Charles R. Toy (P33116)
Administrative Law Judge
Dated: January 10, 1992

TABLE OF CONTENTS
 

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . 1
JURISDICTION . . . . . . . . . . . . . . . . . . . . . . 2
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 2
PROCEDURAL HISTORY . . . . . . . . . . . . . . . . . . . 4
HISTORY OF THE PIGEON COUNTRY RIVER STATE FOREST . . . . 8
TESTIMONY

Charles D. Hobson . . . . . . . . . . . . . . . . . . 27
Paul G. Bazeley . . . . . . . . . . . . . . . . . . . 35
James F. Cleary . . . . . . . . . . . . . . . . . . . 45
Donald L. Inman . . . . . . . . . . . . . . . . . . . 48
Gary Boushelle . . . . . . . . . . . . . . . . . . . . 71
Michael Bricker . . . . . . . . . . . . . . . . . . . 80
Jack D. Bails . . . . . . . . . . . . . . . . . . . . 84
Edward W. Caveney . . . . . . . . . . . . . . . . . . 101
Charles D. Hobson - Rebuttal Witness . . . . . . . . . 114

FINDINGS OF FACT Scope and Standard of Review . . . . . . . . . . . . . 118
Rulings on Proposed Findings . . . . . . . . . . . . . 122
Discretionary vs. Ministerial Act . . . . . . . . . . 123
Analysis of Discretionary Act . . . . . . . . . . . . 126
November 24, 1980, Amended Stipulation and
Consent Order. . . . . . . . . . . . . . . . . . . . 127
December 15, 1980, Consent Judgment . . . . . . . . . 128
Pigeon River Country State Forest Hydrocarbon
Development Act of 1980, 1980 PA 316 . . . . . . . . 129
Michigan Environmental Protection Act, 1970 PA 127 . . 162
Oil and Gas Conservation Act, 1939 PA 61 . . . . . . . 182
Water Resources Commission Act, 1929 PA 245 . . . . . 184
UNCONSTITUTIONAL TAKING . . . . . . . . . . . . . . . . 186
CONCLUSIONS OF LAW . . . . . . . . . . . . . . . . . . . 187
PROPOSAL . . . . . . . . . . . . . . . . . . . . . . . . 192
APPENDIX 1 - List of Exhibits Admitted . . . . . . . . . 193

IN RE: Hobson Petroleum Corporation
Appeal from Supervisor of Wells Oil & Gas Permit
(1939 PA 61) Application No. 146
January 9, 1992
J. Andrew Domalgaski (P12846)

Tried by: William E. Tapovatz (P25953)
Attorneys for Petitioner Hobson
Petroleum Corporation
8992 East D Avenue
P.O. Box 366
Richland, MI 49083
Phone: 616/629-9791

Roland Hwang (P32697)
Tried by: Michael C. McDaniel (P34738)
Assistant Attorneys General
Attorneys for Respondent Department of
Natural Resources
Department of Attorney General,
Natural Resources Division
Stevens T. Mason Building, 8th Floor
Lansing, MI 48913
Phone: 517/373-7540

PROPOSAL FOR DECISION

This matter is an appeal ⁽¹⁾ to the Natural Resources Commission ("NRC") from the Supervisor of Wells ("Supervisor") concerning the application of Hobson Petroleum Corporation for a permit to drill a well commonly known as the Schommer 2-15 Well. The proposed well would be located on privately-owned lands within the boundaries of the Pigeon River Country State Forest ("PRCSF" or "Forest") in the west half (W/2) of the southwest quarter (SW/4) of Section 15, Forest Township (T33N, R1E), Cheboygan County, Michigan.

Jurisdiction

The hearing on appeal was conducted pursuant to the Oil and Gas Conservation Act ("OGCA"), 1939 PA 61, as amended, MCL 319.1, et seq; MSA 13.139(1), et seq; the Thomas J. Anderson, Gordon Rockwell Environmental Protection Act of 1970 ("MEPA"), 1970 PA 127, MCL 691.1201, et seq; MSA 14.528(201), et seq; Water Resources Commission Act ("WRCA"), 1929 PA 245, as amended, MCL 323.1, et seq; MSA 3.521, et seq; and the Pigeon River Country State Forest Hydrocarbon Development Act of 1980 ("PRHDA"), 1980 PA 316, MCL 319.121, et seq; MSA 13.140(51), et seq.

Parties

The professional staff of the Michigan Department of Natural Resources ("Respondent" or "DNR" ) is charged with the day-to-day implementation of the OGCA, WRCA, and the PRHDA.

Under Section 5(2) of MEPA, MCL 691.1205(2); MSA 14.528(205)(2), in any administrative, licensing, or other proceedings, the DNR must determine any alleged pollution, impairment, or destruction of the air, water, or other natural resources, or the public trust therein, and not authorize or approve any conduct that does, or is likely to have such effect so long as there is a feasible and prudent alternative.

Hobson Petroleum Corporation requested the appeal pursuant to Section 3(8) of OGCA, MCL 319.3(8); MSA 13.139(3)(8).

Hobson Petroleum Corporation ("Petitioner" or "Hobson") is a Michigan corporation with its principal office in Genesee County, Michigan. Hobson leased the 80-acre proposed drilling unit in the west half (W/2) of the southwest quarter (SW/4) of Section 15, Forest Township (T33N, R1E), Cheboygan County, Michigan, from Evelyn Schommer ⁽²⁾. The one-half mile long east boundary and one-half of the one-half mile long west boundary of the proposed drilling unit are contiguous to private land. Each one-quarter mile long north and south boundaries of the proposed drilling unit, as well as the remaining one-quarter mile long west boundary of the proposed drilling unit, are contiguous to the PRCSF. The block of privately-owned lands adjacent to the Schommer parcel is entirely surrounded by the PRCSF.

Procedural History

On February 7, 1986, Hobson applied to the Michigan Supervisor of Wells for a permit to drill a well commonly known as the Schommer 2-15 Well on privately-owned lands within the PRCSF. (Exhibit P-12). The proposed drilling unit was the west half (W/2) of the southwest quarter (SW/4) of Section 15, Forest Township (T33N, R1E), Cheboygan County, Michigan. The surface location was originally in the center of the NW/4 of the SW/4 of Section 15, Forest Township (T33N, R1E), Cheboygan County, Michigan. Hobson amended the surface location to a site 1400 feet north of the south line and 460 feet east of the east line of the proposed drilling unit. (Tr, p 57). The Schommer 2-15 is a proposed exploratory well that is to be drilled to an anticipated depth of 4,000 feet in the Salina-Niagaran Formation. (Exhibit P-12).

After two exchanges of letters between Donald L. Inman, Chief, DNR Environmental Enforcement Division, and Hobson or J. Andrew Domagalski, counsel for Hobson (Exhibits P-13 to P-16), on

May 16, 1986, Hobson filed an appeal with the Natural Resources Commission under Section 3(8) of OGCA, MCL 319.3(8); MSA 13.139(3)(8), based on the inaction of the Supervisor to issue or deny the requested permit.

On January 23, 1987, the Pigeon River Oil and Gas Development Committee, which is composed of DNR representatives from various divisions, made an on-site review of the proposed Schommer 2-15 drilling site. Correspondence and memoranda discussing potential impacts of the proposed Schommer 2-15 Well and the recommendation to deny Hobson's drilling permit were authored between January 29, 1987, and February 18, 1987. (See Exhibits R-5 to R-8).

In a letter dated February 5, 1988, the Supervisor of Wells denied Hobson's application to drill the Schommer 2-15. (Exhibit R-1). The Supervisor of Wells denied the oil and gas permit application for four reasons: 1) The November 24, 1980, Amended Stipulation and Consent Order between the DNR and Shell Oil Company, Amoco Production Company, and Northern Michigan Exploration Company ("Consent Order")(Exhibit R-22), the December 15, 1980, Consent Judgment entered in the Ingham County Circuit Court, Thomas L. Brown, J., File No. 76-19335-CE, entitled, "West Michigan Environmental Action Council, Inc, et al v Natural Resources Commission of the State of Michigan, et al" ("Consent Judgement") (Exhibit R-26), and PRHDA preclude drilling in the area proposed; 2) Construction of a second pipeline across the Black River, storage/treatment facilities, and/or truck traffic are prohibited by statute and would cause pollution, impairment, and destruction of natural resources in violation of MEPA and OGCA; 3) There are prudent and reasonable alternatives at one and possibly two drilling locations south of the no-drill boundary that could be utilized to directionally drill the proposed bottom hole target; and 4) The prudent and feasible alternatives in item 3 would provide the environmental protection mandated by the Consent Order, Pigeon River Unit Agreement ("Unit Agreement") (Exhibit R-19), PRHDA, OGCA, and MEPA.

One of the alternative surface locations referred to in item 3 of the Supervisor's letter is a site used by Shell Western E & P, Inc. ("SWEPI") to drill a well commonly known as the Rupp-State Forest 1-21 Well ("Rupp 1-21"). A permit to drill the Rupp 1-21 (Permit No. 40741) was issued on October 15, 1987. (Exhibit P-19).

When Hobson agreed to drill the proposed Schommer 2-15 Well from the Rupp 1-21 surface location, the supervisor refused to issue a permit to drill for the reason that SWEPI was required to serve as operator of the well pursuant to the: a) Consent Order; b) Unit Agreement; c) MEPA; and d) PRHDA.

Hobson requested a cost estimate for SWEPI to drill the Schommer 2-15 Well and a proposed joint operating agreement. On June 20, 1988, SWEPI submitted a total drilling and completion cost estimate totaling $1,024,040 (Exhibit R-51). Hobson claims that the cost of drilling proposed by SWEPI is exorbitant. (Tr, p 670). Hobson has never received a proposed joint operating agreement from SWEPI. (Tr, p 666).

The May 16, 1986, appeal to the NRC based on the inaction of the Supervisor to issue or deny the requested permit, was converted to an appeal from the Supervisor of Wells to the NRC based on the Supervisor's denial of the requested permit to drill the Schommer 2-15 Well at the proposed surface location or, in the alternative, at the alternative surface location, which is the site of the Rupp-State Forest 1-21 Well.

The hearings on this appeal were conducted on June 27, June 30, July 1, July 21, and July 25, 1988. Petitioner called two witnesses and presented the sworn testimony of a third witness, which was given in a deposition taken in compliance with law in an action concerning the Schommer-Mallon 1-15 Well (See footnote 2) in the Ingham Circuit Court File No. 85-53982-CZ. The deposition testimony was admitted pursuant to MRE 801(d)(2)(A), (C), or (D) or MRE 804(b)(1). (See Exhibit P-21). Respondent called five witnesses. Petitioner submitted 32 exhibits totaling 266 pages and Respondent submitted 53 exhibits totaling 578 pages. A view of the proposed Schommer 2-15 drilling unit, the Rupp-State Forest 1-21 Well surface location and surrounding area was conducted on September 26, 1989. Proofs for the purpose of submitting exhibits or calling rebuttal witnesses were closed on March 26, 1990.

Closing arguments were submitted on brief. Petitioner submitted a closing argument on March 27, 1990, and Respondent submitted its closing argument on April 26, 1990. Although both parties had the opportunity to submit rebuttals to the respective opposing closing arguments, only Respondent submitted a rebuttal to Petitioner's closing argument. The rebuttal was filed on July 11, 1990, and the appeal was submitted for a Proposal for Decision ("PFD") at that time. ⁽³⁾

The history of an area or subject matter under consideration usually is not included in a PFD. It is important to know some of the history of the PRCSF in this case in order to fully understand the scope and seriousness of Hobson's permit application. A history of the PRCSF will help to explain the background and intent of the Consent Order, Consent Judgment and PRHDA, which ended twelve years of continuous controversy between environmental groups, oil companies, private citizens, the courts and various governmental agencies over whether hydrocarbon exploration and development should be permitted in the PRCSF. The Consent Order and PRHDA are the primary grounds for the Conclusions of Law in this PRD. A concise history also provides the NRC with the whole record. See Section 85 of APA, MCL 24.285; MSA 3.560(185).

Similar to most of northern Michigan, the Pigeon River Country was logged between 1860 and 1910. Timber was first floated to mills on the Black, Pigeon, or Sturgeon rivers. Later, logging railroads were built to reach timber away from the rivers and to take heavy hard woods that could not be floated. (Exhibits R-52, p 5 and R-27, p 158).

As late as the early 1930's, the area was disseminated by consuming forest fires that repeatedly swept the slashings and invaded the remaining timber. (Exhibit R-52, p 5).

At the time the Pigeon River Country was being logged, efforts were made to convert the land to farming use. Farms were used for raising work horses and oxen for the logging camps and for raising pigs, fruit, and vegetables to feed loggers. Hay fields and oat crops were grown for work animals. Id.

After logging ended, the sawmills, mill towns, and supporting farms disappeared. The climate and soils were not suitable for profitable farming and there were few roads and no industries. Id.

Abandonment of mills and farms and neglect in paying taxes caused large parts of the Pigeon River Country area to return to state ownership. By 1919, Michigan had acquired 6,468 acres in the most northeastern township of Otsego County, Corwith Township. (T32N, R1W). In April 1919, the Pigeon River State Forest was established. Id.

In 1920, 81 acres of pine were planted in the Forest in an effort to begin reforesting the area. (Exhibit R-52, p 6).

In 1924, the Department of Conservation, which is the predecessor of the DNR, designated the Otsego Wildlife Refuge Unit coincident with the Pigeon River State Forest. Id. Seven Rocky-Mountain elk, which had been released in 1918-1919, were increasing rapidly and the refuge was intended to protect the elk and the scarce deer in the area. Most of the Otsego refuge was leased or under permit from private owners until 1926 when 10,600 acres were purchased for $3.75 per acre with money from the Game and Fish Protection Fund, then MCL 314.12; MSA 13.1361, now MCL 316.601; MSA 13.1350(601). This additional acreage was added to the original 2,720 acres of the refuge. (Exhibit R-27, p 159).

