BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                                 )             CAUSE NO. 112
ESTABLISHMENT OF FIELD RULES TO GOVERN                                             )
OPERATIONS IN THE IGNACIO-BLANCO FIELD,                                                )              ORDER NO. 112-180
LA PLATA COUNTY, COLORADO                                                                           )

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission on September 26 and 27, 2005 in the Rolling Thunder Hall, Sky Ute Casino, 14826 Highway 172 North, Ignacio, Colorado on the verified application of BP America Production Company, for an order to allow the option of a total of four (4) wells in each 320-acre drilling and spacing unit for certain lands, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback, utilizing a common or expanded pad with an existing well, for production of gas from the Fruitland coal seams.

FINDINGS

                        The Commission finds as follows:

                        1. BP America Production Company ("BP" or "the operator"), as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

                        2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

                       3. The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act and the terms of the Memorandum of Understanding ("MOU") between the Commission and the Bureau of Land Management ("BLM").

                        4. On July 11, 1988, the Commission issued Order No. 112-60, which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland coal seams underlying certain lands, including the lands described below, with the permitted well to be located in the center of the NW¼ and the SE¼ of the section and no closer than 900 feet from the boundaries of the quarter section upon which it is located, nor closer than 130 feet to any interior quarter section line.

                        5. On May 15, 2000, the Commission issued Order No. 112-157, which allowed an optional additional well to be drilled for the production of gas from the Fruitland coal seams for certain lands, including the lands described below, with the permitted well when north of the north line of Township 32 North to be located in the NW¼ and the SE¼ of each section and when south of the north line of Township 32 North to be located in the NE¼ and SW¼ of each section, no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.

                        6. On August 8, 2005, BP, by its attorney, filed with the Commission a verified application for an order to allow a total of four (4) wells to be optionally drilled in each 320-acre drilling and spacing unit for the below-listed lands, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback, utilizing a common or expanded pad with an existing well for production of gas from the Fruitland coal seams:

Township 33 North, Range 7 West, N.M.P.M.

Sections 5 and 6:All

Township 33 North, Range 8 West, N.M.P.M.

Section 1: All

Section 2: N½

Township 33 North, Range 9 West, N.M.P.M.

Sections 2 and 3: All

Township 34 North, Range 7 West, N.M.P.M. (S.U.L.)

Sections 4 thru 9:All

Sections 16 thru 21: All

Sections 28 thru 32: All

Section 33: N½

Township 34 North, Range 8 West, N.M.P.M. (S.U.L.)

Sections 1 thru 36: All

Township 34 North, Range 9 West, N.M.P.M. (S.U.L.)

Sections 1 thru 3:All

Sections 10 thru 15:All

Sections 22 thru 27:All

Sections 34 thru 36:All

                        7. On September 12, 2005, La Plata County, by right in accordance with Rule 509., filed with the Commission an intervention on the application.

                        8. On September 12, 2005, the San Juan Citizens Alliance ("SJCA" or "Alliance") filed with the Commission an intervention on the application.

                        9. On September 14, 2005, a prehearing conference was held, at which time the Hearing Officer ruled to accept SJCA’s intervention limited to issues affecting public health, safety, welfare and the environment either not addressed or inadequately addressed in the Commission rules, Order No. 112-157 or in the BP/La Plata County Memorandum of Understanding ("MOU"), to bifurcate the application and conduct an administrative hearing on the technical issues on Thursday, September 15, 2005, to allow the parties to make their presentations at the September 26, 2005 hearing without cross examination, and to accept proposed conditions from the parties due by close of business on Wednesday, September 21, 2005 for consideration by the Commission for inclusion in any order it may enter.

                        10. At the time of the administrative hearing on September 15, 2005, the Hearing Officers heard testimony and reviewed exhibits that indicated that the application lands consist of sixty-six (66) sections in the Ignacio-Blanco Field in La Plata County, the application area is located approximately ten (10) miles southeast of Durango, Colorado, and the entire application area is located within the Southern Ute Indian Reservation.

