CHEYENNE, Wyo. - A permit to appropriate ground water in order to produce coal-bed methane gas carries with it an expectation that the production of gas will occur in a timely fashion.

This week, State Engineer Pat Tyrrell asked for an explanation of how natural gas operations are putting water to "beneficial use" when little to no gas is being collected from some of their wells. The wells of interest are at least five years old, and are located in the Clear Creek and Crazy Woman Creek drainages of the Powder River Basin. A total of 296 wells are involved.

In a letter to ten operators, Tyrrell requested that the companies respond by Feb. 1, 2008 with a "show cause" explanation of why long-term water production has not resulted in the co-production of CBM gas in some of their wells.

Since the state engineer determined in 1997 that the production of water from CBM operations was a "beneficial use" of ground water, that use must be demonstrated, Tyrrell said.

"Approval of a permit to use ground water for CBM production carries with it an expectation that the production of gas will proceed in a timely fashion and in such a way as to minimize the impact to the ground water resource," Tyrrell said in his letter.

Gov. Dave Freudenthal has advocated closer examination of non-gas producing wells.

"I am pleased that the state engineer is taking this step," Freudenthal said. "It is a fair policy to ask these companies to show why they should be able to continue, and when they expect to begin producing gas."

If "suitable cause" is not shown in the company’s explanation, the permits will be canceled, Tyrrell said, and water production must cease. The wells will not be allowed to be repermitted for CBM use, and no other CBM permits will be allowed in the area unless suitable cause can be shown.

In a related action, the State Engineer’s Office also modified the permit conditions and limitations for new CBM well permits. A threshold water-to-gas ratio of 10 barrels per mcf will now have to be achieved in the first two to three years of water production.

This change in permit conditions and limitations was one of the final recommendations made by the Coal-bed Methane Task Force in July 2007.

The new permit conditions and limitations will allow the state engineer earlier intervention on those CBM wells that produce water with little or no gas production. In these cases, the operator will again be required to "show cause" as to why the water production has not resulted in significant gas production.

The text of the state engineer’s letter follows:

State Engineer's Office
HERSCHLER BUILDING, 4-E
CHEYENNE, WYOMING 82002
(307) 777-7354 FAX (307) 777-5451

PATRICK TYRRELL
STATE ENGINEER

December 11, 2007

RE: Review of Existing Coalbed Methane (CBM) Permits to Verify Beneficial Use of Water

Dear Appropriator:

The State Engineer’s Office, with the assistance of the Wyoming Oil and Gas Conservation Commission, has been and is reviewing existing CBM permits to verify that water production from the well is in fact being put to beneficial use (i.e., water production is causing co-production of CBM gas).

In approximately 1997, the State Engineer determined that the production of water from a CBM well, necessary to reduce the head so CBM gas could be released, was a "beneficial use" of the ground water of the State.

Approval of a permit to appropriate ground water for CBM production carries with it an expectation that production of gas will proceed in a timely fashion and in such a way as to minimize the impact to the ground water resource. To date, all CBM ground water permits have been issued with a five (5) year review period as described in their conditions and limitations.

The State Engineer has determined that it is appropriate to review the water/gas ratio of producing CBM wells, or whether the well is producing only water without the co-production of CBM gas, during a permit review following the initial 5-year period stated in the permit.

The CBM wells listed below have reached the 5-year review period outlined in the "Additional Conditions and Limitations" attached to the Permit to Appropriate Ground Water, and are observed to be producing water without production of gas:

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No later than February 1, 2008, you are required to provide this office with an explanation of why long-term water production has not resulted in the co-production of CBM gas and show cause how gas production is intended to occur in furtherance of the beneficial use for which these permits are issued. If suitable cause can be shown, these permits will continue in force subject to further, later review. If such explanation is not satisfactory, these permits will be cancelled.

Once the permits are canceled, water production from these wells must cease. The wells will not be allowed to be repermitted for CBM use, and no other CBM permits will be allowed in the area unless suitable cause can be shown. If shown cause is satisfactory, a permit may be granted. If water is produced without a State Engineer's permit, the appropriator will be subject to penalty as provided by Wyoming Statue §41-3-616.

If you have questions, please call the Ground Water Division at (307) 777-6163.

Sincerely,

Patrick T. Tyrrell, State Engineer

State Engineer

Certified

CC: Mr. Don Likwartz, WOGCC

Mr. John Corra, WDEQ

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