Regular readers (or those with long memories) will recall that on June 1, 1994, the Ingham County Circuit Court entered an order for Antrim gas well spacing hearings to be conducted by the Supervisor of Wells. Following some preliminary sessions, contested case hearings at which evidence was presented took place on November 14 and 15, 1994, January 17, 18 and February 14, 1995. Written final arguments were submitted on March 31, 1995 and the Supervisor finally entered his opinion and order on June 20, 1995.
The order, which has now become final and non-appealable, changed the law of Antrim well spacing from forty acres per well to eighty acres per well in the following twenty-two counties: Alcona, Alpena, Antrim, Arenac, Bay, Benzie, Charlevoix, Crawford, Grand Traverse, Iosco, Kalkaska, Lake, Leelanau, Mason, Manistee, Missaukee, Montmorency, Ogemaw, Oscoda, Otsego, Roscommon, and Wexford.
What follows are some highlights of the Supervisor's opinion (which is eighteen pages in length and includes nineteen specific findings of fact and twelve conclusions of law), and some comments:
Concerning the impact of average project well density on an operator's economic rate of return, the Supervisor found that " ... an operator's economic rate of return is maximized and equal anywhere within the well density range between eighty and 160 acres per well." (Emphasis added.) This is significant because it indicates that lower density wells can succeed in extracting all of the resource.
The Supervisor also found that " ... 40 acre drilling units cause waste and the drilling of unnecessary wells."
An additional fact finding, somewhat inconsistent with the others, was based upon testimony that increased surface use caused by 80-acre densities as opposed to 160-acre densities would be offset by the shorter production life of 80-acre projects (16.5 years) as compared to that of 160-acre density projects (23.5 years). On the basis of that testimony, the Supervisor found that 160-acre spacings would " ... result in significant loss of important natural gas resources and therefore would result in underground waste." This appears to be at odds with the finding that an operator's economic rate of return is maximized and equal anywhere between 80 and 160 acres per well and it also overlooks the fact that the greater surface damage created by 80 acre spacings will probably outlast the 16.5 years of production.
An important observation by the Supervisor states, "It is recent common practice of the Geological Survey Division (GSD) to review applications of proposed wells in an Antrim project on a group basis rather than on a well-by-well basis. The operator's plan normally includes the proposed location of wells, access roads, flow lines, and associated processing equipment. I find the common practice of reviewing Antrim gas well applications on a project basis rather than on a well-by-well basis will minimize surface impacts thereby minimizing surface waste." It was precisely because of the former practice of reviewing applications on a well-by-well basis that the plaintiffs (METL initially, followed quickly by The Anglers of the Au Sable and The Michigan Council of Trout Unlimited) filed suit in the first place and it is heartening to note that the action led to the adoption of a more environmentally sound "common practice" of reviewing applications on a project basis.
The Supervisor added: "I find as a matter of fact that developing Antrim gas as a group of wells on a project basis, provides for limiting well density and minimizing the number of associated surface facilities, thus minimizing surface waste." Nonetheless, he rejected the Michigan Oil and Gas Association (MOGA) proposal for the creation of Antrim Development Areas (ADAs), but substituted the idea of a "Uniform Spacing Plan" (USP) and found that " ... to prevent waste, an operator should have the flexibility other than the more rigid eighty acre drilling units to develop a USP based on (several criteria)... " He also approved the elimination of interior setbacks or hard lines within a USP and ruled that the June 20 order applies to all applications which were pending on that date as well as to those filed thereafter.
Among the Supervisor's other conclusions of law was the statement: "Based on the findings of fact, I conclude it is reasonably necessary to provide exceptions to a uniform spacing pattern. I conclude USPs as provided in this order are reasonably necessary. I conclude the elimination of "hard lines" within an area under an approved USP will prevent waste by allowing the operator more flexibility in avoiding environmentally sensitive surface features."
The order does not require drilling on eighty-acre spacing; it only limits the number of wells within a USP to the total number of acres in the USP divided by eighty. Thus an operator who prefers to drill with a spacing of 160 acres or even greater may do so, and from the testimony adduced at the hearings it seems reasonable to expect many operators will drill on an average of at least 120 acres per well - good news, I think.
The other action taken by the court in June 1994 was the issuance of a permanent injunction in fifteen counties prohibiting the DNR from issuing permits for trenching or plowing pipeline stream crossings. The injunction includes a mechanism for exceptions if, in the DNR's judgment, the environment will be better served by plowing or trenching rather than horizontal substreambed boring. Such an exception requires ten days notice to the plaintiffs and the court retained jurisdiction to hear objections to any such proposed exceptions.
Exception applications have not yet been numerous, but they keep trickling in. The latest is MichCon's proposal to trench the upper North Branch of the Boardman River in the Mahan Swamp area because, according to MichCon, it would cost an additional $750,000 to directionally drill the crossing. Pursuant to the court's injunction, however, cost, unless it is a "hardship," is not a factor to be considered in granting an exception.
At press time, the DNR was attempting to negotiate a workable proposal which will result in a net environmental gain. Earlier pipeline crossings in the Mahan area had seriously damaged the stream channels and the damage had not been repaired. Water was thus flowing out of the banks of the streams, creating ponds which in turn became silt-bottomed heat sinks, increasing the water temperature of the upper Boardman.
As a quid pro quo for an exception permit, the DNR will seek an agreement by MichCon to repair the Mahan Swamp stream channels to their pre-1990 condition, eliminating the ponds and thus lowering the water temperature. Other measures such as the creation and maintenance of a sand trap and revegetation of adjacent wetlands are also under consideration. The bottom line is likely to be a net environmental gain, in which case the plaintiffs will not have to invoke their ten day objection privilege - more good news.
However, not all the Antrim news is good. The GSD staff of regulators has been cut by twenty-one persons which translates to about forty percent. Even so, the state has recently leased an additional 46,000 acres and another gas lease auction will be held in December, putting further pressure on a depleted corps of enforcers. And of course it remains to be seen whether the recent split of the DNR (which puts oil and gas enforcement in the hands of the new Department of Environmental Quality) will return gas well enforcement to the laissez faire bad old days which preceded the lawsuit.
As author Cormac McCarthy remarked in The Crossing, "It is a mistake to expect too much justice in this world."
RWOL
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