                        11. Testimony and exhibits presented at the administrative hearing indicated that the majority of the surface in the area is privately owned with a small amount of surface owned by the Southern Ute Indian Tribe and the State of Colorado. Additional testimony indicated that the majority of the mineral ownership in the application area is private, with a small percentage of federal and state mineral ownership.

                        12. Testimony and exhibits presented at the administrative hearing indicated that notification of the application was given to operators and mineral owners both in the application lands and in a buffer area outside of the application lands due to proposed setback revisions for the permitted well locations.

                        13. Testimony and exhibits presented at the administrative hearing showed the change in drilling windows and setbacks from the section lines requested in the application, proposing one drilling window in each 320-acre drilling and spacing unit with a six hundred and sixty (660) foot setback from the unit boundary and no setbacks from interior quarter section lines.

                        14. Testimony and exhibits presented at the administrative hearing showed that the Fruitland coal seams are approximately eighty-nine (89) feet thick in the application area, that well performance varies and cumulative production is lower in comparison to performance and production in the fairway area, that the western portion of the application area has thicker average coals than the eastern portion, and that the coals are discontinuous, fractured and difficult to correlate, requiring additional wells to adequately drain the gas contained in the reservoir.

                        15. Testimony and exhibits presented at the administrative hearing showed recovery factors in the application area calculated on a one hundred and sixty (160) acre drainage area. Testimony indicated that much of the application area shows a less than fifty percent (50%) recovery factor.

                        16. Testimony and exhibits presented at the administrative hearing showed examples of reserve calculations using the material balance method and the decline curve method. Testimony indicated that the mean recovery factor for original gas in place in the application area is 46.2% when calculated on 160-acre well spacing. Additional testimony indicated that economics for the proposed additional wells are positive with an internal rate of return of 31.2%.

                        17. No protests to the application were filed with the Commission or the Applicant. No interventions on the technical merits of the application were filed with the Commission or the Applicant.

                       18. BP agreed to be bound by oral order of the Commission and the Hearing Officers recommended to the Commission at its hearing on September 26, 2005 that the technical portion of the application be approved.

                        19. A written statement was filed with the Commission on September 19, 2005 by Brian Hoffman expressing his concerns regarding the application.

                        20. On September 20, 2005, a letter in support of the application was filed with the Commission by the Bureau of Land Management after consultation with the Southern Ute Indian Tribe’s Department of Energy.

                        21. On September 26, 2005, at the time of the hearing, the Commission heard testimony from Scott Thompson, Director Infill Land Operations for BP who summarized the testimony using the exhibits presented at the administrative hearing regarding ownership of the land in the application area and the proposed drilling window and setback changes.

                        22. The Commission heard testimony from J.W. "Bill" Hawkins, San Juan Regulatory Consultant for BP who summarized the testimony using exhibits presented at the administrative hearing regarding geologic development and reservoir engineering. He opined that the Fruitland coal seams are discontinuous across the application area, that granting the application would minimize waste and maximize production from the Fruitland coal seams, that additional wells would recover additional reserves, protect correlative rights and prevent waste, and that the drilling of additional wells would be economic for the Applicant.

                        23. The Commission heard testimony from Chad Tidwell, Operations Manager for BP regarding the provisions contained in the MOU executed between BP and La Plata County, how the MOU will adequately protect public health, safety, welfare and the environment with the increased well density, and how BP will continue to be subject to the La Plata County Land Code.

                        24. The Commission heard testimony from David Brown, Manager of Regulatory Affairs, HSSE for BP who used a well development flowchart to describe how the Commission’s existing rules, the provisions in Order No. 112-157, and the MOU will ensure protection of the environment, public health, safety and welfare from increased density wells. Mr. Brown testified that BP will use Best Management Practices for expanding well pads, has ceased using diesel fluids, and that hydraulic fracturing service companies will have available onsite Material Safety Data Sheets for all fracturing fluids used. He described the proposed process for conducting water well testing under the MOU and requested for inclusion in any order the Commission may enter.

