STATE OF MONTANA

DEPARTMENT OF NATIJRAL RESOURCES AND CONSERVATION

MINUTES OF TIIE

BOARD OF OIL AND GAS CONSERVATION MEETING

October 24, 1991

A regular meeting of the Board of Oil and Gas Conservation was called to order by Chairman Warren H. Ross at 8:00 a.m. on Thursday October 24, 1991 in the Montana-Alberta Room, Heritage Inn, Great Falls, Montana.

Board members present were Warren H. Ross, Chairman; Dean Swanson, Vice­chairman; James C. Nelson; Scott Gage; Stanley Lund; Robert B. Rhodes Jr.; and David Schaenen.

Staff members present were Thomas P. Richmond, Administrator and Petroleum Engineer; James W. Halvorson, Petroleum Geologist; Timothy c. Fox, Environmental Coordinator; Dee Rickman, Executive Secretary; Donald A. Garrity, Attorney and Steven Sasaki, Northern District Field Inspector.

Reading of the minutes of the September 5, 1991 meetings was dispensed with inasmuch as a copy of the minutes was sent to each Board member prior to this meeting.

MOTION: A motion was made by Mr. Rhodes, seconded by Mr. Gage and unanimously passed that the minutes of the September 5, 1991 meeting be approved as distributed.

Bond Report Mrs. Rickman provided copies of the bond report for the period September 4, 1991 through October 22, 1991. Eight new bonds were approved and 16 canceled.

Financi al Report Mrs. Rickman provided copies of the financial report for the period ending September 30, 1991.

Status Report s on Pending Matters - Milan Aye.rs - By Board Order No. 44-91, Milan R. Ayers, was directed to properly plug and abandon 6 wells by October 24 and to appear before the Board at its October 24 meeting to provide evidence that the required work was completed. Mr. Ayers and his attorney, William Conklin, appeared at today's meeting and requested that the matter be removed from the October 24 agenda. Mr. Conklin claimed that Mr. Ayers was discharged from liability for plugging and abandoning the subject wells pursuant to a federal bankruptcy discharge granted to him on July 15, 1986. Mr. Conklin further stated that one of the wells has been transferred to J. Burns Brown Operating Co. and that four of the wells went through various assignments in the bankruptcy proceeding and are currently held by EPS Resources Company. Mr. Ayers has unsuccessfully attempted to get EPS Resources to sign a notice of change of operator accepting operatorship of those wells. Mr. Conklin suggested that in view of Mr. Ayers' bankruptcy di scharge, the Board should proceed against Mr. Ayers' surety for f urther reli ef. Mr. Conklin assured the Board that i t was Mr. Ayers' desi re to cooperate wi th the Board and others to get this matter res olved.

MOTION: A motion was made by Mr. Swanson, seconded by Mr. Lund and unanimously passed to continue this matter to the December 12, 1991 Board meeting.

ARCO Oil & Gas Co. - Docket No. 71-91, requ1r1ng ARCO to show cause why it should not be required to plug and abandon two Karman wells in Yellowstone County, was withdrawn from the September docket at ARCO's request when they promised to plug and abandon the wells. ARCO later requested an extension of time to plug the wells because Mr. Karman needed time to dispose of his cattle herd which was dependent upon the water produced from the wells. Mr. Richmond agreed to the extension, providing ARCO and Mr. Karman provided a writ ten agreement by October 18, 1991 incorporating environmental protection measures set forth by Mr. Richmond in a letter dated September 26 to both parties. Mr. Richmond reported that no agreement was received and that a letter was sent to ARCO requiring them to plug the wells according to previously approved Board specifications. The letter further directed ARCO to appear before the Board on December 12, 1991 if they failed to complete the work as directed.

MOTION: A motion was made by Mr. Nelson, seconded by Mr. Rhodes and unanimously passed directing the staff to docket a show cause hearing for ARCO on December 12, 1991 and subpoena a representative of ARCO to appear.

ANCO Operati ng Company - Board member James c. Nelson declared himself disqualified to participate in this matter and took no further part in this matter. Norman McKinney, President of ANCO Operating Company, appeared as directed by Board Order No. 60-91 and reported the progress that ANCO has made in correcting the problems in the Southeast Cut Bank Sand Unit. He advised that well C507 was plugged on October 23 and that General Well Service has been contracted to do the other plugging and remedial work required. Mr. Fox reported that EPA and BLM have levied substantial penalties against ANCO for past violations. Mr. McKinney stated, however, that ANCO fully intends to correct the problems and has committed $430,000 to this project. The Board deferred taking any action in this matter pursuant to the following motion.