By June 1928, the Pigeon River State Forest included 19,200 acres and extended into Cheboygan County. Large acreages were purchased and acquired through tax reversion in the late 1920's and throughout the 1930's. Land purchased in Cheboygan County was designated North Pigeon River Refuge and was closed to all deer hunting in 1931. Planting of pines and clearing lines for fire protection were the primary forest management activities at this time. (Exhibit R-52, p 6).

A Civilian Conservation Corp ("CCC") camp was established on old farm land next to Cornwall Lake (Nunda Township, T33N, R1W, a Cheboygan County) in 1933. At that time, the Pigeon River State Forest was either barren hills or sparse "brush". There was young growth of spruce and cedar in narrow swamps and thickets of hardwood saplings on some of the upland areas that had escaped fires. Id.

Some of the lakes were repositories for slab wood, sawdust, and deadhead logs. The streams had been scoured by the log drives and flushed in spring by the release of dammed-up waters. Abandoned logging railroad grades were veined throughout the forest. Cleared log-decking areas were visible at strategic points along the rivers and railroad grades. Broken logs, exposed and rotting ties, big pine stumps, and burned snags were plainly visible. Id.

The CCC built roads using old railroad grades as foundations. Almost one-third of the bare lands were hand-planted with native pines and were protected from fires by construction of a grid of interlacing fire breaks, which were cleared to road width every one-quarter mile in pine areas. CCC labor removed the worst of the debris in the streams. (Exhibit R-52, p 6).

With so few people living in or using the area and with young seedlings and saplings growing in size and numbers, the wildlife flourished. The elk thrived and multiplied on the plentiful food supply and solitude. By 1927, elk were estimated to be possibly as many as 500. In 1929, the Pigeon River Refuge was open to hunting of deer, which no longer needed protection. The adjacent Otsego Game Refuge was kept closed to protect elk but in 1940, the Otsego Refuge was also open to deer hunting. (Exhibit R-27, p 159).

In 1952, for administrative purposes, the original Pigeon River State Forest was redistricted into four separate forests and the state forest lands were renamed. The division was on the county lines between Otsego, Cheboygan, and Montmorency counties and on the base meridian northerly through Cheboygan County. The lands in Otsego County remained as the Pigeon River State Forest. The northwesterly portion was named the Hardwood State Forest, the northeasterly portion was named Black Lake State Forest, and the acreage in Montmorency County was called Thunder Bay River State Forest. (Exhibit R-52). The administration of these four contiguous state-owned lands was from four locations, Gaylord, Indian River, Atlanta, and Onaway, with no resident personnel or office within the original Pigeon River State Forest. Id, p 7.

Management during the first 20 years of state ownership consisted of forest fire protection, protection of elk and deer from hunting, planting of pine, protection against timber thieves and squatters, and development of three campgrounds. Later, management consisted of timber sales, which were first limited by the immature forest and scarce markets, elk research, fish planting, and fishery research. Id.

In 1968, the DNR sold oil and gas leases covering 546,196.89 acres of state-owned land, including 57,669 acres in what became the Pigeon River Country State Forest. Prior to the sale of the oil and gas leases, no environmental assessment was made of the property to be leased. The regional offices of the DNR were given only nine days to review the 546,196 acres of state-owned land prior to the proposed sale. The DNR received $1,122,788 from the 1968 auction of oil and gas leases, or an average of $2.06 an acre. Michigan Oil Co v Natural Resources Commission, 406 Mich 1, 17; 276 NW2d 141 (1979), cert den 444 US 980; 100 S Ct 482; 62 L Ed 2d 407 (1979).

The first permit to drill a well on state-owned lands in what became the PRCSF, pursuant to a 1968 lease, was issued in May 1970. In August 1970, Shell Oil Company made a Niagaran oil and gas discovery in Section 4 of Charlton Township, T31N, R1W, Otsego County, Michigan, at the edge of the Black River swamp in the Pigeon River State Forest. (Exhibit R-45, p 432).

On September 16, 1970, after only two drilling permits had been issued, Governor William G. Milliken urged the NRC to establish a moratorium on the issuance of drilling permits for state land because of his "great concern about potential environmental intrusion and encroachment from oil and gas drilling in this important scenic forest area". Michigan Oil Co, supra, pp 17-18. During this moratorium, the NRC instructed the DNR to conduct field studies to pinpoint areas of special wildlife significance and unusual natural value, in an effort to development a comprehensive management plan for the Pigeon River State Forest. Id.

Until a comprehensive plan could be developed, permit applications were reviewed on an individual basis to determine whether drilling would destroy natural resources. After the moratorium, drilling permits were granted for state-owned lands only in areas already damaged by oil development. By the end of 1973, two more discovery wells and two development wells had been drilled near the original Shell well. (Exhibit R-45, p 432). Necessary production facilities, pipeline and road systems to service the new wells well constructed. During and subsequent to the moratorium, permits were issued for drilling on private land within what was to become PRCSF. Michigan Oil Co, supra, p 18.

By 1973, 65 percent of state-owned lands in the Pigeon River County were purchased by the use of money from the Game and Fish Protection Fund, then MCL 314.12; MSA 13.1361, now MCL 316.601; MSA 13.1350(601). The remainder was acquired by reversion to the state after non-payment of taxes. (Exhibit R-52, p 7). Seventy-six percent of state owned lands within the Forest were leased for the purposes of hydrocarbon exploration and development. (Exhibit R-46, p 5). In 1973 the elk herd was estimated to be between 400 and 700 animals. (Exhibit R-52, p 15).

In October 1973, the DNR published a Concept of Management for the Pigeon River Country ("Concept"). (Exhibit R-52)). This Concept pointed out that the name Pigeon River Country for the area had been established through use by people and organizations over the years. The Concept stated that the area should be recognized, named, dedicated, administered, and managed as a cohesive unit. Id, p 33. Administration would be under one forester, and management would be responsive to the wishes of users through a 15-member Pigeon River Country State Forest Advisory Council ("PRCAC"). The PRCAC would consist of 12 citizen members, and 3 ex-officio members from the DNR. Id, pp 35-38.

On December 7, 1973, the Natural Resources Commission adopted the Concept of Management for the Pigeon River Country as the guidelines for the management of the area. Id, postscript. The Natural Resources Commission also formally dedicated as the Pigeon River Country State Forest 34,875 acres that were in the Pigeon River State Forest, 31,599 acres that were in the Hardwood State Forest, 15,674 acres that were in the Black Lake State Forest, and 635 acres that were in the Thunder Bay River State Forest. Id. Lying within the boundaries of the 82,783 acres of dedicated state-owned lands were an additional 9,763 acres that were held by private owners. Id, p 31. Various plans to provide for controlled oil and gas development in PRCSF were considered by the DNR in conformity with the Concept of Management. See Id, pp 29-30. A specific proposal for unitized development, which is a method to significantly reduce surface disturbance by sharing wells, pipelines, and other production facilities, was presented to the NRC in January 1975 and a revised approach was presented to the NRC in August 1975. The August proposal was entitled, "Management of Hydrocarbon Resources of the Pigeon River Country State Forest". (Exhibit R-46). The August 1975 document gave the details of procedures, acceptable conditions, restrictions and methods to implement the guidelines adopted by the NRC on November 7, 1973, in the Concept of Management. Id, pp 498-499. The proposal called for wells to be drilled from common sites using the least possible number of surface drilling locations and a concept of unitization whereby all operations within one of the four proposed units of the PRCSF would be conducted by a single operator who would be charged with drilling and development for the benefit of all consenting parties. (Exhibit R-46, pp 512, 526).

The August proposal was reviewed by the PRCAC and Michigan Environmental Review Board ("MERB"), which passed a resolution asking the NRC to prepare an Environmental Impact Statement ("EIS") on the question of whether or not any drilling should be allowed in the PRCSF. (Exhibit R-27, p 155). The NRC directed the DNR to prepare an EIS along the lines suggested by Governor Milliken, who suggested that the DNR consider a no-drill boundary among the alternatives. Id.

An EIS for potential hydrocarbon development on the PRCSF was completed on December 15, 1975. (See Exhibit R-27). The EIS recommended that a unitized alternative tied with a no-drill boundary offered the best compromise for hydrocarbon development within the PRCSF. The no-drill boundary would allow oil and gas development in the southern one-third of PRCSF and prohibited development in the northern two-thirds of PRCSF. Id.

The DNR negotiated with the oil companies holding leases in the PRCSF in an attempt to have them agree to restricted development of the hydrocarbon resources in the PRCSF. (Exhibit R-33). On June 11, 1976, the DNR entered into an agreement entitled, Stipulation and Consent Order ("1976 Original Order") with Shell Oil Company, Amoco Production Company, and Northern Michigan Exploration Company. (See Exhibits R-20 and R-34). The 1976 Original Order adopted the limited development plan, which allowed oil and gas development only in the southern one-third of the PRCSF, subject to certain conditions and restrictions. Similar consent orders were entered into with Sun Oil Company, Michigan Consolidated Gas Company, Getty Oil Company, and Chevron Oil Company. West Michigan Environmental Action Council v Natural Resources Commission, 405 Mich 741, 749 n 1; 275 NW2d 538, cert densub nom Shell Oil Co v West Michigan Environmental Action Council, 444 US 941; 100 S Ct 295; 62 L Ed 2d 307 (1979).

On June 12, 1977, Shell Oil Company applied for permits to drill 10 exploratory wells in the limited development region. On August 24, 1977, the Supervisor of Wells granted these permits. Id, p 749. The only well drilled under the 1976 Original Order was the Charlton 1-11 Well (Section 11, Charlton Township, T32N, R1W, Otsego County), which was completed as a gas well on December 9, 1977. (Exhibit R-45, pp 3, 49).

On September 17, 1976, the West Michigan Environmental Action Council ("WMEAC") filed a complaint in the Ingham County Circuit Court, Thomas L. Brown, J., File No. 76-19335-CE, under MEPA claiming that the 1976 Original Order was entered into unlawfully and was likely to lead to impairment of wildlife in the PRCSF. Plaintiffs sought an order restraining the DNR from issuing any permits to drill for oil or gas in the PRCSF or from implementing the 1976 Original Order. West Michigan Environmental Action Council, supra, pp 749-750.

On December 5, 1977, the Ingham County Circuit Court rendered its final decision against the WMEAC. Neither the circuit court nor the Court of Appeals would issue an injunctive order pending appeal. On December 22, 1977, the Michigan Supreme Court granted the injunctive relief request in West Michigan Environmental Action Council v Natural Resources Commission, 402 Mich 836 (1977), and on January 5, 1978, the Supreme Court granted the motion for an appeal prior to decision by the Court of Appeals, 402 Mich 845 (1978).

In West Michigan Environmental Council v Natural Resources Commission, 405 Mich at 760, the Michigan Supreme Court remanded to the Circuit Court for entry of permanent injunction prohibiting the drilling of the 10 exploratory wells in the PRCSF. The Supreme Court found that the evidence adduced at trial demonstrated that the drilling of wells in the PRCSF would likely result in an impairment or destruction of elk in violation of MEPA, MCL 691.1201, et seq; MSA 14.528(201), et seq. Id.

The Michigan Supreme Court decided West Michigan Environmental Action Council on February 20, 1979. One year and forty-two days later, on April 3, 1980, the Michigan Senate introduced Senate Bill No. 1119 ("SB 1119"), which would maximize the development of oil and gas resources consistent with environmental standards. SB 1119 required the Supervisor of Wells to evaluate the 546,000 acres of state-owned land that had been leased to private parties since 1968 and to determine which areas had exceptional environmental values. Not later than 90 days after the effective date of the act, which was entitled "Hydrocarbon Development Act of 1980," the Supervisor of Wells was required to prepare a plan for hydrocarbon development for each area that was found to have exceptional environmental values.

A person holding a lease on state-owned land for which a plan for hydrocarbon development had been prepared and approved by the NRC was entitled to a hydrocarbon development certificate by the Supervisor if the applicant (a) had been issued a permit to drill; (b) had submitted an Environmental Impact Assessment ("EIA") for the drilling of the unit; and (c) the hydrocarbon development set out in the EIA complied with the standards, terms, and conditions in the hydrocarbon development plan. The hydrocarbon development certificate would be granted automatically if the Supervisor neither granted nor denied the certificate within 30 days of the application date. Issuance of a hydrocarbon development certificate was final and established a presumption of compliance with statutory environmental standards. (See Senate Bill No. 1119).

On August 18, 1980, West Michigan Environmental Action Council offered a proposal for settlement of the PRCSF controversy. (Exhibit R-21). DNR Deputy Director Jack D. Bails testified that a compromise was offered because environmental groups believed the Legislature would carve out an exception from MEPA for oil and gas development. (Tr, p 396).

On September 30, 1980, the Michigan Senate approved SB 1119 (substitute S-3), which allowed oil and gas development in the PRCSF for which the 1976 Original Order had been adopted. The Senate specifically found that the Stipulation and Consent Order constituted an appropriate hydrocarbon development plan. Hydrocarbon development under the plan would not constitute pollution, impairment, or destruction of the environment.

According to the Journal of the Senate, on the day SB 1119 (S-3) was passed, Governor Milliken stated that he would veto the bill. 1980 Journal of the Senate, September 30, 1980, No. 190, p 2587. Gongwer News Service reported that although not specifically saying he would veto the bill, Governor Milliken

said he would not look favorably upon legislation that would place at a disadvantage the parties involved in the litigation that represented environmental interests. 1980, Gongwer News Service Michigan Report, No. 109, Tuesday, September 30, 1980, p 4.

