2011-11-22_REVISION - M1988044 (3)

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tt 7195 TECHNICAL REVISION RECEIVED COAL CREEK RESOURCES RECLAMATION PERMIT_M- 1988 044 2 2 2011 SCHMIDT CONSTRUCTION COMPANY Division of Reclamation, SUBMITTED: October 28, 2011 Mining &Safety BACKGROUND: The Lowry Range, owned by the State of Colorado and administered by the Colorado Board of Land Commissioners, has been identified as a potentially significant source of oil and gas from the Niobrara Formation. Oil production has been occurring on this area for many decades and is continuing today. By using newer techniques, it is believed that the oil and particularly the natural gas resource in a particular portion of the Niobrara formation could be developed, generating a large sum of money for schools. A number of oil and gas leases pre -date the sand mining lease held by Schmidt Construction and are included within the large Reclamation Permit Schmidt holds on a portion of the Lowry Range. The overlap of production from both sand and oil and gas is considered a largely compatible use of the land because each activity works in widely separated portions of the vertical column of land. Sand is produced from the thin veneer of surface materials and rarely goes deeper than 30 to 40 feet, whereas oil and gas production comes from depths of 1,000 feet or more. The only potential conflict comes from the fact that both resources are accessed from the surface. Therefore, potential conflicts exist if both activities wish to use the same parcel of land for their respective production. Because of the lease arrangements and dates, oil and gas generally has priority over the sand mining That said, because the new oil and gas development will be using a technique that involves multiple wells from a single location combined with horizontal drilling from that location, in most cases, the need for utilizing the same parcel of land for two purposes is greatly reduced. Oil and gas production can occur directly under sand mining areas because the depths are so different and because the oil and gas is more efficiently developed using the new techniques in contrast to simply drilling vertical wells. Unfortunately, there is one problem that needs to be addressed in this revision. Technically speaking, Schmidt Construction, the permittee, can be held responsible for any disturbances made within the permit area irrespective of whether Schmidt or some other entity makes the disturbance. Naturally, it is not fair for Schmidt to be held responsible for disturbances made for oil and gas development because Schmidt receives no benefit from that activity. If Schmidt owned the land and was leasing it to the oil and gas entities, the situation would be completely different. But Schmidt is also a lessee exactly like the oil and gas entities. To avoid the unfair and potentially disastrous conflict with Schmidt's responsibilities, it has been agreed to provide a technical revision to the permit that will remove Schmidt from Technical Revision - Coal Creek Resources - M- 1988 -044 September 2011 Page 1 of 5