MOTION: A motion was made by Mr. Swanson, seconded by Mr. Rhodes and unanimously passed to defer action on this matter and to require ANCO Operating Company to provide a full report to the Board on December 12, 1991 concerning their operations in the Southeast Cut Bank Sand Unit.

Western Sun Exploration Company - Kemp Wilson, representing Meridian Oil Inc., reported that Meridian has offered to pay the Board $10,000 to resolve the problem of the unbonded wells that Meridian, as mineral owner, assigned to Western Sun Exploration Co. and later took back. He reiterated, however, that Meridian was never the operator of the wells and was not found to be the responsible party for the wells in Board Order No. 17-91. He stated that Meridian's offer was intended instead to accommodate the Board in resolving the matter.

MOTION: A motion was made by Mr. Nelson, seconded by Mr. Swanson and unanimously passed to accept Meridian's $10,000 payment offer; to proceed to plug and abandon the wells; and to hold Western Sun Exploration Company liable for any additional costs encountered in plugging the wells.

Meridian Oil Inc. - By Administrative Order No. 18-A-91, Meridian Oil lnc. was directed to plug and abandon three wells in Garfield County and one in Richland County that they sold to Mitch Orr. Meridian remains the operator of

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record for said wells because Mr. Orr has never provided a bond nor signed the notices of intent to change operator. Kemp Wilson, representing Meridian Oil Inc., requested that this matter be continued to the December 12 meeting inasmuch as the wells have been turned back to Meridian and they are negotiating a sale with another party.

MOTION: A motion was made by Mr. Schaenen, seconded by Mr. Gage and unanimously passed granting Mr. Wilson's request for continuance of the above matter.

Pending Lawsuits - Mr. Garrity reported that the lawsuits which he filed on behalf of the Board against Bob Dennis and Donald Blackburn have been served upon the respective parties and are in process. The complaint filed against Minnesota Trust Company was dismissed upon receiving its payment in the amount of $20,000, representing forfeiture of the Bob Dennis and Geostar bonds. Mr. Richmond reported that he has heard nothing further of the rumored transfer of Geostar's two wells to Bud Hedges, although someone has reportedly been removing equipment from the sites.

MOTION: A motion was made by Mr. Nelson, seconded by Mr. Gage and unanimously passed directing Mr. Garrity to initiate legal action against the Geostar partners and to request an injunction to prohibit removal of equipment from the two wellsites in question if it is determined that the equipment is being removed without proper legal authority.

Operatorshi Dis ute-Rimrock OU Co . and John J. Lyon - Mrs. Rickman reported that Rimrock Oil Co. is the operator of record of the Northwest Holding #1 well in Section 18, Township 34 North, Range 2 West whereas John J. Lyons has been producing the well and filing the production reports. After this matter was scheduled for the Board's review today and each of the parties notified, Jeff Lyon advised by letter that the owner/operatorship of this well has been in litigation since 1987 and he asked the Board to defer taking any action in this matter pending the District Court's ruling. Mr. Lyon's attorney, G. Robert Crotty, provided a letter confirming the pending Court action for the Board's review today.

MOTION: A motion was made by Mr. Schaenen, seconded by Mr. Swanson and passed to defer taking any action in this matter pending the outcome of the court case. The staff was directed to accept production reports from John J. Lyon; the well is to remain covered by Rimrock Oil Company's bond. Board member James C. Nelson abstained from voting in this matter.

EOC Meeting - Chairman Ross reported that he received an invitation from the Environmental Quality Council to attend their next meeting in Helena on November 1 to provide an update report on the Board's proposed new and amended rules. Tom Richmond and Jim Nelson will also attend that meeting.

Gas Flaring Rules--clarif ' cation - Mr. Richmond reported that Shell Western E&P, Inc. recently requested the Board to approve a variance to Rule 36. 22.1221 for tank "breathing losses" containing small quantities of HzS gas for its central tank batteries in the Cedar Creek Anticline units. Mr. Richmond stated that, in his opinion, Rule 36.22.1221 is not intended to cover minor "breathing losses" from stock tanks, that he has found Shell's request to be justified, and he recommended approval for three-year administratively renewable periods.

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MOTION: A motion was made by Mr. Schaenen, seconded by Mr. Swanson and unanimously passed directing Mr. Richmond to approve Shell's request per his recommendation set forth above. The Board further delegaletl Mr. Richmond administrative authority to review and approve or deny any future requests for exceptions to Rule 36.22.1221 for tank "breathing losses" containing small volumes of H2S gas on a case by case basis.