In a letter dated November 13, 1980, DNR Director Howard A. Tanner informed Governor Milliken that the DNR, oil companies, and environmental groups had reached a compromise concerning hydrocarbon development within the PRCSF. (Exhibit R-25). On November 24, 1980, the DNR, Shell Oil Company, Northern Michigan Exploration Company, and Amoco Production Company entered into an Amended Stipulation and Consent Order ("Consent Order"). On the same date, the Natural Resources Commission approved the terms of the Consent Order and ordered the director of the DNR to implement and enforce the Consent Order. (Exhibit R-22, p 139).

The Consent Order differed from the 1976 Original Order as follows: (a) It required sequential development from the south to the north of the development area; (b) The PRCAC was given an overseeing role for all oil and gas activities proposed by the DNR staff for the PRCSF; and (c) It required oil companies to provide $85,000 for studies to identify preferred drilling locations and times to minimize the impacts on recreational use and wildlife. (Exhibit R-45, p 432).

On November 24, 1980, SB 1119 (House Substitute H-1), which adopted the Consent Order as the appropriate hydrocarbon development plan for the PRCSF, unanimously cleared the House Economic Development & Energy Committee and was approved by the Michigan House of Representatives on December 2, 1980. 1980Journal of the House, December 2, 1980, No. 122, pp 3126-3129.

On December 4, 1980, the Michigan Senate concurred with the House version of SB 1119. On December 5, 1980, Governor Milliken signed enrolled Senate Bill No. 1119 as 1980 Public Act 316, the Pigeon River Country State Forest Hydrocarbon Development Act of 1980.

On December 15, 1980, a Consent Judgment was entered in the Ingham County Circuit Court, File No. 76-19335-CE. The Court found that changes in circumstances had occurred from those that existed at the time of the original trial because of the entry of the Amended Stipulation and Consent Order dated November 24, 1980. (Exhibit R-26). The Consent Judgment dissolved the permanent injunction order that the Michigan Supreme Court had ordered inWest Michigan Environmental Action Council, et al, supra.

On February 16, 1981, and continuing through February 4, 1983, 35 test wells were drilled in the PRCSF under the Consent Order. (Exhibit R-45, p 477). Of the 35 wells drilled, 8 were oil wells, 6 were gas wells, and 21 were dry holes. Id. Seventeen of the 35 wells were directionally drilled. Id.

Between February 4, 1983, and January 4, 1986, no wells were completed in the PRCSF. (Exhibit R-53, p 6). Chloride contamination of the ground water was detected at one well site and further drilling did not occur in the PRCSF until brine contamination concerns were answered. Steps were taken to detect, contain, and eliminate contamination problems by purging contaminated ground water, hydrogeological testing, re-encapsulating inadequately encapsulated sites, sampling potential problem sites for chloride loss, installing ground water monitoring wells, removing mud pits, and prohibiting on-site disposal of brine-contaminated material. (Exhibits R-38 to R-44).

On August 25, 1988, the last oil well was completed in the PRCSF under the final development plan submitted by the Unit Operator, SWEPI, in 1987. (Exhibit R-53, p 2). Through 1988, a total of 47 wells had been drilled in the PRCSF under the Consent Order. Id. Of these 47 wells, 18 are productive. Id. In 1986, a total of five wells were drilled and each well was completed as a dry hole. In 1987, two wells were drilled and each well was completed as an oil well. In 1988, four wells were drilled, three were completed as dry holes, and one as an oil well. Id.

The total revenues from drilling permits, production privilege fees, severance tax, royalties, and rent that accrued to the State of Michigan from oil and gas development in the PRCSF from in 1981 through 1988 are as follows:

1981 $ 3,076,707.85

1982 3,490,637.59

1983 5,723,116.51

1984 11,008,031.97

1985 8,956,577.00

1986 4,890,332.47

1987 4,798,302.63

1988 4,253,315.93

Total $46,197,021.95

(Exhibit R-53, p 4).

The 145 square mile PRCSF is one of the largest blocks of contiguous public ownership in Michigan's Lower Peninsula. The Pigeon and Black rivers are the major drainage systems within the PRCSF and large stretches of both rivers are flanked by public lands. (Exhibit R-27, pp 155, 158). There are over 70 miles of streams in the PRCSF of which 88% are top or second quality trout water. (Exhibit R-27, p 163).

The PRCSF contains 67 bodies of permanent standing water in excess of five surface acres ranging from small unnamed ponds to large shallow floodings. Id, p 164. The Pigeon River "sink hole" lakes are seven land-locked lakes ranging from 2.6 to 10.7 acres in size. The sink-hole lakes are characterized by their nearly symmetrical outline and their water surface located 40 to 60 feet below the surrounding terrain. Id. Of Michigan's four identified meromictic lakes, which means the upper and lower water layers do not mix, two are PRCSF sink-hole lakes. Id.

In the PRCSF, there are 6 plant communities, which are determined by soil types, water levels, and past disturbances. These are (1) the northern hardwoods--18%; (2) aspen-birch--34%; (3) low-land hardwoods; (4) swamp conifers; (5) up-land conifers; and (6) grassy openings--5%. (Exhibit R-27, p 162).

The PRCSF holds elk, black bear, and bobcats, which are most typically restricted to large tracts of secluded habitat.

Id, 159. The PRCSF is the core of the 600 square mile range of elk, which are unique to this area of Michigan. Id. Michigan's elk herd is the only sizeable wild herd east of the Mississippi River. Id.

The elk population grew to an estimated 1,500-plus animals by 1963. The elk began having a detrimental impact on the range and in both 1964 and 1965, 300 hunting licenses were issued with a total of 452 elk taken. Id. (Exhibit P-20). The herd declined after 1965 because of forest succession to more mature forests, incidence of a parasite, human disturbance, and illegal kills by poachers. In March 1975, the minimum confirmed elk population was 159 and with an estimate that no more than 10% of the elk could have been missed, the population figure was estimated at between 170 and 180 animals. (Exhibit R-27, p 160).

Later the elk population increased and elk hunts were resumed in 1984 when 50 hunters took 49 elk. (Exhibit P-20). In 1985, 120 permits were issued and 119 elk taken; in 1986, 95 hunters took 93 elk; and in 1987, 130 hunters took 129 animals. Through the 1987 elk hunt, the state record for elk, by field-dressed weight, is 688 pounds. Id.

The swamp habitats of the PRCSF contain a relatively stable resident population of 50 bobcats. (Exhibit R-27, p 160). The PRCSF is one of several large prime habitats for the remaining black bears in the Lower Peninsula. Coyotes are common in the PRCSF. Deer are common in the PRCSF and spring populations average 12 to 15 animals per square mile. (Exhibit R-27, pp 160-161). Ruffed grouse, woodcock, snowshoe hares, and other smaller animals and birds are abundant in the PRCSF. Id. One northern bald eagle's nest is located in the PRCSF near Dog Lake Floodings. (Tr, pp 258-259, 290). In 1975, there were two known osprey nests in the PRCSF, but in 1988, there were no nests known within the forest boundaries. (Tr, p 291). Pine martens were successfully introduced in the PRCSF after 1975. (Tr, p 594).

The primary use of the PRCSF is recreation; second is economic activities involving removal of timber or oil and gas; and third is scientific or educational study. (Exhibit R-27, p 166). Recreation includes camping, hiking, hunting, fishing, cross-country skiing, mushrooming, berry picking, and sightseeing. Id. During the five years between 1965 through 1969, an average of 1,201 acres per year of timber was harvested in PRCSF. During the five years from 1970 through 1974, the average was 1,249 acres per year. Id, p 168. Oil and gas statistics were previously presented on pages 22 and 23 of this PFD.

In 1975, the PRCSF had one quarter of a mile of paved road. There are 265 miles of roads in the PRCSF, but some of the gravel or graded roads are frequently impassable, some have not been driven over for years, and a few are not passable by passenger car at any time. Id.

The foregoing history and background demonstrates the great investment this state and its citizens have in the PRCSF. It indicates a basis for the deep concern that resulted in the twelve years of controversy, including over six years of litigation, between environmental groups, oil companies, citizens, and various government agencies. During this extended controversy, ideas were proposed, considered, and improved, which ultimately concluded in a balance between, on one hand, procedures, restrictions and guidelines to reduce the disturbance and damage caused in the PRCSF, to the lowest minimum possible, and, on the other hand, permit feasible development of the hydrocarbon resources. (See Exhibit R-46, p 499). The fulcrum of this balance is twenty-one days of Executive, Judicial, and Legislative Branch action that is documentarily memorialized in the Consent Order, Consent Judgment, and PRHDA.

These documents ended the controversy, opened the PRCSF to hydrocarbon development within environmentally prudent standards, and formed the basis for future extraction of hydrocarbon resources. Consequently, the Findings of Fact and Conclusions of Law in this PFD necessarily analyze the applicability of these documents to the Hobson application. The testimony of the witnesses is related first in order to understand the perspectives of the parties before analyzing the Consent Order, Consent Judgment, PRHDA, and other applicable law.

Testimony Evidence
 

Charles D. Hobson

The first person to testify for Petitioner was Charles D. Hobson. (Tr, p 28). Mr. Hobson has been president of Hobson Petroleum Corporation for 12 years and, as chief executive officer of the corporation, he is responsible for decisions with regard to all facets of the business, including drilling, leasing, and sales. (Tr, p 31).

Hobson is in the business of exploration for oil and gas, primarily in Michigan. (Tr, p 29). Hobson Petroleum has been the primary operator in 15-20 wells in the state of Michigan.

The operator of a well must secure the oil and gas lease and complete necessary legal work to assure that title is good. The operator must evaluate all the scientific data, geophysics, geology, and whatever other means are used for exploration tools. (Tr, p 32). The operator must secure vendors and contractors to have quality field personnel at the correct price.

An operator supervises the drilling activity. Once a well is drilled, the operator evaluates the well and makes a decision whether it is economically prudent to complete the well. If it is not prudent, the well must be plugged and abandoned. Id.

If it is prudent to complete the well, the operator makes all the plans and supervises the completion of the well. The operator negotiates contracts with refineries or utility companies that purchase the product. (Tr, p 32). The operator puts the well on production and supervises all the activities of producing the well. The operator insures that the well is in compliance with all regulations and that economically the well produces the maximum amount of product based on what is available.

When Hobson Petroleum is not acting as the operator of a well, it is a silent partner and another oil company is acting as the operator. (Tr, p 33). The only actual decision made by Hobson as a silent partner is whether, at the point of completion, it agrees with the judgment of the operating company to complete the well.

Hobson Petroleum Corporation has never applied for and been denied a drilling permit in the state of Michigan, except for two applications to drill in the PRCSF. (Tr, p 33).

Exhibit P-9 is a shot-point map prepared by Woods Geophysical, Inc., which is a geophysical company that ran seismic evaluations over the land owned by Evelyn Schommer. (Tr, p 38). The interpretation of Exhibit P-9 shows one or two structures that may be Niagaran reefs. (Tr, p 39). In the transmittal letter for Exhibit P-9, the seismic documentation reflects a preferable location for drilling in the southwest 1/4 of the southwest 1/4 of Section 15, Forest Township, T33N, R1E, Cheboygan County.

Based on Exhibit P-9, Hobson testified that the optimum position to drill a well is a straight hole at the intersecting point of lines HOB 83-3 and HOB 84-34. (Tr, p 40). The intersecting line adds credence to the possibility that the initial line is correct because both reflect the same structure. (Tr, p 41). Exhibit P-9 was used to determine the location of the proposed Schommer 2-15 Well and to assess environmental considerations, such as how far the well would be located from the Black River. (Tr, p 41).

Hobson changed the location of the proposed Schommer 2-15 Well from that indicated in the permit application (Exhibit P-12) by moving it southeast to a location 1400 feet north of the south section line and 460 feet west from the 80-acre drilling unit east line. (Tr, p 57). The modification of the location would move the proposed well away from a contested surface feature known as a pothole. Id.

An Environmental Impact Assessment (EIA) prepared by Mr. Horne was attached to Hobson's permit application. (Tr, p 58). According to Mr. Hobson, the Hobson EIA is the same as all other EIA's prepared for a proposed well in the Pigeon River Country State Forest. (Tr, p 47). The issues addressed by Shell Oil Company in their permit applications are addressed by Horne in Hobson's permit application. (Tr, p 48).

Exhibit P-18 is a permit to drill a well issued by the DNR to SWEPI for the State Forest 2-22 Well. (Tr, p 59). The actual proposed surface location of the State Forest 2-22 well is 3819 feet from the actual proposed surface location of the Schommer 2-15 Well. (Tr, p 59, Exhibits P-12 and P-18).

Exhibit P-19 is a permit to drill a well issued by the DNR to SWEPI for the Rupp-State Forest 1-21 Well. (Tr, p 60). The actual surface location for the Rupp-State Forest 1-21 Well is 2279 feet from the actual proposed surface location of the Schommer 1-15 Well. (Tr, p 60; Exhibits P-12 and P-19). Exhibit P-22 is a map prepared by Shell Oil Company that shows existing oil and gas wells in the area. (Tr, p 79). Within one mile of the Schommer acreage, outside PRCSF to the east, there are wells drilled by Shell Oil Company, Getty and Amoco. (Tr, p 80). These wells are located in Sections 13, 14, 23, and 24 of Forest Township, T33N, R1W, Cheboygan County and Section 19 of Allis Township, T33N, R2W, Presque Isle County. (Tr, pp 80-81) and 24. The wells east of the Schommer lease where drilled in the early to mid 1970's and went into production in the early 1980's. (Tr, p 82). The wells are still producing. (Tr, p 83). There are between 14 and 20 wells producing in the oil and gas field east of the Schommer lease. (Tr, p 84).