                        25. The Commission heard expert testimony from Dr. Anthony Gorody, consultant for BP regarding dissolved methane studies who opined that groundwater has not shown any discernable increase in methane concentrations as a result of the drilling of additional Fruitland coal seam wells.

                        26. The Commission heard fact testimony from Sheryl Ayers, Board of County Commissioners of La Plata County Chair who thanked the Commission for coming to La Plata County to conduct the hearing and thanked BP for working with the County to address public health, safety, welfare and environmental concerns resulting in the executed MOU. She opined that the provisions of the MOU in addition to conditions previously approved in Order No. 112-157 would adequately address the environment, public health, safety and welfare issues.

                        27. The Commission heard fact testimony from Nancy Lauro, Community Development Director for La Plata County regarding how the fees assessed in the MOU would be used to address road repairs in the application lands.

                        28. The Commission heard testimony from Michael Matheson, Oil and Gas Technical Advisor for La Plata County regarding how the water well monitoring provisions in the MOU will ensure that public health, safety, welfare and the environment will be protected.

                        29. The Commission heard testimony from Dan Randolph, SJCA staff regarding how the Alliance has worked on oil and gas issues since the early 1990s and the three (3) conditions it proposed for inclusion in any order the Commission may enter as follows: (1) All water wells within a one-quarter (¼) mile radius of both the surface location and the expected bottom hole location of a proposed additional well shall be sampled. If no water well is located within the one-quarter (¼) mile radius area of either the surface location or the bottom hole location, or if access is denied, then sampling shall not be required. Initial baseline water quality testing shall include all items listed in Order No. 112-157, (2) All water wells within a one-quarter (¼) mile radius of both the surface location and the expected bottom hole location of a proposed additional well shall be tested for quantity. If no water well is located within the one-quarter (¼) mile radius area of either the surface location or the bottom hole location, or if access is denied, then testing shall not be required. Such testing shall be repeated on a quarterly basis every third year after the additional well has been drilled, and (3) All drilling and completion fluids used in any additional well shall be disclosed and the use of diesel in such fluids shall be prohibited.

                        30. The Commission heard testimony from Rebecca Koeppen, SJCA board member regarding the need to test water wells in conjunction with allowing additional wells as proposed by BP.

                        31. The Commission heard testimony from Lisa Sumi, Research Director for the Oil and Gas Accountability Project regarding chemicals used in the drilling and completion of wells, hydraulic fracturing techniques and the use of diesel fluids. She requested that chemical names and quantities used during drilling and completion operations be disclosed to the general public.

                        32. Pursuant to Rule 510., Susan Franzheim provided a handout and made a statement regarding the need to do more to protect public health, safety and welfare, including zero tolerance for non-compliance by contractors.

                        33. Pursuant to Rule 510., Heather Snow, who lives on Florida Mesa, made a statement regarding safety concerns near gas operations, the condition of her water well, the lack of vegetation on well pads, and diminished land values. She stated that she does not believe there is sound science to support increased well density.

                        34. Pursuant to Rule 510., Carl Weston, who lives near and west of the Nick Spatter #1 and Bryce 1-X Wells, made a statement regarding concerns about cathodic protection wells and hydraulic fracturing and the associated fluids that may be buried with the pit liner.

                        35. Pursuant to Rule 510., Bob Miller, an oil and gas attorney speaking on his own behalf, made a statement in support of the application, stating his belief that using best practices for increased well density is important, that the application will adequately address surface impacts, and that the application should be used as a model for future applications.

                        36. Pursuant to Rule 510., Matthew Whalawitsa, a Fort Lewis College student and summer intern with the SJCA made a statement regarding his concern about gas well activity in La Plata County. He asked various questions of the Commission on matters he did not believe were adequately addressed by the previous day’s presentations.