R & N Associates--Reimbursement request - Mr. Richmond advised the Board that R & N Associates voluntarily plugged an old well in Soap Creek Field which suddenly began flowing water to the surface in September. He read a letter from Glen Neubert of R & N Associates requesting reimbursement of their costs to plug the well. Following discussion the Board directed Mr. Richmond to express its gratitude to R & N Associates for promptly plugging the well when it became a problem but to advise that Montana laws governing expenditure of public monies strictly control the issuance of public contracts for the procurement of services. The Board cannot authorize reimbursement of these costs as it does not have the authority to waive these requirements.

Ground Water Task Force - Mr. Halvorson reported that he was recently appointed as the Board's representative on the Ground Water Assessment Steering Committee created under Senate Bill 94. He attended the first meeting of the committee on October 8 in Helena. The committee is comprised of 20 (4 voting and 16 ex-officio) members including representatives of the Association of Counties, League of Cities and Towns, EPA, BLM, Forest Service, Bureau of Reclamation, SCS. agricultural and industrial water users, and a conservation organization. Jim said that Senate Bill 94 creates a ground water monitoring program and a ground water assessment program to gather background aquifer and water supply information across the state. The bill funds the program from a variety of water-related license fees and, after July 1, 1993, up to $666,000 yearly from the Resource Indemnity and Ground Water Assessment Tax (note name change also included in the bill). The initial meeting was mostly organizational in nature. The committee will meet again on December 12 to determine how to begin the first phase of the study.

Env · ran.mental Coordinator's Report - Mr. Fox reported that official notification of approval was recently received from the Environmental Protection Agency for the solid waste management study grant. The grant is in the amount of $290,000, of which $3200 will comprise the State's indirect cost assessment.

Tim reported that AMOCO Oil Company has donated a set of instructional tapes to the Board for use by the staff. He said the tapes are valued at $10,000 and will be an exceptional training guide for our field inspectors. AMOCO said that the tapes will be updated periodically as technologies and procedures change, and they will also provide those updates to the Board at no charge. Tim was requested to draft a thank you letter to AMOCO for their generous gift.

Tim also advised the Board that he and Tom met with EPA officials in Denver last month to work out the remaining details concerning transfer of the UIC Program to the Board. Most issues have now been resolved with a few exceptions, one being a question concerning the Board's jurisdiction over fee lands within the boundaries of Indian reservations. Although the BLM asserts jurisdiction over all lands within the boundaries of Indian reservations, they will likely make an exception to accommodate Montana law requiring Board jurisdiction over fee lands within said boundaries. Tim also advised that EPA volunteered to provide the Board with microfiche copies of their Montana UIC Program records at no cost, providing that we provide the personnel to film the records.

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IOGCC Annual Meeting - The annual meeting of the Interstate Oil & Gas Compact Commission will be held in New Orleans, Louisiana, December 8-11, 1991. Pursuant to Governor Stephens' out-of-state travel policy, the Board concurred that participation in this meeting is essential to state government. Tom Richmond and David Schaenen will attend the meeting as authorized by the following motion.

MOTION: A motion was made by Mr. Swanson. seconded by Mr. Nelson and unanimously passed authorizing the Administrator or his designee and one Board member to attend the annual IOGCC meeting in New Orleans.

Public Hearing - At 10:00 a.m. Chairman Warren Ross announced that the Board would hear the applications scheduled for the October 24, 1991 public hearing. As a result of the discussion, study, testimony and technical data placed before the Board the following action was taken in each matter.

At the outset of the hearing of Docket No. 74-91, Board member Dean Swanson announced that he deemed himself disqualified to participate in the hearing and he took no further part in the proceedings by the Board on this matter.

MOTION: A motion was made by Mr. Nelson, seconded by Mr. Lund and unanimously passed that the application of Somont Oil Co., Inc., heard under Docket No. 74-91 be granted as set forth by Board Order No. 63-91.

Docket No. 75-91, upon the application of Meridian Oil Inc., was continued to December 12, 1991.

At the outset of the hearing of Docket No. 76-91, Board members Dean Swanson and Robert Rhodes announced that they deemed themselves disqualified to participate in the hearing and they took no further part in the proceedings by the Board in this matter.

Kee-Sun Partners, represented by Kemp Wilson, submitted a brief in opposition to Docket No. 76-91, upon the application of Somont Oil Co •• and moved to dismiss the application with prejudice.

MOTION : A motion was made by Mr. Nelson and seconded by Mr. Gage to grant Kee-Sun Partners' motion to dismiss Docket No. 76-91. The motion was withdrawn upon applicant's request and Board approval to withdraw the application from the docket.

At the outset of the hearing of Docket No. 77-91, Board member Robert Rhodes announced that he deemed himself disqualified to participate in the hearing and he took no further part in the proceedings by the Board in this matter.