Mr. Hobson compared the relative feasibility of a straight drill from the surface location to the bottom location as set forth in the Hobson's application for drilling permit, as amended, and from the alternative slant drill location south of the no-drill line. (Tr, p 89). To directionally drill the well from the SWEPI pad south of the Schommer lease, the well would cost approximately $247,550. (Tr, p 94). A straight hole would cost approximately $170,000. (Tr, p 94).

Mr. Hobson admitted that from a technological standpoint, a slant drill and a vertical drill can both achieve the bottom-hole target. (Tr, p 95). However, Hobson pointed out several disadvantages to a directional drill. Because the well would be shallow, approximately 4,000 feet deep, a straight hole can penetrate the entire structure. (Tr, p 95). By directionally drilling the well from the south, the shallowness of the well would not leave enough room to drop back to a vertical drill at the anomaly. Id. Consequently, Hobson would traverse the anomaly sideways. Hobson stated he would not have control whether the drill would go into the structure above the water table or in the zone of porosity and permeability. (Tr, p 95).

There is a possibility that on a directional hole, the drill would penetrate the producing structure but it would not result in a commercial well, whereas it could result in a commercial well if it were drilled vertically. (Tr, p 95-96). It takes two to three times longer to drill a vertical hole than a straight hole. (Tr, p 96). To drill a straight hole for the Schommer 2-15, from move-in date to log-out date, it would take six to seven days. For a directional hole, it would take from 14 to 21 days. (Tr, p 96).

The primary problem with the directional drill is the point where the directional drilling begins, if it is not begun at an angle from the surface. Hobson stated that he would drill straight down and set the conductor and surface pipe and at that point begin the directional drill. (Tr, p 97). Sometimes it takes 4, 5, or 6 days to get the kickoff or directional drill going in the desired direction. (Tr, p 97). Hobson could not get a directional hole drilled on a footage basis, which means an amount of dollars per foot drilled. For a directional hole, it would be drilled on a per diem basis, which is approximately $4,000 a day. Id.

Mr. Hobson testified that it is easier to lose the string of tools in a directional hole. There is greater stress on the tools when they are drilling at an angle. It is called twisting off. (Tr, p 97).

There is a loss circulation zone that has been encountered in the PRCSF. Entering a loss circulation zone with a directional drill can be costly. (Tr, p 98). A loss circulation zone would add another consideration to protecting fresh water. A loss circulation zone is a pervious zone into which drilling fluids are absorbed so that no returns come back to the surface with drilling fluids. Id.

If a drill string drills through a porous zone and circulation is lost, there is a possibility that the drill pipe will twist off and become stuck in the hole. The drill pipe would need to be shot off. (Tr, p 99). If a couple thousand feet of pipe are in the directional hole when it twists off, Hobson would lose approximately $200,000.

A loss circulation zone is more problematical with a directional drill than a vertical drill. In a vertical drill, the drill pipe itself is not laying on its side making contact on the side. The driller has better control on the drill string itself with a vertical drill in regard to rotation up and down. (Tr, p 99).

In relation to protecting the environment, Mr. Hobson has observed two basic differences between a vertical drill and a directional drill. A directional drill takes longer, which means that there is more time for equipment moving in and out and more noise pollution. The second difference is protecting the fresh water zone below the surface. It is much easier to protect with a vertical drill. (Tr, p 100).

Technologically, it is feasible to drill to the targeted bottom hole for the Schommer 2-15 from the surface location of the Rupp-State Forest 1-21. (Tr, pp 101-102). In light of the economic, technological, and environmental factors, Hobson would prefer to drill a straight hole. (Tr, p 102).

Neither Hobson Petroleum nor Schommer are parties to the November 24, 1980, Amended Stipulation and Consent Order. (Exhibit P-1). Neither Hobson nor Schommer were parties in the litigation or the resulting December 15, 1980, Consent Judgment that is marked as Exhibit P-2. Neither Hobson Petroleum nor Schommer are parties to the 1976 Unit Agreement. (Exhibit P-3). (Tr, p 103).

Mr. Hobson testified that Hobson Petroleum Corporation is prepared and has the capability to drill the Schommer 2-15 Well in compliance with the restrictions in the Consent Order, with the exception of paragraph 8c, which provides that there will be no transfer of production rights to any entity at any future date without the express approval of the Director and the Natural Resources Commission. (Tr, pp 103-104). Hobson Petroleum would not comply with paragraph 8c because it intends to have industry partners involved in the drilling and, if production is established, Hobson would be required to assign interests in the well to industry partners. (Tr, p 104).

Hobson may not be able to comply with paragraph 8d of the Consent Order, which prohibits the possibility of farming out this location to a major oil company. Hobson Petroleum has two major oil companies that are waiting to review the venture once Hobson obtains a drilling permit. (Tr, p 104).

Hobson Petroleum may have problems with respect to paragraphs 8q and r if the Schommer 2-15 Well is a gas well because a gas pipeline would need to cross the Black River. (Tr, pp 104-105). Hobson did not foresee any problems with constructing a pipeline under the Black River because the depth of the pipeline would be 50 feet under the river and it would be a very low pressure line. (Tr, p 105).

Paul G. Bazeley

Hobson Petroleum's second witness was Paul G. Bazeley, from P. G. Bazeley Geological Services, Inc., a consulting engineering and geology firm. (Tr, p 112). Mr. Bazeley has operated as an independent consultant since 1968.

Mr. Bazeley has a Bachelor's Degree and a Master's Degree in Geology from Central Michigan University. He is working on two doctorate degrees from Michigan State University in Resource Development and Geography, where he is concentrating in remote sensing (Tr, p 131). The course requirements for the doctorate degrees are completed except for the dissertation. The title of Mr. Bazeley's dissertation is "An Impact of Resource Development on Arctic Environment".

For 11 years, from 1969 through 1980, Mr. Bazeley taught at Mid-Michigan College in the Environmental Sciences Division, which encompassed courses in Biology, Earth Sciences, Geology, and Geography. (Tr, p 114). From 1976 through 1980, Mr. Bazeley was a student and then a lecturer in Resource Development at Michigan State University. Id. His work concentrated around effective development, including economic development, on lakes and streams in Michigan. Mr. Bazeley first became involved with the oil and gas industry in 1966 when he was conducting seismic exploration for the Arctic Institute of North America. (Tr, P 113).

Mr. Bazeley was hired as a consultant for the Canadian government and by the Arctic Institute of North America in 1966 and in the summers of 1970 through 1975. Mr. Bazeley would spend from May to September in the Arctic or in the off-shores of the geological survey in Ottawa. (Tr, p 120).

Mr. Bazeley personally ran over 4,000 miles of seismic line or supervised the running of it in the Arctic and in the MacKenzie River Valley. (Tr, p 120). Mr. Bazeley was project leader on mapping the areas where potential pipelines could be placed under the MacKenzie River and where pipelines cross streams. He also conducted research for the feasibility of inner-Arctic island pipelines. (Tr, p 130). Mapping included subsurface geology, shoreline geology, soil types, erosion potential, and permafrost damage potential. (Tr, p 130).

In 1968, Mr. Bazeley began consulting in oil and gas geology by evaluating seismic records and putting together potential drilling possibilities. (Tr, pp 114-115). Mr. Bazeley became so busy in the oil and gas industry, that he left Mid-Michigan College in 1980 and made consulting his full-time occupation. (Tr, p 115).

P. G. Bazeley Geological Services, Inc. serves independent operators in Michigan by putting together drilling packages and supervising them from the time a drilling location is established until the time that oil or gas is produced. (Tr, p 116). The entire scope of services includes evaluating seismic, determining the best potential drilling site, have a drilling site surveyed, writing the Environmental Impact Assessment, filing with the DNR an application for a permit to drill, contracting with drilling companies, calculating the cost estimates, writing an Authorization for Expenses ("AFE"), and when the well is ready to be drilled, supervising the complete operation of drilling. (Tr, p 116). P. G. Bazeley Geological Services, Inc. has been involved in approximately 400 wells in Michigan and Mr. Bazeley has personally written dozens of Environmental Impact Assessments. (Tr, p 132).

When he worked for the Arctic Institute, Mr. Bazeley had a number of publications in the Records of the Geological Survey of Canada. (Tr, p 117). Mr. Bazeley published articles relating to the provision of fresh water to Saudi Arabia by transportation of icebergs. Mr. Bazeley published an article related to development of the MacKenzie River Valley, the North Slope of Alaska and the Canadian Arctic. (Tr, p 117). For five years Mr. Bazeley worked as a consultant in charge of research teams that studied the environmental impact for development of roads, pipelines, oil and gas communities, and drilling operations in the Arctic. Id.

Mr. Bazeley belongs to the Michigan Oil & Gas Association and the Canadian Oil & Gas Association. (Tr, p 117).

Mr. Bazeley has testified as an expert witness in a hearing conducted by DNR Administrative Law Judge Fulkerson, in federal hearings in Canada, and in circuit court in relation to lake management problems. (Tr, p 118).

Mr. Bazeley was admitted as an expert in the areas of interpretation of seismic evidence, oil and gas well drilling, and specifically the technology involved and the procedures necessary to successfully drill oil and gas wells. (Tr, p 130). He was also admitted as an expert to give testimony about the impact that oil and gas well development may have on the surrounding environment. (Tr, p 141).

P. G. Bazeley Geological Services, Inc. was retained by Hobson Petroleum to evaluate the seismic exploration, drilling potential, and proposed drilling site for the Schommer 2-15 Well and other prospects. (Tr, p 119).

In evaluating the seismic record for the shot points platted on the map marked as Exhibit P-9, Mr. Bazeley found the best seismic potential and reefs that he has seen. (Tr, p 119). Mr. Bazeley testified that where seismic lines HOB 83-3 and HOB 84-34 cross, the subsurface structure indicates a Niagaran-type reef and, evaluating the seismic, it appears to be one of the better ones that Mr. Bazeley has seen. (Tr, p 142).

Mr. Bazeley believes that the Niagaran reef should be drilled for the potential recovery of oil and gas and that the reserves would have a very high potential. Id. The optimum drilling location is determined by finding a reef-type structure in the subsurface and transferring it to the surface. (Tr, pp 145-146). Mr. Bazeley then personally examined the west 1/2 of the southwest 1/4 of Section 15 Forest Township, T33N, R1W, Cheboygan County to determine the potential surface location in to potential physical restrictions and rules and regulations that prescribe the surface location of a well. (Tr, pp 144-146).

In the southwest corner of the southwest 1/4 of Section 15 are wetlands. (Tr, p 147). Other than the pothole, which Mr. Bazeley did not believe was a major factor, the rest of the proposed drilling unit is composed of a few varieties of pine tree and half scrub wood. (Tr, pp 147-148). Mr. Bazeley drove to the proposed drilling site in a two-wheel drive automobile in April, when snowbanks were still present. Although the road is described as a two track, it is very passable. (Tr, p 147). Coming in from the north, there is a low area that is identified as a trial on Exhibit P-21. The area is highly sandy and well drained. (Tr, p 148).

According to Bazeley, it is very easy to get around on the Schommer lease; it is not densely wooded. (Tr, p 149). The property drops off slightly at the south part near the Black River. (Tr, p 149). Directly to the north of the proposed drilling unit is 40 acres of state land that had been clear cut. (Tr, pp 149-150). Mr. Bazeley observed two turkeys, some small birds, and a few deer tracks. (Tr, p 150).

The pothole is a low depression on the property and in the spring of the year, Mr. Bazeley believes it would probably have snow runoff in it. (Tr, p 151). Mr. Bazeley did not believe that the drilling activities would have any impact on the pothole. (Tr, pp 151-152).

Mr. Bazeley testified that the Black River is a very nice stream in the area of the proposed drilling unit. It is between 12 and 20 feet wide and a few feet deep. (Tr, p 152). Mr. Bazeley testified that the drilling of oil and gas would not have an impact on the Black River because of state guidelines. (Tr, pp 152-153).

Mr. Bazeley stated that the other impact from the proposed well on the surrounding environment would be the construction of the drilling pad. The pad would be 200 x 220 feet or 180 x 220 feet. (Tr, p 153). The drilling pad would involve leveling the area and building dikes. (Tr, p 154). To level the area, which is mainly rolling lands, Hobson Petroleum would need to cut off the side of one hill and fill in a low spot. (Tr, p 154).

Mr. Bazeley reviewed the Environmental Impact Assessment submitted by Hobson (Exhibit P-12) and found that it was accurate with what he viewed at the proposed drilling site. (Tr, p 155). Within one mile east of the proposed drilling unit off Black River Road, and within one mile to three miles going north on Black River Road, there are a number of aged well sites, drilling pads, production sites, and lease roads. (Tr, p 160). Bazeley observed the typical equipment that is found in a producing oil field, such as tank batteries, related production equipment, wellheads, markers for pipelines, and access roads. (Tr, p 161).

Bazeley testified that there would be no difficulty putting a pipeline under the Black River. (Tr, pp 163-164). Depending on estimated reserves and pressures, a two- to four- inch pipe would handle one well with no particular difficulty. (Tr, pp 164-165). Typically, a larger diameter pipe would be run under the river and then a smaller diameter pipe is put inside the larger diameter pipe. The larger diameter pipe is sealed at both ends and is sealed to the small diameter pipe. If a problem develops with the small diameter pipe, the operator unscrews it from the larger pipe, pulls it out and puts in a new one. (Tr, p 165). Construction of a gas transportation line under the Black River from the surface location of the proposed Schommer 2-15 Well would take from three to seven days. (Tr, p 165). Unless standing on top of an access valve, once a pipeline was constructed, a person would not know that a gas transportation pipeline existed. (Tr, p 166).

