Posted 8-15-08

State Engineer To Cut Unnecessary CBM Water Production

Cheyenne (Office of the Wyoming State Engineer) -- Efforts continue at the Wyoming State Engineer's Office to require coal bed natural gas operators in Wyoming to demonstrate why wells that are producing water but no gas should be allowed to continue production.

The effort to require operators to "show cause" began in December 2007 and has so far resulted in the cancellation or suspension of permits for 243 of 296 wells that were known to be producing water but no gas. This effort to reduce unnecessary water production targeted wells in the Crazy Woman and Clear Creek drainages of northeastern Wyoming. It resulted in "show cause" letters to ten natural gas operators.

This week, the State Engineer's Office began another round of "show cause" correspondence with 42 operators in Wyoming's Powder River Basin. The State Engineer's Office (SEO) expressed concerns about 992 wells with permits that are at least five years old and have a history of production of water with no attendant gas production, according to Wyoming Oil and Gas Conservation Commission records. CBM well permits issued by the State Engineer's Office in that time frame contain a standard condition allowing for a review after five years.

"This is not an attempt to stop or hinder gas exploration, development, production," said State Engineer Pat Tyrrell. "It is an effort to make sure the operators are producing gas from the resultant water production."

"It is understandable that not all individual wells will produce gas, since some simply may be keeping the local water level depressed so a proven field can operate," Tyrrell added. "We also understand that CBM fields take time to develop. What we are concerned about now are those areas where wells or fields are producing only water, perhaps for a long time, and sometimes in significant quantities. The beneficial use of their SEO well permits is to produce gas, so we want evidence of that or a reasonable expectation that gas will be produced."

It is possible a significant number of the targeted wells have already been abandoned or are planned for abandonment. "If that's the case," Tyrrell said, "they just need to tell us so." Not all wells abandoned under Wyoming Oil and Gas Conservation Commission procedures, or planned for abandonment, are reported by operators to the SEO.

"In the past effort, a number of wells were already abandoned, but the operators just hadn't asked for their SEO permit to be canceled," Tyrrell said. "I expect that will be the case here too. So, for those wells, this really just cleans up the record."

The State Engineer reiterated that the beneficial use for CBM permits from his office is the production of gas. "We get so many permits on a monthly basis, and have for years, that it's hard to believe some aren't purely speculative. We don't like speculation in water rights. If you want to produce gas, go do it, but don't expect to be able to pump water indefinitely without ultimately producing gas."

The current "show cause" letters provide the opportunity for operators to present additional information to justify why their SEO well permits should stay in good standing.

"The first cases have progressed as we hoped they would, with operators diligently making their cases," Tyrrell said. "So far, it's been a cooperative endeavor, and we appreciate the operators working with us. It's a nuanced, technical process. The bottom line is if the subject wells are not producing or helping the production of gas, or have no reasonable expectation of doing so, the SEO permits may be cancelled or suspended."

The final outcome of the current round of announcements may not be known for several months, Tyrrell said. "Much work remains to be done to determine what actions are warranted."