MOTION: A motion was made by Mr. Nelson, seconded by Mr. Schaenen and unanimously passed that the application of Somont Oil Co. heard under Docket No. 77-91 be denied. This motion was set forth by Board Order No. 64-91.

MOTION: A motion was made by Mr. Rhodes, seconded by Mr. Schaenen and unanimously passed that the application of Beartooth Oil and Gas Company, heard under Docket No. 78-91 be granted as modifiP.d and sP.t forth by Board Order No. 65-91.

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MOTION: A motion was made by Mr. Gage, seconded by Mr. Schaenen and unanimously passed that the application of Norfolk Energy Inc., heard under Docket No. 79-91 be granted as modified and set forth by Board Order No. 66-91.

MOTION: A motion was made by Mr. Rhodes, seconded by Mr. Gage and unanimously passed that the application of J. Burns Brown Operating Company heard under Docket No. 80-91 be granted as amended and set forth by Board Order No. 67-91.

Docket No. 81-91, a show cause hearing for MacQuest Resources Inc. scheduled by the Board at the request of the Department of State Lands, was withdrawn at the request of the Department of State Lands.

Docket No. 82-91, upon the Board's own motion requiring Isabelle Malone to properly plug and abandon the Kronmiller #1 well, was withdrawn upon notification from Floyd Podoll that the subject well had been satisfactorily plugged and the operator promised to complete the surface restoration or provide a landowner's water well release agreement within 30 days.

MOT ON: A motion was made by Mr. Schaenen, seconded by Mr. Lund and unanimously passed to enter an order in the show cause hearings for Del ta Petroleum Inc., Pioneer Exploration Company and Younas Chaudhary heard under Dockets No. 83-91 and 84-91, setting forth several requirements concerning their operations in McCone and Daniels counties. This matter was set forth by Board Order No. 68-91.

l"fOTION: A motion was made by Mr. Schaenen, seconded by Mr. Rhodes and unanimously passed that the application of Slawson Exploration Company, Inc. heard under Docket No. 85-91 be granted as modified and set forth by Board Order No. 69-91.

Rules Review - Following the public hearings, the Board reconvened at 3:30 p.m. to review the latest draft of the proposed new and amended rules. At the direction of the Board on September 5, copies of the latest draft rules were distributed to interested parties and an open house meeting was scheduled October 23 to provide people an opportunity to offer comments concerning the rules directly to the Board. A cover letter was sent with the draft rules advising of the open house and requesting written alternative rules or policies designed to provide workable solutions to 10 specific concerns being addressed by the Board as a result of the adoption of the Programmatic Environmental Impact Statement.

At today's meeting, the Board considered both the writ ten and oral comments and determined which of the proposed changes were appropriate to include in the formal rulemaking notice. Two topics, being the increased bonding requirements and permitting of shut-in and temporarily abandoned wells, have generated the most concern and negative comments from industry representatives. The Board discussed various approaches to dealing with these concerns, including possible legislation suggested by Senator Delwyn Gage during the open house meeting on October 23. Because of the controversy concerning these two issues, the Board decided to spend more time reviewing the options available concerning these issues and to defer action on them until later. They directed the staff to finalize the formal rulemaking notice without the bonding rule and shut-in and temporarily abandoned wells rule and s11hmi t it to the Secretary of State for publication in the Montana Administrative Register as soon as possible. A formal public hearing will be scheduled on January 30, 1992 at the Billings Petroleum

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Club, Sheraton Hotel, Billings, Montana to consider adoption of the proposed new and amended rules.

Meet ·ng Dates - The next regular meeting of the Board is scheduled to be held on Thursday, December 12, 1991 in the Frontier Room, Northern Hotel, Billings, Montana. The filing deadline for said hearing is Thursday, November 12, 1991.

The Board also adopted a tentative meeting schedule for 1992. Meetings will be scheduled for January 30, March 26, May 7, June 25, August 13, October 8 and December IO. All meetings will be scheduled to be held in Billings with the exception of the August 13 meeting which will be scheduled to be held in Cut Bank.

The meeting adjourned at 5:30 p.m. Thursday, October 24, 1991.

(SEAL)

ATTEST:

Dee Rickman, Executive Secretary

BOARD. OF OIL AND GAS CONSERVATIOeN· I~ OF/ THE STATE OF IION~ANA //

Ll h. JiA iAA iJ-1 Warren H. Ross, Chairman Dean A. Swanson, Vice Chairman James C. Nelson Scott O. Gage Stanley Lund Robert B. Rhodes, Jr. David Schaenen

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