If the well produced 360 barrels of oil per day, two tankers a day would be needed to service the well. (Tr, p 166). Bazeley testified that the road leading to the proposed drill location from the north would need some gravel put in at low spots. The road that connects to the Black River Road has good quality gravel and Black River Road is blacktopped. (Tr, p 167).

Bazeley opined that a slant drill is not a very viable alternative; it is the last thing that an oil and gas exploration company would want to consider. (Tr, p 168). Paul Bazeley compared a vertical and directional drill. From an economic standpoint, a slant drill costs considerably more because the oil and gas producer never knows what it will get into as it starts to drill a hole on an angle. The greater the angle deviation, the more problems are encountered. (Tr, p 169). An angle of 10 degrees probably is not difficult, but angles of 40-45 degrees can run into extreme amounts of difficulty and cost considerably more. Id. A directional drill requires more kinds of drilling tools and consequently it is more expensive. Id.

From the surface location of the Rupp-State Forest 1-21 Well to the bottom-hole location anticipated by Hobson Petroleum, the ideal minimum amount of the deviation should be 1,320 feet, but in this particular case, the deviation would be greater feet. (Tr, p 170). Bazeley would expect the deviation to be at least 45 degrees. Id.

Built into a cost analyses for wells are contingencies for equipment failure and other unexpected events. Building in a contingency for a directional drilling program is extremely difficult. (Tr, p 170-171).

Mr. Bazeley testified that it is much easier to hit a bottom-hole target with a vertical hole because the driller has more control of the hole. (Tr, p 171). In a directional hole, the bit, by nature of its rotation, tends to go in a direction to the right. A driller must compensate for that tendency and correct for it to keep it going in the intended direction. (Tr, p 171).

Oil and gas is found in layers that are vertical and when drilling vertical, the whole formation can be evaluated. (Tr, p 172). A directional drill may penetrate the top of a potential reef, may enter halfway down the reef or may penetrate at the base of the reef. Id. If the directional drill cuts into the reef below the oil/water contact, it may appear that there is no oil when the top 200 feet of the reef could contain a few million barrels of oil, which would be missed. (Tr, p 172). A vertical hole can test a complete section of a reef from top to bottom. A directional drill will only test a particular elevation around the side of a reef wherever the bit happens to hit. (Tr, p 173).

Mr. Bazeley stated that a straight hole could be drilled more efficiently, in less time, with less activity, and with less equipment. (Tr, p 173). With a directional hole, it is difficult to estimate how long it will take to drill the well. Id. A directional hole requires considerably more activity around the well site. There is more traffic, more noise, more time, and it is less efficient. (Tr, p 173). The more time a drill string is in a hole, the greater chance of an accident, according to Bazeley. Id.

A deviated hole will cut more of a given formation because it is being crossed at an angle. (Tr, p 174). If the formation is a loss circulation zone, the greater length will cause a greater loss of drilling fluid, and the risk of contamination is much higher. (Tr, p 174). Mr. Bazeley opined that a vertical hole is much more suitable than a deviated drill, and in this case, there is a better drilling site for the vertical drill. (Tr, p 175).

Mr. Bazeley stated that the best surface location, as far as obtaining production and minimizing the environmental impact on the 80-acre Schommer lease, is an area 600 feet west of the east line of the unit and 1,400 feet north of the south line of the unit. (Tr, p 176).

Mr. Bazeley is retained by Hobson Petroleum Company to drill the proposed Schommer 2-15 Well from when the stake is in the ground to completion. (Tr, p 177). Mr. Bazeley has had experience drilling in environmentally sensitive areas, such as in wetlands, where all the cuttings were hauled away. (Tr, p 178). Mr. Bazeley also drilled three wells in environmentally sensitive areas on the west side of Arenac County in a private hunt club. Mr. Bazeley recounted that a DNR field geologist visited the sites with Mr. Bazeley and was "perfectly happy" with the job that Bazeley had done in terms of cleanup. (Tr, p 178). Mr. Bazeley has drilled under Arbutus Lake, which is in a beautiful area of mature pines where $200,000 and $300,000 homes are located. (Tr, pp 178-179). Mr. Bazeley did not encounter any difficulties with the DNR or with area landowners at Arbutus Lake. (Tr, p 179).

James F. Cleary

Petitioner's third witness to testify was James F. Cleary, former assistant director and chief administrative officer of the DNR. Mr. Cleary's testimony was given at a deposition in another hearing and admitted in this appeal pursuant to MRE 801(d)(2)(A),(C), or (D) or MRE 804 (b)(1).

James F. Cleary received a business administration degree from Ferris State College in 1967. (D Tr, p 5). ⁽⁴⁾ In September 1968, Mr. Cleary was hired as a personnel technician in the Michigan Department of Civil Service. In 1970, he was transferred to the office of the Governor and became a budget analyst. In 1972, Mr. Cleary joined the Michigan Department of Labor as the director of the Emergency Employment Act. Id.

In 1973, Mr. Cleary joined the DNR as a budget analyst. In 1976, he became chief of the DNR's Office of Budget and Federal Aid. In 1979, he became an assistant to the deputy director of DNR's Management Services. In 1980, Mr. Cleary became an assistant director of the DNR, and in 1986, he became chief administrative officer of the DNR. (D Tr, p 6).

As assistant director, Mr. Cleary was in charge of the internal day-to-day operations of the DNR. Id. As chief administrative officer, Mr. Cleary was responsible for the DNR's Personnel Division, Administrative Services Division, Real Estate Division, Office of Budget and Federal Aid, Michigan Conservation Job Corp Program, Administrative Hearings, Management Specialists, and Management Development. (D Tr, p 7).

When Mr. Cleary was an assistant director of the DNR, he did not specifically assist the Supervisor of Wells in carrying out his duties, but he may have signed documents in the Supervisor's absence in Cleary's capacity as acting director. (D Tr, p 13). On three or four occasions, a DNR regional director or deputy director would consult with Cleary about the location of a well and Mr. Cleary inspected a few well sites that were located in or near wetland areas. (D Tr, p 9).

Mr. Cleary testified that the DNR has a land management program, which acquires inholdings in any designated boundary area for a state forest, state park, state recreation area, or game area. (D Tr, pp 30-31). The first priority of the program is to purchase property within the defined boundaries such as the boundaries of the PRCSF. (D Tr, p 31).

In addition, PRCSF was instrumental in the development of the Michigan Land Trust Fund and a priority of the Fund is the utilization of its money for acquisition of private holdings within PRCSF. (D Tr, p 31). Legislation creating the Trust Fund was passed in 1976 and is known as the Kammer Recreational Land Acquisition Trust Fund. Id.

Mr. Cleary explained the procedure for reviewing an application for a permit to drill. When an application to drill a well is submitted to the DNR, it goes to the Geological Survey Division in Lansing and it goes to field staff for review. (D Tr, p 45). A field review will be undertaken by pertinent DNR staff, such as wildlife, forestry, and geological survey staff. Id. A complete field review and recommendations from the regional director are sent to Lansing where a final decision is made. (D Tr, p 45).

For applications to drill a well in PRCSF, applications are also referred to the Pigeon River Advisory Council. (D Tr, p 46). The director of the DNR, as Supervisor of Wells, personally made all decisions regarding permit applications for wells in the PRCSF. (D Tr, p 46). Generally, when a letter granting or denying a permit application is forwarded to the director for signing, it is accompanied by "buck slips," which instruct the director whether the letter should be signed. (D Tr, pp 56-57).

Dr. Donald L. Inman

Respondent's first witness was Dr. Donald L. Inman, Chief of the Office of Environmental Enforcement, within the DNR. (Tr, p 189). For 15 years, Dr. Inman has been a DNR employee, where he has held various positions that conduct environmental reviews for major state projects. Id. Dr. Inman has been in environmental enforcement work for approximately nine years. Id. In 1966, Dr. Inman received a Bachelor's Degree from Oakland University; in 1968, he received a Master's of Science Degree from Michigan State University in Wildlife Management; and in 1971, he received a Ph.D. from Michigan State University in Wildlife Ecology. (Tr, p 190). From 1971 through 1973, Dr. Inman completed post-doctoral work at the University of Georgia Institute of Ecology. (Tr, p 190).

Dr. Inman has been involved in a number of projects with the DNR where the entire ecology of an area is considered. In 1973 or 1974, he prepared a document for the DNR regarding drilling in the Great Lakes, where Dr. Inman looked at the Great Lakes in to-to. (Tr, p 190). Dr. Inman was chairperson of the task force that developed the Environmental Impact Statement ("EIS") for the Pigeon River Country State Forest. (Tr, p 191). The task force consisted of a group of DNR professionals, who looked at various development alternatives and prepared the EIS. Id. Dr. Inman was involved in the group that developed the oil and gas management plan for the Pigeon River Country State Forest. (Tr, p 191).

In the oil and gas management plan (Exhibit R-46), the hydrocarbon development activity is prohibited in the northern two-thirds of the Pigeon River Country State Forest. (Tr, p 191). One factor considered for prohibiting oil and gas exploration or development includes recreation, which is the quiet type, such as hiking, camping, fishing, and hunting. The northern two-thirds of the Forest has fewer roads than the southern one-third, which means that the intrusion that occurs with oil and gas development is more significant in the northern two-thirds than in the southern one-third. (Tr, p 195). In 1974 when the management plan was being developed, the northern two-thirds of the Forest had more wildlife that are sensitive to human intrusion than the southern one-third. (Tr, p 195). This wildlife is bear and bobcat.

Exhibit R-27 is the EIS prepared by the DNR for potential hydrocarbon development in the Pigeon River Country State Forest. Dr. Inman was responsible for producing the EIS. (Tr, p 196).

It took approximately six months for six professionals, each one of whom specialized in a different scientific field, under Dr. Inman's direction, to prepare the EIS. (Tr, p 199). The task force relied on a number of research studies, particularly in fisheries, that were completed by various universities. Id. The EIS underwent at least three public hearings in Michigan. (Tr, p 199).

The Natural Resources Commission reviewed the EIS. The EIS was made a part of the November 24, 1980 Amended Stipulation and Consent Order. The Consent Order is the document relied upon by the DNR to regulate oil and gas development in the Pigeon River Country State Forest. (Tr, p 200). The Consent Order ended protracted litigation on the proposed alternatives to develop oil and gas in the Pigeon River Country State Forest and it was signed by major oil companies, the DNR, and the Natural Resources Commission. (Tr, p 200).

On pages 18 and 19 of the EIS (Exhibit R-27), the affects of transporting oil and gas via pipelines are discussed. (Tr, p 201). The DNR believed that a number of potential impacts from pipelines should be controlled. Pipelines can be a disruptive factor in the environment, particularly when they cross either wetlands or surface waters. (Tr, p 202). Trenching for pipelines in wetlands can cause compaction of soils. That compaction can result in the interruption of the flow of ground water, which can have a damaging affect that goes beyond the right-of-way of the pipeline. (Tr, p 202).

When trenching under surface waters, erosion and sedimentation can occur. In order to control these impacts, the DNR restricted the way pipelines were constructed and the areas in which they could be constructed. (Tr, p 203). This was done because wetland areas are features within the Pigeon River that provide significant wildlife habitat, especially for those species that are affected by human disturbance. Id. The DNR wanted to protect these wetlands, so it tried to narrow the right-of-way for pipelines. The DNR restricted construction of surface water crossings to what is called the "plow-in" method, where the pipeline is actually dragged under the bed of the stream to prevent trenching, erosion, and sedimentation in the river. Id. Only one pipeline crossing of the Black River was allowed and that crossing already exists. (Tr, p 203).

The Black River is significant because it is a brook trout stream. (Tr, p 203). Brook trout streams are an environment that reflects low intrusion by man. Id. Brook trout require cold water, high levels of oxygen, and gravel beds. Id. The Black River has a significant brook trout population and a significant number of people seek these brook trout. (Tr, p 204). The Black River and its adjoining watershed, including wetlands, were deemed by the DNR as significant features worthy of protection and, therefore, the EIS imposed the one pipe crossing restriction. (Tr, p 204).

If a pipeline was constructed under the Black River at the location of the Schommer lease, there is the potential for erosion and sedimentation where the pipeline crosses. Even with the "plow-in" method, vegetation is cleared on the banks near the river and there is an opportunity for erosion and sedimentation into the river. (Tr, p 204). As with any pipeline, there is the opportunity for product to escape because of accidents, cracks, or leaks. Id. (Tr, p 204). Access by individuals who want to use motorized vehicles along pipeline right-of-ways must be controlled.

The task force looked at the Pigeon River Country State Forest as an ecological unit. (Tr, p 205). It was very difficult to control the affects of oil and gas development if the task force looked at each permitable location, pipeline crossing, access road, facility site, and the other oil and gas development appurtenances on an individual site-by-site basis. (Tr, p 205).

Pages 177 to 181 of the EIS discuss the no-drill boundary and a number of different alternative development schemes, such as, competitive versus unitized development. (Tr, p 205). The DNR chose the unitized approach to reduce the amount of surface disturbance. The competitive approach increases the number of wells, pipelines, and facility sites. (Tr, p 206).

Page 186 of the EIS states that wells will be drilled from common sites using the least possible number of drilling site locations. (Tr, p 206). The purpose of this recommendation is to reduce surface impact from oil and gas development. Id. From a somewhat larger drilling pad, oil and gas development companies are able to reach several different anomalies and produce product with one well pad, one pipeline right-of-way, and one facility site. (Tr, pp 206-207).

Page 187 of the EIS recommends directional hole technology to reduce surface disturbance. (Tr, p 207). The DNR has followed this recommendation throughout the development of the Pigeon River Country State Forest. Id. There are certain areas within the Forest that are off-limits to oil and gas development, even in that area that is open for production. Id. For example, wetland areas are off-limits. Id. Directional drilling is used to move the surface location to a less sensitive site and still produce product. The EIS recommends that wherever it is necessary to protect the surface location, directional holes must be used. (Tr, p 207).

