STATE OF MONTANA DEPARTMENT OF NATURAL RESOURCES AND CONSERVATION

MINUTES OF THE BOARD OF OIL AND GAS CONSERVATION MEETING

November 20 and 21, 1996

A regular meeting of the Board of Oil and Gas Conservation was called to order by Chairman Stanley Lund at 2:00 p.m. Wednesday, November 20, 1996 at the Board's office at 2535 St. Johns Avenue, Billings, Montana.

Board members present were Stanley Lund, Judy Feland, George Galuska, Warren Ross, Denzil Young and David Ballard. Board member Dean Swanson was absent from the November 20 and 21 meetings, and George Galuska was absent from the November 21 meeting.

Staff members present were Donald A. Garrity, Attorney; James W. Halvorson, Petroleum Geologist; Jon Hjartarson, Chief Field Inspector; Thomas P. Richmond, Administrator and Petroleum Engineer, Steve Sasaki, Field Inspector, and Susan Kirley, Secretary.

MINUTES

A copy of the minutes of the September 25 and 26, 1996 meeting was sent to each Board member prior to this meeting.

MOTION:

Mr. Ross moved to approve the minutes of the September meeting with corrections noted by Board members. Mr. Young seconded the motion which was passed.

PUBLIC COMMENT

Howard Lemm of BLM offered a formal briefing to the Board on a program which allows states to transfer enforcement duties on federal lands to them. Tom said it would be similar to a primacy program, so we would need to see if there is support from the industry to do this. Even if there is support, it would not be feasible in the near future. There is the possibility BLM and state field inspectors could exchange inspections. Mr. Lund asked Mr. Richmond to explore this and set something up for the Board at a later time.

BOND REPORT

Richard Jacobson reported on bonds. There were eight new bonds approved, ten bonds were canceled or replaced, and one existing bond was changed during the period from September 25, 1996 through November 19, 1996.

FINANCIAL REPORT

Mrs. Kirley presented the financial report for the period ending October 31, 1996. She sc1id Lc1x 111u11ey shuuld I.Jeyir1 c1rrivi11y 11exl week. Mr. Rit:111nu11d sc1id he c1ulhuri,rnd c1 $25,000 payment to the inter-entity loan, and should be able to pay the remainder in the next quarter.

SHUT IN WELL COMMITTEE REPORT

Dave Ballard mailed his report to Board members prior to the meeting. The governor did not support the Board's bid for money for shut in wells. Mr. Richmond said an option is to have the Board request a bill drafted and find someone willing to introduce it. He thinks we should ask for $1.2 million for the biennium to be appropriated directly.

Gary Feland asked what the chances are of introducing a bill. Larry Tveit said the Board needs to show it is serious. Mr. Feland thinks the House would support a bill, although Tom Keating is the only one trying to help. He thinks the Board should make more noise about it. Mrs. Feland thinks the Board should try it. She has listened to the tapes of the committee meeting and she believes the whole purpose of the committee was to narrow the scope of funds. Mr. Richmond said the legislature would probably be willing to give money if we could show we could spend it. We do have a track record of spending what we asked for last time. Opposition would come from other agencies.

MOTION: Mr. Ross moved, Mrs. Feland seconded, and it was unanimously passed that the Board sponsor the drafting and introduction of a bill to appropriate $1 .2 million from the RIT Interest Fund.

BONDING COMMITTEE REPORT

Mr. Galuska reported the committee agreed on the single well bond amounts on a per-depth basis. The draft proposal for wells zero to 2,500 ft.--$2,500; 2,500 ft. to 5,000 ft.--$5,000; 5,000 ft. to 7,500 ft.--$7,500; 7,500 ft. to 10,000 ft.--$10,000; greater than 10,000 ft.--$12,500.

Mr. Galuska added that no proposal has yet been prepared on multiple well bonds, but they have set a May target date. More work needs to be done before going to the legislature with the RIT proposal in January. The committee will meet again mid December and desires comments regarding old and new well bonds. It was suggested to the committee that they invite people such as industry representatives, royalty owners, a legislator, etc. to add their ideas to the committee and have Mr. Halvorson and Richmond as advisors to the committee.

