OIL

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OIL GAS UPDATEKen Wonstolen
August 27, 2008Montana Petroleum Association
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Natural Gas Production and Consumption
Projections
History
Consumption
Production
Source Annual Energy Outlook 2007
Natural Gas Projections from EIA and Six Others
March 28, 2007
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Greatest Natural Gas Reserves by Country, 2006
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Lets discuss your cost of natural gas.
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North American Gas Production
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• Last year 50 of the natural gas consumed in
  the US came from wells drilled in the prior 40
  months
• 2 years ago 50 of the natural gas consumed in
  the US came from wells drilled in the prior 48
  months

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Since 2001, Incremental Rockies Volumes Have
Averaged 446 MMcfd
Average 446 MMcfd
Changes in Gross Withdrawals
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What does it take to drill a well?

• Can you get a lease?
• Is the geology and terrain favorable?
• Can you get to market?
• What will it all cost?
• Can you get a drilling rig?
• How about a surface use agreement?
• What permits are required?
• How long will it take?
• Will the rig still be available?

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Legislation the hangover from 2007

• HB 1180 production measurement
• HB 1252 accommodation
• SB 237 surface development
• HB 1298 wildlife protection
• HB 1341 COGCC reform and rulemaking

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Production Measurement Sales Reconciliation

• COGCC rulemaking completed April 1, 2008
• Requires measurement and metering in accordance
  with industry technical standards (API, GPA,
  etc.)
• Requires measurement prior to production leaving
  the lease or production unit boundary
• Requires regular meter calibration, and gas
  quality determination
• Sales reconciliation issue deferred
• Mcf ??MMBtu
• Drip, shrink, lease use, NGLs, flaring,
  downstream sales
• Correlation with tax reporting

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Accommodating the surface owner

• Codifies Gerrity v. Magness, 946 P.2d 913 (Colo.
  1997) see Getty Oil v. Jones, 420 S.W.2d 627
  (Texas 1971)
• Minimize intrusion and damage to the extent an
  alternative location or means of operation is
  technically feasible, economically practicable
  and reasonably available
• Parties free to contract, and statute not to be
  construed to abrogate or impair a contractual
  provision that expressly provides for the use of
  the surface or that releases the operator from
  liability for use of the surface

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Surface Development

• Developers must notify mineral owners/lessees of
  impending applications for development CRS
  25-65.5-101 et seq.
• In the Greater Wattenberg Area, qualifying
  surface developments require for local approval
• No objection
• Surface use agreement or
• Designation of specified oil and gas operations
  areas and,
• Escrow of directional drilling costs
  (87,500/well)

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The New COGCC

• Director of Department of Natural Resources
• Director of Dept. of Public Health Environment
• Three with oil and gas experience, inc. degrees
• Local government official
• Experience in environmental or wildlife
  protection
• Experience in soil and land reclamation
• Agricultural producer who is royalty owner
• Balance production with protection

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COGCC Rulemaking

• HBs 1298 1341 require a timely and efficient
  APD review procedure, providing an opportunity
  for comment by CDPHE and CDOW
• New regulations on protecting public health,
  wildlife and wildlife habitat are authorized

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Proposed regulation

• Draft regulation issued March 31, 2008
• Approximately 40 pages of single-spaced text
• Affects every aspect of oil and gas operations
  and regulation
• Oil and gas locations require Form 2A, and are
  subject to approval doesnt apply to gathering
  systems or gas storage
• Applies to wells, ancillary facilities and may
  involve consultation with CDPHE, CDOW, local
  government (LGD)

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Proposed regulation, continued

• Form 2A subject to completeness review
• Photos, including reclamation reference area
• List of all equipment to drill, complete and
  operate
• Scaled drawing of visible improvements w/i 400
  feet
• Topo map showing surface water and riparian areas
  w/i 1000 feet
• USGS topo map showing 3 mile radius and access
  from public road
• Designation of land use and basis for reclamation
• Construction layout, cross-section plot for
  slopesgt10
• NRCS soil map unit description
• Wellbore trajectory (multi-well pad)
• Impact mitigation plan
• Wildlife survey and protection plan
• Presumptive conditions of approval

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Proposed regulation, continued

• Timeframe for approval, including completeness
  review, vary
• 40 days if covered by Comprehensive Drilling Plan
• 60 days if no LGD, CDPHE, CDOW consultation
• 70 days if consultation is required
• Concurrent surface owner consultation
• Public and adjacent landowner comment period
• Ten day appeal period to Director
• Operator may apply for hearing

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New environmental regulations

• Surface water drinking water supply areas
• Exclusion zone 300 wide on permanent and
  intermittent streams
• 5 miles upstream of public water system intake
• Performance standards, baseline investigation,
  monitoring
• Bradenhead monitoring during well stimulation
• Inventory of chemicals maintained and made
  available on COGCC request. Proprietary
  formulations provided in response to spill or
  medical emergency, subject to confidentiality
• Extensive requirements for CBM development
• VOC, odor and dust controls
• New pit permitting and design standards
• New EP waste management rules
• Stormwater management requirements.

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New wildlife rules

• Wildlife survey for species of concern
• Transportation planning
• Mosquito control (West Nile)
• Bear control
• Equipment disinfection
• Timing limitations up to 90 days! (15 species)
• Restricted surface occupancy! (16 species,
  riparian areas)
• Variance consultation
• Reduced well pad density, or CDP

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Proposed regulation, continued

• Memoranda of Agreement with local governments
  state floor local ceiling
• Pollution Prevention/Compliance Checklist and
  annual certification
• Geographic Area Plans
• Financial assurance/bonding increases
• Increased penalties for violations

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The road behind and ahead

• Party status 86 parties, 34 industry
• COGCC prehearing statement
• Party prehearing statements gt10,000 pages
• Party rebuttal statements gt 4,000 pages
• Public comment hearings
• Testimonial hearings 12 hours for industry
• Deliberations underway
• Legislative Review!

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