Pages 191 to 194 of the EIS describe the affects of oil and gas development upon elk, bobcats, deer, bald eagle, and other endangered and threatened wildlife. (Tr, p 200). In relation to the elk herd, the task force estimated that it was around 200 head and the herd had the potential of decreasing. (Tr, p 208). Since oil and gas development began in 1981, the elk herd has increased. (Tr, p 209). If there has been an adverse impact on the elk herd from oil and gas development, it has been masked by other factors, such as reduced poaching and an intensive effort to increase habitat. (Tr, p 209). The EIS imposes a number of restrictions to reduce the effects on sensitive wildlife species and recreational users of the Forest. There are sensitive times of the year for elk in the fall, during rut, when they breed, and in the spring, during the calving period. Id. Drilling is allowed at times other than these sensitive periods. (Tr, pp 209-210).

Dr. Inman testified about other restrictions intended to protect elk. Noise levels are limited to 45 decibels at a range of 1,000 feet from a drilling site. (Tr, p 210). The best odor control equipment must be used. Id. No drilling is allowed within a one-quarter mile of surface water, lakes, streams, and rivers. Id.

The EIS was concerned with a potential decrease in the population of bear and bobcat. Bear and bobcat require extensive home ranges for populations to exist. Id. They require quite areas, which are primarily wetland, where they can move away from human disturbances. (Tr, p 210). The DNR does not know the population of bear and bobcat and did not know at the time that the EIS was drafted. (Tr, p 211). The task force did know from studies conducted in Michigan and other parts of the United States that bear and bobcat are sensitive to intrusion. (Tr, p 211). Bear and bobcat are not found south of Clare, Michigan because of human disturbance and loss of habitat. (Tr, p 211). At the time the EIS was written, the northern two-thirds of the Pigeon River Country State Forest was the area with higher populations of bear and bobcat. Id.

The section of the EIS on pages 195 and 196 entitled "Interrelated Aquatic Systems" references the one pipeline crossing of the Black River. (Tr, p 213). The EIS became part of the Consent Order and according to Inman, the recommendation to have one pipeline crossing the Black River became part of the Consent Order. Id.

The EIS also refers to the noise and odor associated with oil and gas development and it discusses the concept of quiet enjoyment. (Tr, p 213). DNR studies show that people use PRCSF for quiet recreation. People have objected to the sound of machinery and drilling so the DNR felt that it was necessary to control noise. (Tr, pp 213-214).

Figure 12 on page 219 of the EIS is an environmental impact matrix for proposed hydrocarbon development in the southern portion of the Pigeon River Country State Forest. Dr. Inman testified that Figure 12 is a mechanism to reflect a visual summary of the environmental elements in PRCSF versus the kind of development that would occur and the associated predicted impacts from the development upon each environmental element. (Tr, p 214). The matrix shows a significant adverse impact on wildlife species that require large areas and no or limited intrusions, such as elk, bear, bobcat, and endangered and threatened species. (Tr, p 215). The study found some negative impacts from pipeline crossings over streams and in wetlands, noise, odor, and visual kinds of impacts on hunting, fishing, camping, and quiet recreation. The ground water contamination factor was incorrectly predicted in the EIS because there are negative impacts on ground water from hydrocarbon development activities. There are four drilling locations in the PRCSF where the ground water has been contaminated with chlorides. (Tr, p 216).

Exhibits R-28 to R-31 are the types of letters that were written by the DNR in response to the hundreds and hundreds of letters that came to the DNR as public comments on the EIS. (Tr, p 220).

Donald L. Inman testified that he was involved in the discussion of and determination of the placement of the no-drill boundary in the Pigeon River Country State Forest. (Tr, p 221). Oil and gas development would have a more significant impact in the northern two thirds of PRCSF than in the southern one third where there are more roads and oil and gas development could occur closer to or adjacent to existing roads. (Tr, p 222). Sensitive wildlife species such as elk, bear, and bobcat are present in higher numbers in the northern portion of the Forest because of less intrusions and disturbance. (Tr, p 222).

Dr. Inman was qualified and allowed to testify as an expert in the area of impacts from oil and gas development on natural resources in the Pigeon River Country State Forest. (Tr, pp 225-233).

Exhibit R-5 is a memo dated February 18, 1987 written by Dr. Inman that lists conclusions and reasons for denial of Hobson's application to drill the Schommer 2-15 Well. (Tr, p 234). The reasons for denial include: (a) the property is located in the non-development area; (b) there is no seismic information that would lead the DNR to believe that there was any reasonable chance that the site would produce oil and gas; (c) development of the site would require extensive changes, including another production facility and creation of an all-weather road to the drill site and any necessary production facility site; (d) the road to the site would disrupt state land and resources; (e) the road would increase access through the area; (f) the site is within 350 feet of a small body of surface water; (g) the oil, if it was an oil well, would be trucked out, which is prohibited by the Consent Order; (h) the present road would need to be upgraded--presently, it is a two-track trail and it is not maintained by state or local units of government; (i) there are feasible and prudent alternatives to truck and pipeline transport; and (j) a pipeline would require another crossing of the Black River.

Dr. Inman commented on particular statements contained in the EIA submitted by Hobson with its the application for permit to drill the Schommer 2-15 Well. (Exhibit P-12). The EIA states that elk are the only endangered species in the vicinity. Dr. Inman testified that in addition to elk, there are eagles and osprey in the northern part of the Forest and the pine marten was recently introduced to the Pigeon River Country State Forest. The EIS contains a list of endangered and threatened wildlife species in PRCSF. (Tr, p 241; Exhibit R-27, p 161). The Hobson EIA states that drilling and completion of a well will cause noise for a short, possibly two-week, period. Inman testified that transportation of product out of the Pigeon River area, if it is by truck, would be a continuous noise during the life of the production of the well. (Tr, p 243). The type of noise caused by trucks is a disturbance to elk. (Tr, p 243-244).

Page 3 of Hobson's EIA (Exhibit P-12, p 102) states that the location of production equipment in relation to the wellhead cannot be ascertained at the present time and future development may dictate use of a central tank battery and separator installation. Dr. Inman stated that nothing in the Consent Order prohibits this type of equipment, but oil and gas development that has occurred in the PRCSF is based on a holistic plan that sets forth the location of the wells and the production facilities. (Tr, p 244). Wells and production facilities are planned in total beforehand to be the most environmentally sound way of proposing oil and gas development. The production facilities and pipelines are planned prior to permitting any one well or production facility. (Tr, p 245).

Page 4 of Hobson's EIA states that air quality will be minimally affected during testing because the gas produced will be flared. Dr. Inman pointed out that flaring is not allowed in the Pigeon River Country State Forest. (Tr, p 245).

Dr. Inman testified that in its EIA, Hobson did not mention the possibility of a directional drill under the "Possible Alternatives" section of the EIA. (Tr, p 246).

Exhibit P-18 is an application by SWEPI for a drill location. According to Inman, SWEPI may not need to submit a more detailed EIA to the DNR than what is included in Exhibit P-18. However, there is a review of the entire hydrocarbon which would include the particular well involved in Exhibit P-18, before DNR authorization by an internal DNR team made up of experts from various disciplines and there is a review of the proposal and application by members of the Pigeon River Advisory Council. (Tr, p 247).

Donald L. Inman testified that if Hobson Petroleum could comply with all conditions in the Consent Order, with the sole exception that the well would be located north of the no-drill boundary, he still would recommend denial of the drilling permit because it would be impossible for Hobson Petroleum to comply with all conditions of the Consent Order with the one exception. (A Tr, p 3). ⁽⁵⁾ The condition in the Consent Order limiting crossing of the Black River would be violated if gas product was piped from the site. If petroleum products were trucked from the site, that would violate a condition of the Consent Order. (A Tr, pp 3-4).

Additionally, according to Inman, the DNR must deny Hobson's application because it is duty-bound to follow the Pigeon River Country State Forest Hydrocarbon Development Act, MCL 319.121et seq; MSA 13.140(51) et seq, which prohibits drilling north of the no-drill boundary. (A Tr, p 4). The DNR is responsible for reducing to the extent possible and feasible, the environmental impacts from oil and gas development in the Pigeon River Country State Forest. Id. There would be a significant adverse impact in the area because the Schommer 2-15 Well site would require either another crossing of the Black River or trucking of petroleum product. There is a feasible and prudent alternative for producing the reservoir, if it is productive, with less environmental impacts. (A Tr, p 4).

Inman stated that the DNR developed a PRCSF oil and gas management plan for the entire Forest, instead of looking at wells on a site-by-site basis. (A Tr, p 5). The DNR recognized that it would be impossible for it to manage the PRCSF for each competitive oil and gas development proposal. Id. In other words, the DNR could not fulfill its duty to protect the environment by taking each site one at a time and deciding the merits of that particular site without having a total plan in hand. (A Tr, p 5). The DNR provided an alternative to site-by-site evaluations and embodied the DNR's perspective in legal documents that were defended through court actions to the Michigan Supreme Court. (A Tr, p 5).

Part of the difficulty with the Hobson application is to decide whether a 200 x 200 foot drilling pad, in and of itself, would cause a significant adverse impact. Id. The DNR cannot deal with the ecosystem by only looking at the drilling pad at each individual well location. The DNR is required to deal with the environment in to-to and examine not only the drilling pad, but the transportation of hydrocarbon product from the pad, the upgrading of the road, which is going to occur as a result of machinery moving to and from the well location, and other environmental impacts as they relate to potential development of hydrocarbon products throughout the forest. (A Tr, pp 5-6).

The no-drill boundary was chosen with a number of environmental parameters in mind. Mr. Inman admitted that it is very difficult from any ecologist's viewpoint to draw straight lines in the environment because the environment does not act linearly. The no-drill line is the best attempt and, according to Inman, it has passed several environmental public hearings and legal tests. (A Tr, p 6).

Dr. Inman testified that the development of the PRCSF River Oil and Gas Management Plan and the EIA was intended to include the private in-holdings within the Pigeon River Country State Forest, as well as public lands. (A Tr, p 6). The reason for this is from an ecological standpoint, the environmental parameters, whether vegetation or wildlife, do not recognize ownership boundaries. (A Tr, pp 6-7).

Dr. Inman testified that he was committed to helping Hobson Petroleum find an alternative to drilling at the proposed Schommer 2-15 Well location. (A Tr, p 7). Inman attempted to find a location that would be consistent with the Consent Order and be protective of the environment.

Dr. Inman proposed that the Schommer 2-15 Well be drilled from the Rupp-State Forest 1-21 well location. (A Tr, p 7). Inman suggested that site because the Rupp 1-21 lies immediately south of the no-drill boundary and the 80-acre drilling unit on which Hobson proposes to drill. Id. The Rupp 1-21 Well site has already been cleared and the well could be drilled from that site with an extension of the drilling pad. (A Tr, p 8). Use of the Rupp 1-21 location would allow use of a common pipeline corridor to take product out of the facility site. Id. Additionally, the Rupp 1-21 is south of the Black River, which would negate another pipeline crossing and the potential for impacts from a pipeline crossing of the Black River, consistent with the Consent Order. (A Tr, p 8).

The state of Michigan owns the surface location at the Rupp 1-21. Id. Donald L. Inman obtained the permission of SWEPI, who owns the Rupp 1-21 Well, to have another well site adjacent and contiguous with the Rupp 1-21. Id.

The Unit Operator for Unit 1 of the PRCSF is SWEPI. (A Tr, p 13). The Consent Order requires a Unit Operator. Id. A Unit Operator concept was adopted to reduce surface disturbance by requiring several leaseholders to cooperate in the way they produce hydrocarbons by drilling one well instead of two or three wells on a competitive basis. (A Tr, p 13). The Unit Agreement states that SWEPI is the operator in PRCSF and others share in the expenses and royalties. Id.

Sections 19, 20, 21, and part of 22 of Forest Township, T33N, R1W, Cheboygan County, are included in the Consent Order as the lease extension area. (A Tr, p 15). The Consent Order was incorporated by reference in the Pigeon River Country State Forest Hydrocarbon Development Act of 1980. (A Tr, p 15). Under the Act, SWEPI is the Unit Operator in the PRCSF, including Section 21 of Forest Township. (A Tr, p 16).

According to Dr. Inman, SWEPI has indicated to Hobson Petroleum that, under certain specifications, they would drill the Schommer 2-15 Well. Exhibit R-51 is a letter from SWEPI to Hobson setting forth the specifications for drilling the Schommer 2-15 Well. (A Tr, p 17).

Using the standard of Michigan's Environmental Protection Act, MCL 691.1201 et seq; MSA 14.528(201) et seq, Inman believes that the Rupp 1-21 site is a more environmentally acceptable site and is a feasible and prudent alternative to the proposed Schommer 2-15 Well site. (A Tr, p 20). On cross-examination, Dr. Inman testified that in a letter dated March 21, 1986 (Exhibit R-10), he was unwilling to recommend issuance of a drilling permit to Hobson because there is a Consent Order and Consent Judgment, each of which contain a no-drill boundary. The location of the proposed Schommer 2-15 Well was above the no-drill boundary. (A Tr, p 23).

Dr. Inman explained that the boundaries of the Pigeon River Country State Forest were developed by the DNR and set by the Natural Resources Commission. (A Tr, p 32). Exhibit R-52 contains a postscript of action taken by the Natural Resources Commission on December 7, 1973, which dedicates the Pigeon River Country State Forest. (A Tr, pp 33-34). Exhibit 52 proposes to dedicate as the PRCSF only state-owned lands lying within the acreage described. (A Tr, p 35). Exhibit 52 does not propose to dedicate any privately-owned lands. Id. Mr. Inman admitted that the unit covered by the Hobson Petroleum application for the Schommer 2-15 Well is on privately-owned land. (A Tr, p 36). The state owns neither the mineral nor surface estate. Id.