                        37. Brian Macke, Commission Director ("Director") commended the parties for the high quality of the presentations, the extraordinary undertaking that resulted in the executed MOU which addressed a comprehensive list of environmental and public health, safety and welfare issues that he would like to see included in any order the Commission enters. He stated that the Commission staff believes that these provisions, along with the provisions in Order No. 112-157 and the Commission’s Rules and Regulations will adequately protect public health, safety, welfare and the environment. Mr. Macke expressed concern that the SJCA proposal to test for water quantity would be difficult to implement. He indicated his intent to review the need and funding mechanisms for additional modeling to supplement the 3M work previously accomplished. Mr. Macke recommended that the application be approved including the proposed conditions from the MOU.

                        38. Based on the technical testimony presented by the Applicant and the recommendation by the Hearing Officers, the Commission finds that the current well density will not efficiently and economically drain the drilling and spacing units previously designated by the Commission, and that based on geological and engineering data presented at the hearing, additional wells are necessary to allow the gas to be produced at its maximum efficient rate, to prevent waste and protect correlative rights, and to efficiently and economically recover gas from the Fruitland coal seams within the application area.

                        39. Based on the facts stated in the application and the testimony and exhibits presented, the Commission finds that the request to allow a total of four (4) wells to be optionally drilled in each 320-acre drilling and spacing unit for production of gas from the Fruitland coal seams for the lands described above in Finding #6 should be approved. The permitted well shall be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback, utilizing a common or expanded pad with an existing well.

                        40. Based on the testimony and exhibits presented at the hearing, and the request by BP and La Plata County to include conditions agreed upon in the MOU executed by the parties, the Commission should apply conditions to the order to protect the environment from significant adverse impacts and to protect the public health, safety, and welfare.

ORDER

                        NOW, THEREFORE, IT IS ORDERED, that Order No. 112-157 is hereby amended to allow a total of four (4) wells to be optionally drilled in each 320-acre drilling and spacing unit for the below-listed lands, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback, utilizing a common or expanded pad with an existing well, for production of gas from the Fruitland coal seams:

Township 33 North, Range 7 West, N.M.P.M.

Sections 5 and 6:All

Township 33 North, Range 8 West, N.M.P.M.

Section 1:All

Section 2:N½

Township 33 North, Range 9 West, N.M.P.M.

Sections 2 and 3:All

Township 34 North, Range 7 West, N.M.P.M. (S.U.L.)

Sections 4 thru 9:All

Sections 16 thru 21:All

Sections 28 thru 32:All

Section 33:N½

Township 34 North, Range 8 West, N.M.P.M. (S.U.L.)

Sections 1 thru 36:All

Township 34 North, Range 9 West, N.M.P.M. (S.U.L.)

Sections 1 thru 3:All

Sections 10 thru 15:All

Sections 22 thru 27:All

Sections 34 thru 36:All

                        IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with the terms and provisions of all of the Commission’s health, safety, welfare and environmental rules and regulations now or hereafter in effect.

                        IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with all applicable regulations of the BLM, Bureau of Indian Affairs and the Southern Ute Indian Tribe when conducting operations on lands subject to the respective jurisdiction of each agency.

                        IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with certain provisions of the MOU between BP and La Plata County, and shall comply with all terms, conditions and provisions of prior Commission Orders in Cause No. 112, including without limitation, the specific provisions of Order No. 112-157 including the Rule 508.j.(3)B. conditions attached thereto, to the extent they do not duplicate the provisions of the MOU. For convenience and ease of reference, the relevant conditions of the MOU and Order No. 112-157, including Rule 508.j.(3)B conditions, are set forth below. Conflicts between the conditions of the MOU set forth herein and the terms, conditions and provisions of Order No. 112-157 shall be resolved in favor of the MOU.

                        IT IS FURTHER ORDERED, that the following provisions of the MOU between BP and La Plata County found in Article V, VI and Subsections 2.1 and 2.2 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations or orders:

Surface Density The density of Fruitland Coal Well Pads within the Infill Application Area shall not exceed four (4) within any single 640-acre governmental section of real property. Notwithstanding the foregoing, nothing contained in this provision shall be construed so as to require the closure or abandonment of any existing gas well. "Fruitland Coal Well" means a gas well drilled for the purpose of producing gas from the Fruitland coal seams under the lands described in this Order No. 112-180. "Well Pad" means the flat graveled portion of the pad area in which permanent operations for the gas well take place and shall always include, at a minimum, that portion of the pad area occupied by the drilling rig anchors. "Infill Application Area" means the lands described in this Order No. 112-180.

