence of voluntary integration, compulsory integration would prevent more wells than needed or wells located indiscriminately. An order is needed to prevent waste.

The Proposed Order

  1. The spacing order would provide a rational approach to locate future wells.
  2. The order would describe a uniform procedure for establishing spacing units once wells are developed.
  3. The spacing order would provide a rational approach for the owners of interest in the pool to receive a just and equitable share of production.
  4. For existing wells, in the absence of voluntary integration, the proposed order would integrate identified land and interests into a spacing unit.
  5. As proposed, contiguous boundaries of spacing units would include the owners over a pool of gas between wells.
  6. The proposed orders would include provisions to modify a spacing unit.
  7. The proposed order would provide for public hearings on substantial and significant issues on the Department's compulsory integration and unitization determinations.

RECOMMENDATIONS

  1. The Staff be ordered to proceed with the promulgation of Department orders for well spacing and compulsory integration consistent with the stipulations.

(Non-wordprocessed appendices not included)

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