The goal is to show the legislature what the Board is working on and what it hopes to accomplish. Mrs. Feland said she thinks the Board needs to do some damage control and give the legislative committee a better sense of what actually exists.

Larry Tveit said a bill will be introduced to study the RIT interest fund and to cap it. This would give the Board two years to show the legislature whom it is trying to help. The Board has to be ready to tell the story and educate right now but there may be opportunities to do more after the session also.

Mr. Ballard thought it was important that a summary of the bond meeting be sent out to allow the public a chance to provide input. He has compiled a mailing list. Curt Dahlgard of Somont Oil was afraid generalizations may be made which don't reflect all the groups. Mr. Kennedy suggested the Board be careful about sending negative images to the legislators, such as when calling shut in wells garbage or junk wells.

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BOARD MEMBER ORIENTATION

Mr. Young prepared a packet for incoming Board members which consists of a letter, attachments, and a list of acronyms. Mrs. Feland thought a booklet produced by the IOGCC about oil would be helpful to new members and should be included in the packet. Another suggestion was that industry representatives should wear name tags at the meetings.

IOGCC REPORT

Kemp Wilson will attend the December meeting in Las Vegas and will have a report for the Board at the January meeting.

STAFF REPORTS

U/C Program--Mr. Richmond announced EPA has found Montana's UIC program meets the requirement of the Drinking Water Act and has approved the program as of November 12, 1996. It will be published in the Federal Register November 19. The bonding rules will be published in the Montana Administrative Register December 5. An examiner hearing is proposed for January 3, 1997 in Billings.

The IOGCC proposes to conduct a peer review of Montana's exploration and production waste management program sometime in 1 997.

The UIC budget has been approved through the EPP process. The next step is to defend it.

Joe Simonson's Retirement--Mr. Richmond said Joe Simonson will retire December 6 and is filing for retroactive overtime pay in the amount of $26,000. Although Mr. Simonson was not authorized to work overtime, the Fair Labor Standards Act stipulates employees must be paid if they work overtime. DNRC's specific policy on overtime requires pre-approval. Mr. Ross asked if any direction is given to employees on scheduling their time.

Legislative Report--Mr. Richmond will visit with Bud Clinch about having our bill separated from the State Lands bill for repeal of the Natural Gas Policy Act and the repeal of a statute to pay $125 to have a well removed from a bond.

Jim Halvorson--Mr. Halvorson said in December he will send a letter to operators reminding them of the underground injection fees.

Tipperary--Mr. Hjartarson said they will self impose a deadline of May 15, 1997 to plug the Ronning 23-21 and 21-1 wells.

Panterra Petroleum--Mr. Hjartarson reported Panterra Petroleum asked the Board to demand McCulliss Resources Company, operator of the Dahl #1 well, to plug and abandon its well.

MOTION: A motion was made by Mr. Galuska, seconded by Mr. Ballard and unanimously passed to direct the staff to inform McCullis to plug its wells within 60-90

) days. If no response is received from McCullis, it will be scheduled for a Show Cause hearing in January.

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Fred Klein--Mr. Hjartarson reported Mr. Klein was allowed until October 24 to plug his well. At this time only the hardware has been cleaned up. Because the location is not leveled or reclaimed, he is being charged $75 per day until the work is done.

Nerdlihc--Mr. Hjartarson said Order 62-96 required Nerdlihc to reclaim pits no later than October 21, 1996 or be fined $100 per day. The first part of the order has been met, but it is believed the money has been used up. Mr. Kemp Wilson testified on behalf of Mr. Fugere. He recommended the Board ask Nerdlihc to show cause at the January hearing why the fine should not be increased and asked the Board to shut down his operation.

MOTION: A motion was made by Mr. Galuska, seconded by Mrs. Feland and unanimously approved to order Nerdlihc to appear and show cause at the hearing in January why the work has not been done and why the board should not increase the fines.

Hawley Hydrocarbons--Mr. Hjartarson said Hawley Hydrocarbons were given an October 21, 1996 deadline to reclaim the Copley Haber 2 & C wells, and was notified fines would begin if work was not completed. Mr. Hawley claimed the work was completed November 13, however Mr. Sasaki said it was not properly cleaned up. No board action is required, but Mr. Hjartarson will send a letter and a bill for the fine.