Well Location; Exceptions The Commission may grant a special exception allowing for a greater density of Fruitland Coal Well Pads (i.e., more than 4 per 640-acre section), at the request of BP and after consultation with the Local Governmental Designee ("LGD"), based upon a finding by the Commission that one or more of the following factors apply in a manner such that use of an existing Well Pad is rendered impractical:

a. topographic characteristics of the site;

b. natural resource constraints (e.g., wetlands);

c. the location of utilities or similar services;

  • d. geologic factors or where issues concerning distances between wells are present;
  • e. other site conditions beyond the control of BP; or

    f. safety concerns.

    Storm Water Management and Spill Prevention Containment and Control Even if not required to do so by any applicable regulation or law, BP agrees to utilize best management practices for all pad expansions and new pads and for road and pipeline development or improvements. "Best management practices" means schedules of activities, prohibitions of practices, maintenance procedures, and other management practices intended to prevent or reduce the pollution of waters of the State of Colorado as described in the regulations of the Colorado Department of Public Health and Environment, as amended from time to time.

    Water Well Monitoring If a conventional gas well exists within one quarter (¼) mile of the bottom hole location of a proposed Infill Well, then the two (2) closest water wells within a one-half (½) mile radius of a conventional gas well shall be sampled by BP as water quality testing wells. If possible, the water wells selected shall be on opposite sides of the existing conventional gas well not exceeding one-half (½) mile radius. "Infill Well" means wells drilled pursuant to this Order No. 112-180. "Conventional gas well" means a well producing from a non-coalbed methane formation found in the San Juan Basin, such as the Mesaverde or Dakota Sandstone Formation.

    If water wells on opposite sides of the conventional gas well cannot be identified, then the two (2) closest wells within one-half (½) mile radius shall be sampled. If two (2) or more conventional gas wells are located within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the conventional gas well closest to a proposed Infill Well shall be used for selecting water wells for sampling.

    If no conventional gas wells are located within one quarter (¼) mile radius of the bottom hole location of the proposed Infill Well, then the selected water wells shall be within one quarter (¼) mile of the bottom hole location of the proposed Infill Well. In areas where two (2) or more water wells exist within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the two (2) closest water wells shall be sampled by BP. Ideally, if possible, the water wells selected shall be on opposite sides of the bottom hole location of the proposed Infill Well.

    If water wells on opposite sides of the bottom hole location of the proposed Infill Well cannot be identified, then the two (2) closest wells within one quarter (¼) mile radius shall be sampled by BP. If two (2) water wells do not exist within one quarter (¼) mile radius, then the two closest water wells within a one-half (½) mile radius shall be selected. If no water well is located within a one quarter (¼) mile radius area or if access is denied, two water wells within one-half (½) mile of the bottom hole location of the Infill Well shall be selected. If there are no water quality testing wells meeting the foregoing criteria, then sampling shall not be required. If the BLM or the Commission have already acquired data on a water well within one quarter (¼) mile of the conventional gas well, but it is not the closest water well, it shall be given preference in selecting a water quality testing well. The "initial baseline testing" described in this paragraph shall include all major cations and anions, total dissolved solids ("TDS"), iron and manganese, nutrients (nitrates and nitrites), selenium, dissolved methane, pH, presence of bacteria and specific conductance and field hydrogen sulfide.

    If free gas or a methane concentration level greater than 2 milligrams/liter ("mg/L") is detected in a water quality testing well, compositional analysis and isotopic analyses of the carbon and hydrogen of the methane shall be performed to determine gas type (thermogenic, biogenic or an intermediate mix of both). If the testing results reveal biogenic gas, no further isotopic testing shall be done. If the carbon isotope test results in a thermogenic or intermediate mix signature, annual testing shall be performed thereafter and an action plan shall be drafted by BP to determine the source of the gas. If the methane concentration level increases by more than 5 mg/L between sampling periods, or increase to more than 10 mg/L, an action plan shall be drafted to determine the source of the gas.

