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In re Antrim Shale Formation re Operation of Wells Under Vacuum

Court of Appeals of Michigan

March 21, 2017

In re Antrim Shale Formation re Operation of Wells Under Vacuum.
v.
MICHIGAN PUBLIC SERVICE COMMISSION, LINN MIDWEST ENERGY, LLC, LINN OPERATING, INC., TERRA ENERGY COMPANY, LLC, BREITBURN OPERATING, LP, BREITBURN MANAGEMENT, LLC, ENERVEST MANAGEMENT PARTNERS, LP, BELDEN & BLAKE CORP., doing business as WARD LAKE ENERGY, ENERVEST INSTITUTIONAL FUND IX, LP, MERIT ENERGY COMPANY, LLC, DCP ANTRIM GAS, LLC, and DCP GRANDS LACS, LLC, Appellees, RIVERSIDE ENERGY MICHIGAN, LLC, JORDAN DEVELOPMENT COMPANY, LLC, HRF EXPLORATION & PRODUCTION, LLC, and TRENDWELL ENERGY CORP., Appellants, and MUSKEGON DEVELOPMENT COMPANY, Intervenor-Appellee. In re Antrim Shale Formation re Operation of Wells Under Vacuum. RIVERSIDE ENERGY MICHIGAN, LLC, JORDAN DEVELOPMENT COMPANY, LLC, HRF EXPLORATION & PRODUCTION, LLC, and TRENDWELL ENERGY CORP., Appellants,
v.
MICHIGAN PUBLIC SERVICE COMMISSION, DCP ANTRIM GAS, LLC, DCP GRAND LACS, LLC, LINN MIDWEST ENERGY, LLC, LINN OPERATING, INC., TERRA ENERGY COMPANY, LLC, BREITBURN OPERATING, LP, BREITBURN MANAGEMENT, LLC, ENERVEST MANAGEMENT PARTNERS, LP, BELDEN & BLAKE CORPORATION, doing business as WARD LAKE ENERGY, ENERVEST INSTITUTIONAL FUND IX, LP, and MERIT ENERGY COMPANY, LLC, Appellees.

         MPSC LC No. 00-016230

          Before: Beckering, P.J., and O'Connell and Borrello, JJ.

          Per Curiam.

         Appellants, oil companies operating within the Antrim Shale Formation, appeal as of right the order of the Michigan Public Service Commission (the Commission) granting natural gas producers approval to operate wells in the Antrim Shale Formation under vacuum. The Commission considered the entire shale formation and its decision permitted all operators who were drilling in the formation to operate their wells under a vacuum. We affirm.

         I. BACKGROUND

         Natural gas production has occurred in the Antrim Shale Formation since the 1940s. Natural gases, primarily methane and carbon dioxide, have absorbed into the shale. The fractures in which this gas resides may be short or long. Water in the system effectively traps the gas in the reservoir, but as water is pumped out of the fracture system, it lowers the reservoir pressure and releases the gas from the organic matter in the shale. By August 2010, more than 10, 000 wells owned by 32 companies operated in the formation.

         Appellees, who are natural gas producers, applied to the Commission in August 2009 for permission to operate their natural gas wells in the Antrim Shale Formation under vacuum. The Michigan Administrative Code provides that the Commission must approve any placement of gas wells under vacuum:

No gas well, pool or field shall be placed under vacuum by the use of compressors, pumps or other devices except with the approval of the commission. If and when the placing of a vacuum in any well, pool or field is planned, application for approval shall be made to the commission, and the adjoining lease holders and operators of a pool or field who may be affected shall be given notice. The commission may call a hearing on the subject, or may take such action as it deems advisable. [Mich Admin Code, R 460.867 ("Rule 17).]

         Several parties intervened in the applications, with nine companies favoring operating wells under vacuum and six companies opposing it. Those in favor argued that operating under vacuum would increase the amount of gas recovered and reduce waste, while those opposed argued that operating wells under vacuum would effectively drain gas from adjacent areas, infringing on the correlative rights of adjacent well operators.

         In April 2010, the Commission decided that it would open a docket to consider an appropriate response to the question of "proposals by all interested persons regarding whether the Commission should permit gas wells to be operated under vacuum from the Antrim Shale Formation" rather than resolving issues on a case-by-case basis. Applicants and interveners in previous cases were consolidated into the new case.

         The Commission took evidence, including 24 evidentiary hearings and 250 exhibits, before an administrative law judge issued a proposal for decision. The proposal for decision noted that the Commission and Michigan Department of Environmental Quality (DEQ) shared authority to regulate gas wells, and there was no understanding regarding which agency would exercise that authority. The proposal recommended that the Commission dismiss the applications until the applicants had obtained DEQ approval to operate their wells under vacuum.

         On May 14, 2015, the Commission rejected the proposal for decision and instead granted all applications to operate gas wells in the Antrim Shale Formation under vacuum, subject to certain enumerated conditions. Concerning correlative rights, the Commission determined that existing guidelines, which provided that wells must be drilled at least 330 feet from adjoining projects, sufficiently protected the interests of adjacent leaseholders since data showed that few wells in the Antrim Shale Formation communicated and the lack of communication lessened the risk that a well operating under a vacuum would drain gas from a neighboring well. Finally, the Commission determined that allowing wells to operate under vacuum would not alter the status quo because all well operators would be allowed to operate under a vacuum if they so chose.

         Regarding other considerations, the Commission found that vacuum well operations were safe and reduced waste because total production would increase and producers would gain more gas than they expended in recovering gas from the wells. Ultimately, the Commission ordered that "[a]ll current and future natural gas wells produced from the Antrim Shale ...


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