Magnus-Aasheim--Mr. Aasheim asked that a pit be removed from a low lying area. The well was completed January 17, 1996, and the operator has one year to reclaim the area. If it does not do so within that time it will be required to appear before the Board. So far the job is not completed.

Grants--Mr. Hjartarson reported on the status of the contracts using grant monies. He said the contract has been let for the Anco and State Lands projects and work will be completed by August 1 997. The Devils Basin contract will be let by January 1 and work will begin shortly thereafter. The Cat Creek Project is complete and the remainder of funds will be spent to plug other wells in the area by January.

1997 MEETING DATES

MOTION: A motion was made by Mr. Ballard, seconded by Mr. Young and unanimously passed to set the 1997 hearing schedule as proposed on the attached sheet.

The business meeting adjourned at 4:30 p.m., Wednesday, November 20, 1996.

An informal discussion was held on the topic of bonding for anyone wanting to participate.

PUBLIC HEARING

The Board reconvened at 8:00 a.m., Thursday, November 21, 1996 to hear the matters docketed for 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.

Docket No. 75-96: A motion was made by Mr. Ross, seconded by Mr. Young and unanimously passed that Docket No. 75-96 be denied because applicant did not appear.

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Docket No. 76-96: A motion was made by Mr. Young, seconded by Mr. Ross and unanimously passed that the application of Canyon Energy Incorporated be granted as set forth in Board Order No. 75-96.

Docket No. 77-96: A motion was made by Mr. Young, seconded by Mrs. Feland and unanimously passed that the application of Richardson Operating Company be granted as set forth in Board Order No. 76-96.

Docket No. 78-96: A motion was made by Mr. Ballard, seconded by Mrs. Feland and unanimously passed that the application of The Montana Power Company be granted as set forth in Board Order No. 77-96.

Docket No. 79-96: A motion was made by Mr. Young, seconded by Mr. Ballard and unanimously passed that the application of Williston Basion Interstate Pipeline Company be granted as set forth in Board Order No. 78-96.

Docket No. 80-96: A motion was made by Mr. Young, seconded by Mrs. Feland and unanimously passed that the application of Williston Basin Interstate Pipeline Company be granted as set forth in Board Order No. 79-96.

Docket No. 81-96: A motion was made by Mrs. Feland, seconded by Mr. Young and unanimously passed that the application of Black Hawk Resources LLC be granted as set forth in Board Order No. 80-96.

Docket No. 82-96: A motion was made by Mr. Ballard, seconded by Mr. Ross and unanimously passed that the application of Black Hawk Resources LLC be granted as set forth in Board Order No. 81-96.

Docket No. 83-96: A motion was made by Mr. Ross, seconded by Mr. Young and unanimously passed that the application of Choctaw II Oil & Gas, LTD, be granted as set forth in Board Order No. 82-96.

Docket No. 84-96: A motion was made by Mr. Young, seconded by Mr. Ballard and unanimously passed that the application of Choctaw II Oil & Gas, LTD, be granted as set forth in Board Order No. 83-96.

Docket No. 85-96: A motion was made by Mrs. Feland, seconded by Mr. Ross and unanimously passed that the application of J. Burns Brown Operating Company be granted as set forth in Board Order No. 84-96.

Docket No. 86-96: A motion was made by Mr. Ballard, seconded by Mrs. Feland and unanimously passed that the application of JN Exploration & Production Limited Partnership 86-96 be granted as modified and set forth in Board Order No. 85-96.

Docket No. 87-96 upon the application of Shell Western E&P Inc. was continued to January 23, 1997.

MOTION: To require J.B. Appling to appear and show cause why his bond should not be forfeited for failing to plug and restore his three remaining wells as set forth in Board Order No. 86-96.

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Docket No. 71 -96 upon the application of Samson Resources was continued to January 23, 1997 at the request of the applicant.

The meeting adjourned at 11 :00 a.m., Thursday, November 21, 1996.

ATTEST:

Susan Kirley, Secret~

Stanley Lund, Chairman Warren H. Ross Judith A. Feland George Galuska Denzil R. Young David Ballard

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