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 Quackenbush Hill Field located in Steuben and Chemung Counties, New York

(DEC File No. DMN 01-2)

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 in the Quackenbush Hill Field, a discovery of natural gas, in portions of Steuben and Chemung Counties. It also relates to the Department Staff's proposal to establish procedures for future well spacing and compulsory integration, when needed, in the Quackenbush Hill Field. 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 December 5, 2001, a public hearing and an issues conference were held before Administrative Law Judge ("ALJ") Susan J. DuBois on January 3, 2002, and January 4, 2002, respectively, at the Holiday Inn, Highways 15 & 17, Painted Post, New York;
3. Charles E. Fagan, Esq., on behalf of James E. Caflisch, by letter of December 24, 2001, requested party status for the January 2002 hearing and asserted that Mr. Caflisch is an operator in Quackenbush Hill field;
4. Department Staff, by letter of January 2, 2002, replied in opposition to Mr. Caflisch's request for party status;
5. Charles E. Fagan, Esq., by letter of January 18, 2002, reasserted that Mr. Caflisch is a registered operator of natural gas wells in New York;
6. Department Staff, by letter of January 28, 2002, requested an opportunity to file a response in opposition to allow Mr. Fagan's letter in the record;
7. ALJ DuBois's January 29, 2002 MEMORANDUM allowed for consideration of Mr. Fagan's January 18, 2002 letter and granted Department staff the opportunity to comment;
8. Department Staff, by letter of February 5, 2002, submitted a response in opposition to Mr. Fagan's claim that Mr. Caflisch is an operator in Quackenbush Hill field and requested that party status be denied;
9. As stated in the February 13, 2002 Ruling on Issues and Party Status ("Ruling") of ALJ DuBois, Pennsylvania General Energy ("PGE") and Department Staff reached agreements on matters raised in the Department Staff's proposal and embodied those agreements in an executed Stipulation, dated November 1, 2001 ("Stipulation");
10. ALJ DuBois's Ruling found that no issues were raised which require further adjudication;
11. This Ruling was appealed by Charles E. Fagan, on behalf of James E. Caflisch in an Appeal and Memorandum of Law, dated February 28, 2002;
12. Department Staff, by letter of March 14, 2002, submitted a response to Mr. Fagan's appeal, requesting that ALJ DuBois' Ruling should be affirmed and the appeal denied;
13. Department Staff further requested, in its letter of January 2, 2002, permission to prepare a Commissioner's Decision and Order addressing all other aspects of the proceeding;
14. Department Staff submitted the aforementioned Decision and Order, which I signed effective January 23, 2002, thereby establishing four of the five Spacing Units originally proposed at hearing;
15. As stated in my Interim Decision, dated October 28, 2002 (attached), I found that the matters raised by Mr. Fagan are without merit and are rejected and I affirmed the ALJ's February 13, 2002 ruling denying party status to Mr. Caflisch and finding no substantive and significant issues for adjudication. Accordingly, I adopted the reasoning stated by both Department Staff and PGE in their responses as my own and noted that Mr. Caflisch is entitled to receive his appropriate share of the royalty provided for in the Stipulation. I directed Staff to proceed with a Decision and Order regarding the Gregory unit (Interim Decision, p. 7).

NOW, THEREFORE, having found that the Stipulation will result in the efficient and economical development of the gas pool as a whole; that it is necessary to establish the Gregory Spacing Unit and procedures for compulsory integration therein to carry out the policy provisions of ECL Section 23-0301; that the acreage assigned to James E. Caflisch within the Gregory Spacing Unit should be compulsorily integrated; and that Mr. Caflisch is entitled to receive royalties pursuant to terms of the Stipulation, it is hereby ORDERED that:

1. The Stipulation executed by PGE and Department Staff, dated November 1, 2001, and its terms and conditions, including Exhibits "A" through "E", and updated by the tabulation for Exhibit "B5" dated May 31, 2002 (attached), are hereby incorporated by reference into and made a part of this Decision and Order. As set forth in the Stipulation, further updates to Exhibit "B5" 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 Quackenbush Hill Field;
   2. allocation of royalty interest due to unit owners affected by the production from existing wells in Spacing Units in the Quackenbush Hill Field; and
   3. permit application procedures for any future proposed wells by any applicant.

   The Stipulation applies only to natural gas and/or oil production realized from that area in Steuben and Chemung Counties, 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, and as extended or modified by additional wells drilled and completed pursuant to this Decision and Order;

3. PGE is authorized to immediately release royalty payments for the Spacing Unit established by this order and shown on Exhibit "B5"; and
4. As set forth in the Stipulation, PGE shall file a copy of this Order, including the Stipulation and Exhibits "A" and "B5", with the Chemung County Clerk against all parcels in the Spacing Unit 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.

_____________/s/_____________
Erin M. Crotty,
Commissioner
Albany, New York

Dated: December 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

David A. Lind, General Manager
Pennsylvania General Energy, Corp.
208 Liberty Street
Warren, Pennsylvania 16365

John H. Heyer, Esq.
P.O. Box 588
604 Exchange National Bank Building
Olean, New York 14760

Allan R. Lipman, Esq.
Lipman & Biltekoff, LLP
333 International Drive, Suite B-4
Williamsville, New York 14221

Christopher B. Wallace, Esq.
1602 Sunset Avenue
Utica, New York 13502

Richard M. Roper
20 Mary Road
Horseheads, New York 14845