[CITE: Schwoeppe v. DNR and Jochum, 4 CADDNAR 5 (1986)]
[VOLUME 4, PAGE 5]
Cause #: 86-030G
Caption: Schwoeppe
v. DNR and Jochum
Administrative Law Judge: Lucas
Attorneys: Hustace; Miller, Dag; Schneider, Jochum
Date: September 30, 1986
ORDER
The
issuance on July 5, 1985 by the State of Indiana DNR, Div. Of Oil and Gas, of permit
#46550 to drill or deepen an oil or gas well is affirmed, but is subject to the
following condition: the permit is restricted to the utilization of gas at the
residence of Floyd Schwoeppe and as provided under
Findings of Fact 42. An exception is granted to the general distance and
spacing requirements set forth in 310 IAC 7-1 so long as the well is utilized
for non-commercial gas production.
FINDINGS OF FACT
1.
The Department of Natural Resources ("Department") is an agency as
the term is defined under IC 4-22-1. The Natural Resources Commission of the
Department (the "Commission") is the ultimate authority for the
Department with respect to the subject matter of this administrative action.
2.
Permit #46550 was issued on July 5, 1985 to Floyd Schwoeppe
by the state of Indiana, Department of Natural Resources, Division of Oil and
Gas, granting authority to drill or deepen an oil or gas well in Section 27,
Township 3 South, Range 5 West in Dubois County, Indiana (Permit #46550:.)
3.
During the February 1986 monthly meeting of the Commission, an initial
determination was made to revoke the permit and to order the well authorized by
permit #46550 to be plugged and abandoned under IC 13-4-7.
4.
This administrative action was initiated upon the timely filing of written
objections by the claimant, Floyd Schwoeppe ("Schwoeppe"), to the initial determination of the
Commission identified in Finding 3.
5.
The Commission appointed Stephen L. Lucas as an Administrative Law Judge under
IC 4-22-1 and 310 IAC 0.5-1 to conduct the proceedings appropriate to a final
resolution of this administrative action.
6.
On March 25, 1986, Raymond Jochum ("Jochum") filed a written "Motion to Intervene"
claiming the status of an affected person because he "is the owner of
unconsolidated property and mineral interest of a portion of the drilling unit
for the well drilled pursuant to Permit number 46550 and that said well is
situated within sixty (60) feet of Movant's [Jochum's] property line in violation of IC 13-4-7 et. seq.,
310 IAC 7-1-30, and 310 IAC 7-1-31." On the same date, the motion was
granted, and Jochum was added to this cause as an
intervening respondent.
7. A
pre-hearing conference was held as scheduled in this administrative action on
April 24, 1986 and was attended by all the parties and their counsel. An
opportunity was provided for the settlement or adjustment of all claims,
controversies and issues, but settlement was not attained.
8. Schwoeppe is a private entrepreneur engaged in agribusiness
in Dubois County, Indiana. His operations, and those of a family corporation
for which he is the principal shareholder, include the ownership and production
of about 470 acres of farmland and the rental and production of an additional
30 acres of farmland. He maintains roughly 50 to 75 head of cattle. Acting
under a trade name, he maintains a shop and supplies about 40 customers with
agricultural fertilizer, seed and pesticides. Schwoeppe
is a certified pesticide applicator. The operations include eight trucks and an
infrequently used railroad siding.
9.
The Site for Permit #46550 is located on a parcel of farmland owned by Schwoeppe which contains 100 acres. The parcel consists of
the south one half of the northeast quarter (containing 80 acres) and the north
one-half of the north one-half of the north one-half of the southeast quarter
(containing 20 acres) of Section 27, Township 3 South, Range 5 West. Also
located on the parcel are his personal residence, three grain bins and related
drying facilities.
10.
The shop identified in Finding 8 is located on real estate which is about
one-half mile from the 100-acre parcel described in Finding 9.
11.
Located on a third parcel owned by Schwoeppe, and
contiguous or nearly contiguous to the shop, is a second house. Schwoeppe rents the house to other persons. Other farmland
owned and operated by Schwoeppe is noncontiguous to
the 100-acre parcel described in Finding 9.
12.
The well site chosen for placement of the well under Permit #46550 was the same
location as a well drilled in about 1955 under a
[VOLUME 4, PAGE 6]
communization agreement between Schwoeppe and Jochum. The
original well was drilled for the commercial production of oil, but was plugged
and abandoned in 1955, without being successfully produced.
13.
During or prior to 1955, a developer had leased the mineral rights from Schwoeppe and Jochum in an effort
to develop the well for oil production. The communization agreement referenced
in Finding 12 was intended to facilitate that production. Continuation of the
mineral lease was dependent upon the payment to Schwoeppe
and to Jochum of royalties on production of the well,
Because the well was not commercially produced, no
royalties were paid, and the lease expired. With the expiration of the mineral
lease, the communization agreement lapsed.[FOOTNOTE i]
14. Jochum is the owner of a parcel contiguous too, and
immediately south of, the 100-acre parcel described in Finding 9. The parcel
owned by Jochum includes 60 acres and contains all of
the north one-half of the southeast quarter of Section 27, except the 20 acres
owned by Schwoeppe (within the north one-half of the
north one-half of the north one-half of the southeast quarter as described in
Finding 9.)