    The initial baseline testing shall occur prior to the drilling of the proposed Infill Well. Within one (1) year after completion of the proposed Infill Well, a "post completion" test shall be performed for the same parameters above and repeated three (3) and six (6) years thereafter. If no significant changes from the baseline have been identified after the third test (the six year test), no further testing shall be required. The testing schedule shall restart after the drilling of a new Infill Well on an existing Well Pad if the wells to be tested include those tested for the 160 acre infill program. Additional "post completion" test(s) may be required if changes in water quality are identified during follow-up testing. The Director of the Commission may require further water well sampling, which may include water quantity monitoring, at any time in response to complaints from water well owners.

    Within three (3) months of collecting the samples used for the test, copies of all test results described above shall be provided to the Commission and the County and the landowner where the water quality testing well is located.

    Plugged and Abandoned Wells/Soil Gas Vapor Survey A soil gas vapor-monitoring program shall be designed to determine a possible lack of zonal isolation along wellbores of plugged and abandoned wells. BP shall attempt to identify any plugged and abandoned wells located within one quarter (¼) mile of the bottom hole location of any Infill Well. Any plugged and abandoned well within one quarter (¼) mile of the bottom hole of an Infill Well shall be assessed for risk, taking into account cementing practices reported in the plugged and abandoned reports. BP shall notify the Commission of all results of all risk assessments of plugging procedures. The Commission may appropriate funds under Rule 701. (the Environmental Response Fund) to conduct soil gas monitoring tests to further define the risks. If the monitoring reveals a possible lack of zonal isolation, the Commission may then conduct or order any necessary remediation or other authorized activities.

                            IT IS FURTHER ORDERED, that the following terms, conditions and provisions of Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations:

    Well Permit Limitations A Commission hearing shall be required before a drilling permit may be issued for a well site located within one and one-half (1½) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations. The purpose of the hearing shall be to address potential adverse impacts to the Fruitland outcrop.

    Annual Drilling Plan The Director shall survey the operator as to its drilling plans for the remainder of the year 2005 and for 2006, and annually thereafter. The survey results shall be reported to the Commission for its consideration with respect to the conditions attached to this order.

    Wildlife The operator shall notify the Colorado Division of Wildlife ("CDOW") of the location of any proposed additional well site and advise the Director of the date such notice was provided. If the Director receives comments from the CDOW within ten (10) days of the date notice was provided, such comments may be considered in applying Rule 508.j.(3)B. conditions.

    Emergency Preparedness Plan The operator submitting an Application for Permit-to-Drill for a proposed additional well under this order shall file and maintain a digital Emergency Preparedness Plan ("EPP") with La Plata County. The EPP shall include as-built facilities maps showing the location of wells, pipelines and other facilities, except control valve locations that which may be held confidential. The EPP shall include an emergency personnel contact list.

    Gas and Oil Regulatory Team The Director shall ensure that the La Plata County Gas and Oil Regulatory Team ("GORT") continues to meet as appropriate, but no less than semiannually. GORT meetings may be scheduled more frequently if the members believe a meeting is appropriate. (GORT includes invited member representatives from La Plata County, BLM, SUIT, industry operators and Commission. Its meetings are open and typically attended by interested area residents.)

    3M Mapping, Modeling and Monitoring Project The Director shall ensure that the 3M Technical Peer Review Team is invited to meet as appropriate, but no less than semiannually to review proposals and results related to the 3M Mapping, Modeling and Monitoring Project. 3M Technical Peer Review Team meetings may be scheduled more frequently if the members believe a meeting is appropriate.