The Consent Order entered into between the DNR and oil companies states that there will be no drilling on privately-owned lands north of the no-drill boundary. (A Tr, p 36). Inman admitted that the Consent Order was not signed by Hobson Petroleum nor Schommer. Id.

Dr. Inman testified that in consideration for entering into the Consent Order, oil companies got something in exchange for not drilling above the no-drill boundary. (A Tr, pp 39-40). The companies received extensions of leases that the State of Michigan had given them. (A Tr, p 40). The oil companies also agreed that they would not initiate any drilling activities on private leases. Id.

Inman explained that Exhibit P-3 is not the only Unit Agreement that exists for the Pigeon River Country State Forest. (A Tr, p 43). There are at least a couple of other units, but none of these units have included the proposed location of the Schommer 2-15 Well. (A Tr, pp 42-43). There was never a unit agreement that relates to the Rupp-State Forest 1-21 and State Forest 2-22 Wells. (Tr, p 43).

Dr. Inman clarified his understanding of how pipelines cross rivers in PRCSF. Pipelines crossing rivers in the Pigeon River Country State Forest are done by the plow-in method, which does not involve a trenching technique on the bottom of the river. (A Tr, p 44). The pipe is pulled underneath the bottom of the river; if there is a trench, it is not exposed to the bottom of the river. (A Tr, p 44). Any time a pipeline crosses a river, there is a generic concern of the possibility of an accident or a spill, particularly as the pipeline ages. (A Tr, p 49). A pipeline within a pipeline to insulate against leakage might be a possible technique to reduce environmental concerns. (A Tr, pp 49-50).

Dr. Inman did not know what investigation was done and what efforts were made by the DNR to avoid the necessity of exceeding a 30 degree deviation limit in conjunction with the directional drill of the Rupp-State Forest 1-21. (A Tr, p 53).

Dr. Inman testified that the no-drill boundary was drawn by stepping up through the sections and using some natural features. (A Tr, pp 53-54). The final line was drawn consistent with what the DNR knew about oil and gas development after looking at the developmental aspects of the Pigeon River Country State Forest. (A Tr, p 54). The DNR had a productive corridor that was one mile to one and a half miles wide through the PRCSF. Id. The no-drill boundary was then drawn along quarter section lines based on the northern limit of where the productive corridor might occur. (A Tr, pp 54-55).

Petitioner examined Dr. Inman regarding page 156 of the EIS (Exhibit R-27), which states that the final line for the no-drill boundary is somewhat arbitrary because any linear line in the environment is somewhat arbitrary. (A Tr, pp 56-57). Dr. Inman testified that he could not characterize the decision-making process for the development of the plan that included the no-drill boundary as arbitrary when it has withstood three court cases and a tremendous amount of public input. (A Tr, p 58). The decisions that went into the no-drill line were a part of the denial of the application for the proposed Schommer 2-15 Well. (A Tr, p 58).

Dr. Inman testified that much scientific knowledge and controls on protecting the environment in PRCSF went into developing the no-drill boundary and even if there was not a no-drill boundary, the DNR would still deny the Hobson application. (A Tr, p 60).

Dr. Inman was unaware of any affects on wildlife, forest products, surface waters, the Black River and wetlands adjacent to the Black River, or environmental impacts caused by the Rupp-State Forest 1-21 and State Forest 2-22. (A Tr, pp 62-64). How the surface location proposed in the Hobson application differs from the surface location of the Rupp-State Forest 1-21 is set out in Inman's February 18, 1987 letter, which was admitted as Exhibit R-5.

According to Inman, the DNR did not view any seismic data in making its decision to deny Hobson's application. (A Tr, p 65).

Inman admitted that Hobson could eliminate the concern about constructing another production facility by having the Schommer 2-15 Well transport its product to Shell's central production facility. (A Tr, p 67).

When he wrote the February 18, 1987 memo recommending denial of Hobson's application (Exhibit R-5), many thoughts crossed Inman's mind, one of which was the DNR's continual question to Hobson whether it could comply with the Consent Order. (A Tr, p 68). The last answer the DNR received from Hobson was that there was no way that it could. Id.

Moving the well location southeast would reduce, but not alleviate, the DNR's concern that the well location was within 350 feet of a pothole. (A Tr, p 70). According to regulations, wells on state owned lands must be located at least a quarter mile away from surface waters. (A Tr, p 71). This standard is also applicable to privately-owned lands within the Pigeon River Country State Forest pursuant to the Consent Order. (A Tr, p 71).

Continuing cross-examination on July 21, 1988, Dr. Inman testified that after an application for a drilling permit is filed with the DNR for a well in the PRCSF, a site inspection or investigation is done. (Tr, p 500). On-site investigators analyze the EIA that accompanies the application. Id. Because the DNR issued permits for SWEPI to drill the Rupp-State Forest 1-21 and the State Forest 2-22, it can be inferred that the DNR agreed with the EIAs submitted by SWEPI. (Tr, p 501). Exhibits P-18 and P-19 include the EIAs submitted by SWEPI. Inman admitted that each SWEPI EIA, similar to Hobson's EIA, states that no endangered wildlife species are known to inhabit the site area. (Tr, pp 501-502). The EIA submitted by SWEPI does not have a specific reference to the impacts from trucking. (Tr, p 507).

Dr. Inman stated that the site review for the Hobson application was completed January 23, 1987, which is almost one year after the application was submitted, because Hobson's application did not appear to be consistent with the Consent Order and applicable statutes. The field review was postponed pending discussions with Mr. Hobson. (Tr, p 509).

Dr. Inman is prepared to recommend issuance to Hobson Petroleum of a permit to directionally drill a proposed well from the Rupp-State Forest 1-21 surface location. (Tr, p 511). Dr. Inman was aware that a directional drill from the Rupp-State Forest 1-21 surface location would take longer, be more expensive, be more complex from a technical standpoint, and it would be harder to hit the target formation. (Tr, p 512).

Inman admitted that the interests of the Schommers are not specifically provided for in the EIS or Consent Order. (Tr, pp 514, 515). The Unit Agreement does not cover Schommer's land. (Tr, p 550). There is not a Unit Operator for the lands that lie north of the no-drill boundary. (Tr, p 518).

Dr. Inman stated that the State of Michigan is prepared to purchase the surface and mineral rights from Mrs. Schommer. (Tr, 515). Exhibit R-16 is a note that shows a January 11, 1985 discussion between the DNR and Mrs. Schommer about purchasing her land in the PRCSF. (Tr, p 516). She was not interested in selling according to the note.

Donald L. Inman testified that the only thing Hobson Petroleum would have to do in order to convince the DNR to issue a drilling permit would be to have Hobson concur that it would abide by all the provisions of the Consent Order and statutes. (Tr, p 531).

On redirect examination, Inman pointed out that SWEPI has agreed to abide by all the terms of the EIS for drilling in the Forest. (Tr, p 540). SWEPI did not pay for any part of the EIS, it was wholly developed by the DNR. SWEPI was required to pay for studies of the impact of hydrocarbon development on recreationists and wildlife. (Tr, p 541).

Exhibit R-44 is a letter to J. D. Hughes of SWEPI from Ronald O. Skoog, then Director of the DNR, which was drafted by Dr. Inman. The letter discusses the question of ground water contamination and recommends a change in the method of drilling in the PRCSF. (Tr, pp 543, 546). Chlorine contamination appeared to come from mud pits. (Tr, p 547). Presently, mud drilling fluids are transported out of the PRCSF and they can no longer be disposed of on site. (Tr, p 548).

For ecological purposes, Inman believes that the original no-drill boundary contained in the EIS would have been the best boundary. (Tr, p 551). The present boundary, which is located further north of the original boundary, was the result of further negotiation between the parties. (Tr, p 551).

The Unit Agreement was amended specifically to include the Rupp-State Forest 1-21. (Tr, p 552). The DNR is willing to amend the Unit Agreement to include the proposed Schommer 2-15 Well. (Tr, p 554).

On recross examination, Dr. Inman stated that he believes that the DNR can regulate privately-owned lands within the PRCSF boundary and that the DNR can prohibit certain activities within the PRCSF on private lands. (Tr, p 556). With respect to oil and gas development on private lands within the PRCSF, development can only take place consistent with the Consent Order and applicable statutes. (Tr, p 557).

In answer to questions from the ALJ, Dr. Inman stated that he considers Mrs. Schommer's land as within the boundaries of the Pigeon River Country State Forest and as part of the Forest for the purpose of controls for oil and gas development. (Tr, pp 560-561).

Dr. Inman testified that the Pigeon River Country State Forest was created because of a public interest in the Pigeon River area, its uniqueness and for its preservation. (Tr, p 562). The boundaries of the Forest were designated so that the particular area could be treated nearly as equal as possible. (Tr, p 563). The designation of the PRCSF boundaries are all inclusive; the DNR indicated the manner it was going to treat this particular area within the PRCSF boundaries. Id. The boundaries of the PRCSF were created before the EIS, Consent Order, Consent Judgment and PRHDA.

In the Pigeon River Country State Forest Hydrocarbon Development Act, the legislature found that the Consent Order is an appropriate hydrocarbon development plan for the PRCSF. (Tr, p 564). The legislature found that the Consent Order, embodying all of the controls that it does, including a no-drill boundary, is the way to develop oil and gas reserves in the Pigeon River Country State Forest. Id. Designation of the PRCSF did not condemn private lands, it was not a statement of ownership, but it was a way to manage the resources within the PRCSF boundary. The resource were going to be managed consistently. (Tr, p 565).

The Unit Operator uses contractors to perform various jobs relating to drilling and completing wells. (Tr, p 567). Inman admitted that there is nothing that would stop Hobson from using these same contractors. Id. However, the permittee controls how the contractor operates on site. (Tr, p 568). SWEPI has been operating in the PRCSF for a number of years and they have a proven previous record. Id. Dr. Inman was not aware of Hobson's record. Id. Dr. Inman conceded that there is not much of a difference between putting a flow line under the Black River and having a directional drill under the Black River other than the depth. (Tr, p 572).

Gary Boushelle

Respondent's second witness was Mr. Gary Boushelle. Mr. Boushelle has been employed by the DNR for 23 years as a wildlife biologist. At the time of the hearing, Mr. Boushelle was the regional wildlife biologist supervisor for the northern half of Michigan's Lower Peninsula. His region includes the Pigeon River Country State Forest. (Tr, p 249).

Boushelle began working for the DNR as a wildlife biologist in 1965. (Tr, p 250). From 1969 to 1972, he was assigned to work in the Pigeon River Country State Forest at the Atlanta Field Office. Id. From 1972 to 1976, he was assigned to Lansing. In 1976, Boushelle was reassigned to the Roscommon Regional Office, where he had the responsibility of being the assistant regional wildlife supervisor and he was appointed by DNR Director Tanner to be the on-site DNR representative to implement the oil and gas management plan for the Pigeon River Country State Forest. (Tr, p 250). Presently, Mr. Boushelle directs the wildlife staff and provides administrative support for wildlife activities in the Pigeon River Country State Forest. (Tr, p 251).

Mr. Boushelle testified that he was involved as a field biologist in implementing plans for elk management and he assisted in the development of the final plan for elk management. Id. Presently, Mr. Boushelle is involved with the overall recommendations pertaining to the elk management on the Forest, which includes habitat development, hunting season, and regulation formulation. (Tr, p 251).

In studying elk, as far as species management, Boushelle was required to have a thorough knowledge of elk biology and elk management, both in Michigan and other states. Id. He performed on-site evaluation of elk habitat quality. He prepared habitat management plans to enhance the habitat in the Forest. Mr. Boushelle was also involved in the annual census of the elk and studies that determined elk population distribution. (Tr, p 252).

Administratively, Mr. Boushelle was involved in the pine marten program. Id. Habitat quality and habitat needs of the pine marten indicated that there was a potential for a release of the mammal in the PRCSF. Pine martens were ultimately introduced to the northern portion of the Pigeon River Country State Forest. (Tr, p 252).

Mr. Boushelle previously testified as an expert in the Pigeon River Country State Forest case that was tried in the Ingham County Circuit Court. (Tr, p 253). Gary Boushelle was admitted to testify as an expert in the area of wildlife biology, specifically in the PRCSF. (Tr, p 252).

Prior to oil and gas development in the Forest, biologists were concerned about the detrimental or adverse affects on elk, black bear and bobcat if there was uncontrolled, unregulated gas and oil development. (Tr, pp 253-254). The primary expected detrimental affect was the loss of habitat quality, which would result in a population reduction. (Tr, p 254).

There has not been a decrease in the elk population in the Pigeon River Country State Forest since oil and gas development was allowed in the Forest. Id. Mr. Boushelle opined that the elk population had not decreased because of the measures that were taken in preparing the hydrocarbon development plan. The plan mitigated the potential impact that standard oil filed operations would have on the elk resource. (Tr, p 256). The mitigating factors include: (a) limiting the location of oil well sites to areas where there would be minimal impacts; (b) the requirement of directional drilling to limit road access, limit the size of access road and restrictions on how heavy equipment would ingress and egress the drilling site; (c) a Unit Agreement that allowed only one operator, who had a single contact person with whom Boushelle would work regarding enforcement of DNR regulations and the Consent Order; (d) flow lines and central production facility operations were controlled to reduce odors and noise; (e) drilling noise levels were developed and monitored to reduce the impact of noise; (f) the location of pipelines and pipeline crossings were controlled and designed to reduce impacts on the elk population; and (g) a no-drill boundary so that drilling was permitted in limited areas and other portions of the Forest were left undisturbed where animals could range. (Tr, pp 257-258).