15.
The site for the well drilled under Permit #46550 is within the north one-half
of the northwest quarter of the south east quarter of Section 27. The northern
ten acres of this 20-acre parcel are owned by Schwoeppe,
approximately 70 feet from The Jochum property line.
16.
The well under Permit #46550 was drilled to a depth of 997 feet.
17.
The well is drilled into a gas reservoir consisting of dolomite, a type of
limestone.
18.
With respect to the placement of a gas well drilled not more than 1,000 feet
deep into a limestone reservoir, the general requirements for minimum distances
from an adjacent property line are set forth in 310 IAC 7-1-30-(a): "All
wells . . . .shall be located not less than three
hundred thirty (330) feet from a lease line, property line or subdivision line
which
separates unconsolidated property interests."[FOOTNOTE ii]
19.
The general spacing unit requirements for gas wells are set forth in 310 IAC
7-1-31:
"The
following drilling units are established:. . . (b) For
limestone reservoirs. . .half a quarter, quarter
section, containing twenty (20) acres, more or less, as established by the
official US Public Lands Survey by the rectangular, surveying system for the
state of Indiana. The use of any portion of one quarter, quarter section with any
portion of another quarter, quarter section is prohibited unless approved by
the commission after notice and hearing."FOOTNOTE ii]
20.
In the absence of an agreement between Schwoeppe and Jochum, an involuntary unitization of their interests or a
spacing exception provided by the Commission, the well drilled under Permit
#46550 violates both 310 IAC 7-1-30(a) and IAC 7-1-31. The well is located
closer than 330 feet to an adjacent property line, in that the well is located
on property owned by Schwoeppe approximately 70 feet
from the Jochum property line. The well is located
within half a quarter, quarter section, containing 20 acres, only 10 of which
are owned by Schwoeppe.[FOOTNOTE iii]
21. Schwoeppe testified that Jochum
verbally "okayed" in advance his application
for Permit #46550 and the development of a gas well at that site which would
exclusively benefit Schwoeppe. Jochum
testified that he never agreed to authorize Schwoeppe
to secure Permit #46550 or to the development of a gas well at the site which
would exclusively benefit Schwoeppe.
22. Schwoeppe provided no consideration to Jochum
for the privilege of developing the gas well.
23.
The oral communication between Schwoeppe and Jochum prior to drilling the well under Permit #46550 was insufficient
to establish a binding agreement authorizing Schwoeppe
to develop the well for his own benefit.
24. Jochum is an affected person entitled to notification under
IC 4-22-1 of the issuance to Schwoeppe of Permit
#46550.[FOOTNOTE iv]
25. Jochum was not made aware that the well was being reopened
until he observed drilling equipment on the site.
26.
Several days passed from the first observation by Jochum
of the drilling equipment, but he did nothing to prevent drilling operations or
to communicate to Schwoeppe his opposition to the project.
27. Schwoeppe has expended approximately $23, 700 in an effort
to put the well into the production of gas. Most of that amount was expended in
the actual drilling of the well, including materials and labor expenses.[FOOTNOTE v]
28.
The well has produced a high quality of gas, suitable for usage in equipment
and heating appliances available to Schwoeppe. An
analysis of the available gas indicates it consists primarily of methane, with
lesser
[VOLUME 4, PAGE 7]
amounts of ethane and propane. The
heating value of the gas is satisfactory. The sulfur content is low.
29.
The quantity of gas produced at a utilitarian level for no more than two or
three hours in a 24-hour period. Even at that minimal level or production, gas
pressure is reduced nearly to zero, allowing the intrusion of water into the
well. Where that intrusion occurs, subsequent production is hampered by the
need to siphon and remove the water.
30.
Commerce means business. A commercial gas well means a well capable of
producing gas having a quality and quantity which is suitable for business
purpose. An element of commercial utilization may be whether the gas is
transported from place to place.
31.
The quantity of gas produced by the well is not currently sufficient for
commercial production.
32.
The zone of production is probably not capable of affording a quantity of gas
which is sufficient for commercial purposes.
33. Commercial production from the well is
not reasonably foreseeable.
34.
The Commission has frequently and consistently provided distance and spacing
exceptions to an applicant seeking a permit for the noncommercial production of
gas.
35.
The policy identified in Findings 34 is founded upon the general statutory
authority of the Commission to provide drilling units, particularly as set
forth in IC 13-4-7-13. That section provides in pertinent part that the Commission
shall, "having consideration for the regional geologic characteristics and
all other pertinent facts conducive to the most efficient and economical
ultimate recovery of oil and gas there from and shall make such orders, rules
and regulations as will regulate the spacing of wells within such limits."
36.
As issued on July 5, 1985, Permit #46550 makes no restriction to noncommercial
usage and does not provide an exception to spacing based upon a noncommercial
production of gas.