    Post Completion Pressure Build-Up Tests In addition to obtaining a bottom hole pressure on all wells drilled under this order, the operator shall conduct pressure build-up two (2) to three (3) months after initial production begins and once every three (3) years thereafter. The operator shall provide the data acquired, an evaluation of the data and the procedures utilized to conduct the pressure build-up tests to the Director within thirty (30) days of the conclusion of each test. After reviewing the quality of the pressure buildup data and the adequacy of the geographic distribution of the data, the Director may reduce the number of wells for which pressure build-up testing is required.

    IT IS FURTHER ORDERED, that the following Rule 508.j.(3)B. conditions from Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable Commission Rules and Regulations:

    Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the surface well location is proposed to be sited within any subdivision that has been approved by La Plata County. The Director shall conduct an onsite inspection if the surface well location is within two (2) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations and an onsite inspection is requested by the surface owner, LGD, operator, or Director.

    Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the operator and the surface owner have not entered into a surface use agreement. If the reason the surface use agreement has not been executed is related to surface owner compensation, property value diminution, or any private property contractual issues between the operator and the surface owner, then no onsite inspection shall be required.

    The purpose of the onsite inspection shall be to identify any potential public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction regarding the proposed surface location that may not be adequately addressed by Commission rules or orders. The onsite inspection shall not address matters of surface owner compensation, property value diminution, or any private party contractual issues between the operator and the surface owner.

    When the Director conducts onsite inspections under the conditions in 1.) and 2.) above, the Director shall invite the representatives of the surface owner, the operator and LGD to attend. The Director shall attempt to select a mutually acceptable time for the representatives to attend. The inspection shall be conducted within ten (10) days, or as soon as practicable thereafter, of either the date the LGD advises the Director in writing that the proposed surface well site location falls within an approved subdivision or the date the operator advises the Director in writing that a surface use agreement has not been reached with the surface owner. If requested by the operator, the Director may delay the onsite inspection to allow for negotiation between the operator and surface owner or other parties.

    Following the onsite inspection, the Director shall apply appropriate site specific drilling permit conditions if necessary to prevent or mitigate public health, safety and welfare or significant adverse environmental impacts taking into consideration cost-effectiveness and technical feasibility and relevant geologic and petroleum engineering conditions as well as prevention of waste, protection of correlative rights, and promotion of development.

    Examples of the types of impacts and conditions that might be applied if determined necessary by the Director in 5.) above include (this list is not prescriptive or all inclusive):

    visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening

    surface impacts – moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of future reclamation activities; utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas

    noise impacts – installing electric motors where practicable; locating or orienting motors or compressors to reduce noise; installing sound barriers to achieve compliance with Commission rules; confining cavitation completion operations (excluding flaring) to the hours of 7 a.m. to 7 p.m. and notifying all area residents within one-half (½) mile at least seven (7) days before cavitation is commenced

    dust impacts – watering roads as necessary to control dust during drilling and completion operations

    ground water impacts – collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data

    safety impacts – soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment

    outcrop impacts – performing outcrop gas seep surveys; performing produced water quality analysis; periodic pressure transient testing of high water/gas ratio wells; limiting water production in wells with anomalously high water rates and water/gas ratios; funding investigative reservoir modeling under the Director’s supervision

    wildlife impacts – limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant

    If the operator objects to any of the conditions of approval applied under 6.) above, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.

    If the Director has reasonable cause to believe that any existing or proposed oil and gas operations are causing, or are likely to cause, public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction that may not be adequately addressed by Commission rules or orders, the Director may properly notice and set the matter for the next regularly scheduled Commission hearing to order appropriate investigative or remedial action. Reasonable cause may include, but is not limited to, information from the 3M Mapping, Modeling and Monitoring Project.

                            IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

                           IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

                            IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

                            IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

     

                            ENTERED this _______________day of October, 2005, as of September 26, 2005.

     

                                                                                        OIL AND GAS CONSERVATION COMMISSION

                                OF THE STATE OF COLORADO

     

                            By  9; _____________________________________

                                                Patricia C. Beaver, Secretary

    Dated at Suite 801

    1120 Lincoln Street

    Denver, Colorado 80203

    October 25, 2005