37.
In its "Verified Petition Seeking Exception to Spacing Requirements and
Drilling Unit Rules; to Consolidate with Administrative Cause Number 86-030G
and for Other Relief", as filed in this action on July 15, 1986, Schwoeppe sought a distance and spacing exception based upon
a limitation that the well be used "on Schwoeppe's
premises solely for his personal use."
38.
An exception to the spacing and distance requirements should be afforded to Schwoeppe and the issuance of Permit #46550 approved.[FOOTNOTE vi]
39.
Utilization of the gas well should be limited to noncommercial purposes.
40. Schwoeppe proposes to utilize gas produced from the well to
provide an energy source at his residence.
41.
The purpose identified in Finding 40 is a noncommercial purpose.
42. Schwoeppe proposes to utilize gas produced from the well to
operate drying facilities at the grain bins located near his residence. The
dryers would service grain produced on the 100-acre contiguous acreage owned by
him, as well as on noncontiguous acreage, whether that acreage is owned or
rented by Schwoeppe.
43. Schwoeppe has demonstrated to the satisfaction of the
Natural Resources Commission that the purpose identified in Findings 42 is
noncommercial.
44. Schwoeppe has commenced a gas pipeline from the well which
would service the shop and the residence which he rents to other persons. When
completed, that pipeline would exceed one-half mile long. Most of the length of
the pipeline would cross property owned by persons other than Schwoeppe. [The shop and other residence are described in
Finding 10 and Finding 11.]
45.
The purposes identified in Finding 44 are not noncommercial.
46.
Permit #46550 should be conditioned upon, and restricted to, utilization of gas
at the Schwoeppe residence and as provided under
Finding of Fact 42.
FOOTNOTES
i. The evidence does not disclose the exact date upon
which the communization agreement between Schwoeppe
and Jochum lapsed. The clear inference is that the
lapse occurred several years ago, and the communization agreement does not bear
upon the relationship of Schwoeppe and Jochum with respect to Permit Number 46550.
ii. 310 IAC 7-1-30 and 310 IAC 7-1-31 were amended by action of the Commission
effective June 22, 1986. The amendments were technical and did not modify the
distance or spacing requirements for the placement of gas wells. These rule
sections are quoted in their current form, but the substance of these
provisions prior to June 22 was the same.
[VOLUME 4, PAGE 8]
iii. A
half quarter-quarter section is a rectangular (as
opposed to a square) parcel containing 20 acres. Stated in the alternative, a
half quarter-quarter section consists of two square quarter-quarter-quarter
sections containing 10 acres each place adjacent to each other. For the parcel
in question in this Administrative Action, if the half quarter-quarter section
is formed so that the longer sides of the rectangle run east and west, 10 acres
are located on the Schwoeppe property and 10 acres on
the Jochum property. If the half quarter-quarter
section if formed so that the longer sides of the rectangle run north and
south, 5 acres are located on the Schwoeppe property
and 15 acres on the Jochum property. Whether by
convention or otherwise, the parties have not disputed that the correct
orientation of the half quarter-quarter section is east and west, rather than
north anD south.
iv. The testimony does not specifically disclose whether Jochum
received notification under IC 4-22-1 of the issuance (as in initial
determination) of Permit 46550, but the implication is that he did not. A
permit was issued without notification by certified mail to an affected person
is void ab initio (from the beginning.) See Indiana
Environmental Management Bd. V. Town of Breman
(1984), Ind. App., 458 N.E. 2d 672. Neither Schwoeppe
nor the Department questions the standing of Jochum
to participate in this administrative hearing. Technically speaking, the action
arises as a permit revocation, and the objections by Schwoeppe to that revocation. Compliance with IC 4-22-1 in
the initial permit process is not directly in issue. The requirements of IC
4-22-1 are significant to a resolution of this administrative action,, since Schwoeppe seemingly
argues that the apparent issuance to him of Permit #46550 provides a favorable
standing in terms of the relief which should be accorded. A special posture
might arguably be afforded if the Department were the only adverse party, but
not where a complaining party is one who did not receive statutory notification
of the permit issuance. A permit issued without compliance with the
notification requirements of IV 4-22-1 is no permit at all.
v. The evidence does not disclose how much of the $23,700 amount was expended
by Schwoeppe after Jochum
observed the drilling equipment at the well site. Because several days passed
from Jochum's first observation of the equipment,
however, without any protest of the project, a reasonable inference is that a
substantial portion of the amount was expended after he had actual knowledge of
the project.
vi. This conclusion is founded upon the totality of the evidence presented as
demonstrated by these Findings of Fact. Two aspects of the evidence are
particularly noteworthy. The testimony was undisputed that the Commission
policy is to provide a distance and spacing exception like the one here applied
with respect to a permit for the noncommercial production of gas. Also, Jochum demonstrated a lack of diligence after he had actual
knowledge that Schwoeppe had placed drilling
equipment upon the site. The result was a considerable financial expenditure by
Schwoeppe--an expenditure which may never be
recouped, even if he is allowed to produce the well.