The above mitigating factors apply to elk, bear, and bobcats. (Tr, p 258). Because of tight controls, bald eagles have nested in PRCSF for three years. Id. The bald eagles are located on the Dog Lake Flooding area, which is about three and a half miles north of the no-drill boundary. (Tr, pp 258-259).

On January 23, 1987, Boushelle visited the site of the proposed Schommer 2-15 Well. (Tr, p 260). On February 5, 1987, Boushelle prepared a memorandum (Exhibit R-7) wherein his final recommendation was that the wildlife resource impacts identified in the EIS (Exhibit R-27, pp 191-194) would not be reduced or eliminated. Id.

In Hobson's EIA, Boushelle did not find that there would be a reduction on the intrusion to the area by drilling equipment. (Tr, p 261). The EIA did not address how production equipment would reduce the impact that it would have on wildlife species in the area. (Tr, p 262). Boushelle opined that tanker truck removal of product from the well site would be disruptive of the wildlife in the area. (Tr, p 262).

On cross-examination, Boushelle stated that he had experience with 15 wells drilled in the Pigeon River Country State Forest as the enforcement officer for well site selection and implementation of the Consent Order and oil and gas management plan. (Tr, pp 264-265). Mr. Boushelle responded to one complaint regarding odors from a production facility in the PRCSF. (Tr, p 266). Mr. Boushelle heard complaints regarding the drilling fluids or brine associated with the drilling of all 15 wells in which he was involved in the Forest. (Tr, p 269).

Boushelle admitted that pine martens live elsewhere in Michigan and are more abundant in other areas in Michigan. (Tr, p 272). Pine martens are related to the weasel and the DNR believes that they will provide a very important and valuable fur-bearer resource. (Tr, p 329). Pine martens can survive and reproduce within Michigan outside of the boundary of the Forest. Id. The same is true for elk, bear, and bobcat. (Tr, pp 272-273). The Michigan elk herd is very mobile and on one day, 30 percent of the elk can be outside of the Forest and the next day they can all be back within the boundary of the Forest. (Tr, p 274).

In 1964, the first elk hunt was licensed. The hunt was repeated in 1965. (Tr, p 277). The elk hunt was then discontinued. Elk hunts were reinitiated in 1984. (Tr, p 277). (See Exhibit P-21 for elk hunt statistics).

Michigan has a bear hunting season. Approximately four or five bear were killed in Pigeon River Country State Forest in 1987. (Tri, p 278). The number of bear killed would be the same for each year back to 1984. Id.

Michigan has a bobcat hunting season. (Tr, p 279). Mr. Boushelle did not know the number of bobcat killed in the Forest or statewide, but the largest population of bobcat within the state is in the Upper Peninsula. (Tr, p 280). The total population of bobcat in the Lower Peninsular is greater outside of the PRCSF than the number of bobcat inside the Forest. (Tr, p 280).

According to Boushelle, the bear and bobcat populations are fairly stable, but there are fluctuations from year to year. (Tr, p 282). The non-development area is where the highest population for bear and bobcat exist. (Tr, p 283). When the DNR traps nuisance bears in the upper part of the Lower Peninsula, they are released in the non-development area of the Forest because of the quality of the bear habitat. (Tr, p 283). Each year many bear are deposited in the Dog Lake Flooding area in the non-development area because of the solitude of the area, the quietness, the low disturbance factors, and because it is primarily state forest lands. Id.

In the PRCSF, there are more elk south of the no-drill line than there are north of the no-drill line. (Tr, p 283). The DNR has set population objectives for elk and the DNR is attempting to redistribute the elk population within the Forest and the entire elk range. (Tr, p 288). The DNR's elk management plan calls for an increase in the elk population in the northern part of the Forest. Id. The DNR is taking steps to move the elk population by developing quality habitat and through recreational sport hunting in parts of the range where elk are associated with agricultural damage. (Tr, p 289).

The nesting bald eagles arrived in Michigan in March 1985. (Tr, p 290). The eagles nest approximately four to five miles west of the proposed drilling unit. (Tr, p 289). Presently, there are no nesting osprey within the Pigeon River Country State Forest. (Tr, p 291). There has been a history of nesting osprey in the Dog Lake Flooding area. Id. Some osprey fly around in the Forest and concentrate around water where they can catch fish, such as the Dog Lake Flooding area. (Tr, p 292). Osprey nest from April to August and migrate south in September. (Tr, p 293).

Mr. Boushelle stated that a drilling rig for the Schommer 2-15 Well could not be seen when standing on the level of Dog Lake. Operations from the Schommer 2-15 Well would not be audible from Dog Lake and, with prevailing winds from the west, odors produced by drilling operations would not be discernible from the west. (Tr, p 294).

Since 1969, wildlife has been the key resource that has been an issue in the propriety of any given drilling venture within the PRCSF. (Tr, p 300). The main concern that the DNR had with Hobson's EIA is that the DNR was not able to mitigate many of the impacts of oil and gas development through the one operator unitization effort. (Tr, p 312). The primary reason Hobson's application was unacceptable was not that it was above the no-drill line. (Tr, p 313). Mr. Boushelle would rather have had the no-drilling boundary located further south than the line that was established. Id.

On redirect examination, Mr. Boushelle stated that pine martens occur only in the Upper Peninsula and a small number are found in Wexford County. Pine martens are normally found in areas that have small amounts of intrusion or disruption by man. (Tr, p 317).

Pigeon River Country State Forest is an integral part of the elk range and the success of elk management in Michigan. Id. If the Forest is not properly managed for all of its resources, elk could be in jeopardy. (Tr, p 317). There is a potential for impairment of elk if drilling is allowed for the proposed Schommer 2-15 Well. (Tr, p 318).

Boushelle explained that the removal of elk by sports hunting is a short-term management tool that helps control elk population. (Tri, p 319). The removal of elk by hunting is a short-term impact, often with desired harvest goals. (Tr, pp 318-319).

Habitat management is a long-range investment. A quality habitat for elk lasts for years. (Tr, p 319). The DNR goes into compartments within the PRCSF and prepares detailed plans that it implements to protect its investment in elk. Id. A loss of habitat is a long-term loss and that is the concern that the DNR always has had regarding production of oil and gas resources in the PRCSF. (Tr, p 319).

Removal of 10 percent of the elk through hunting would be a temporary loss because the annual increase is about 16 percent. Id. The removal of 10 percent of the habitat through oil and gas production could have an impact that lasts forever. (Tr, p 319).

Bald eagles are territorial birds. The extent of their territory depends on their food source. (Tr, p 320). Bald eagles go from their nesting site to any location where they can find a good food source; they can go miles for food. Id. It is possible that bald eagles could go four miles from their nesting area to the creeks and ponds along the Black River, which could serve as a food source. Id.

On recross examination, Boushelle testified that part of the habitat improvement procedures is clear-cutting for deer, elk, snowshoe hare, woodchuck, ruffed grouse, and any non-game species that prefer to live in a growth of new stand aspen. (Tr, p 324). A clear-cut area will produce excellent habitat for the next 40 to 50 years. (Tr, p 325).

The bald eagles could go to the oil and gas development region of the PRCSF, unless there is some type of disturbance from which they would shy away. Bald eagles like undisturbed areas. (Tr, p 327). Oil and gas development activity would be a recognizable deterrent to a bald eagle. Id.

Answering questions of the ALJ, Boushelle stated that he approached the proposed Schommer 2-15 site by turning off Clark Road and taking a small two-track trail to the south. (Tr, p 329). There was woody vegetation to the roadside made up of mixed stands of pine and aspen. (Tr, p 330). There was also low wetland areas in the area, along with a creek, a river, and a pond. (Tr, p 330). The optimal wildlife recommendation would be to have no oil and gas development in the entire PRCSF. Because that did not happen, the DNR offset the impacts by mitigation of development by having a non-development area. (Tr, p 331).

Michael Bricker

Respondent's third witness was Mr. Michael Bricker. He is the geologist in charge of the subsurface and petrogeology sub-unit of the DNR's Geological Survey Division. (Tr, p 333). Bricker's duties include testifying at public hearings, conducting subsurface studies and mapping, and charting statistics of drilling for wells that are drilled in Michigan. (Tr, p 334). Mr. Bricker is the Geological Survey Division's representative to the American Association of Petroleum Geologist's Committee on Statistics of Drilling. He is the committee's development author. Mr. Bricker also prepares papers relating to drilling activities in Michigan for the Interstate Oil Compact Commission. (Tr, p 334). Mr. Bricker was an advisor and consultant with Northern Michigan Exploration Company and the DNR in proposing a means of developing hydrocarbon resources in the Sand Lakes' quiet area. Id.

Mr. Bricker opined that on an average, in excess of 20 percent of the wells that are drilled in Michigan are drilled directionally. (Tr, p 337). In 1987, 24.2 percent of the wells drilled in Michigan were drilled directionally. (Tr, p 367). The longest directional "kick" was a distance of 4,650 feet from horizontal displacement. (Tr, p 338). This well was in Otsego Lake Township, which is two townships southwest of Forest Township. Id. In Otsego Lake Township, there are seven wells that were directionally drilled that range in horizontal displacement from 3,350 feet to the maximum of 4,650 feet. (Tr, p 338).

The Rupp-State Forest 1-21 Well has a horizontal displacement of 2,640 feet. (Tr, p 339). The Rupp-State Forest 1-21 Well is located approximately one-half mile southwest of the surface location for the proposed Schommer 2-15 Well. (Tr, p 340). If the Rupp-State Forest 1-21 surface location was used to drill the Schommer 2-15 Well, the horizontal displacement would be approximately 2,640 feet. (Tr, p 340).

As the Supervisor of Wells' representative for petrogeology, Mr. Bricker testified that he must be knowledgeable in all aspects of petrogeology, exploration, and development. (Tr, p 342). Mr. Bricker has been employed on a drilling rig as the geologist in charge of drilling. (Tr, p 342). He received a Bachelor's Degree in Geology from Michigan State University and he has completed 31 credits of graduate courses in geology. (Tr, p 333). Mr. Bricker has worked for the DNR since 1973. (Tr, p 345). Mr. Bricker was qualified as an expert to give an opinion regarding the feasibility of directional drilling. (Tr, p 345).

Mr. Bricker opined that it is feasible to directionally drill a well from the Rupp 1-21 surface location to a bottom hole location approximately one-half mile away at the proposed Schommer 2-15 Well location. (Tr, p 347). Mr. Bricker was not aware of any reason why a directional drill could not be done from the Rupp 1-21 surface location. Id. Bricker was not aware of a driller encountering a loss circulation zone in the glacial drift where fresh water zones are found in the area of the PRCSF. (Tr, p 347).

On cross-examination, Mr. Bricker examined SWEPI's application for the Rupp-State Forest 1-21 Well. (Exhibit P-19). The application shows that the measured depth of the direction well is 5,800 feet. (Tr, p 352). Bricker was not asked if 5,800 feet was true vertical depth or measured depth. According to SWEPI's EIA, the true vertical depth is 4,200 feet. (Exhibit P-19, p 129). The horizontal displacement from the surface location to the bottom hole target is 2,706 feet. (Tr, p 353). The hole angle is 34 degrees to 2,660 feet. (Tr, p 353; Exhibit P-19, p 133). At 2,660 feet, a second down hole motor with bent-sub will deflect the hole until an angle of 51 degrees is reached. Id. The EIS states that deflection angles will be limited to not more than 30 degrees under normal drilling operations. (Tr, p 354).

Mr. Bricker testified that the deflection technology possible allows for a maximum "kick" in excess of 90 degrees from straight down. This deflection is possible at a vertical distance between 4,000 and 5,000 feet. (Tr, p 354). For the well Bricker recalled, the deviation from vertical began at 4,000 feet and ended at a depth slightly less than 4,000 feet. Id.

Mr. Bricker testified that it is more expensive to drill directionally than vertically. (Tr, p 357). In Mr. Bricker's opinion, it does not make a difference whether a vertical or horizontal drill is used to hit a desired bottom target. Id. There may be some chance of a defective cement job in a directional hole because the deviation of the hole from vertical may cause uneven settling and hardening of the cement. (Tr, p 357). Mr. Bricker did not believe that the risk of blow-out was different for a directional or straight hole. (Tr, p 359). Mr. Bricker opined that a directional hole can explore more of an objective formation because a deviated hole is longer in extent than a vertical hole. (Tr, p 359).

It is possible with a directional drill to only penetrate the gas cap, oil, or water in a Niagaran reef whereas a horizontal drill may penetrate the gas cap, oil, and water. (Tr, p 362). Assuming everything was equal, Bricker would rather drill a vertical hole than a directional hole. (Tr, p 371).

Jack D. Bails

Respondent's fourth witness was Mr. Jack D. Bails. Mr. Bails has been a full-time employee of the DNR since 1965. From 1976 through 1984, Mr. Bails was the chief of the Environmental Enforcement Division. (Tr, p 387). From 1984 to 1988, Mr. Bails has been or acted as Deputy Director for Forestries, which includes supervisory responsibility for eight divisions, including forest management, geological survey, forest, land and water management, fisheries, wildlife, law enforcement, and recreation. (Tr, pp 386-387).

Mr. Bails graduated from Michigan State University with a Bachelor's and Master's Degree in Fisheries and Wildlife. (Tr, pp 386-387). Mr. Bails began his career with the DNR in the Fisheries Division.

In 1975, he assumed the role of administrative assistant to the Director, which was his first involvement in hydrocarbon development in the Pigeon River Country State Forest. (Tr, p 387). In 1961, Mr. Bails began with the DNR on a part-time basis and he was assigned to the Pigeon River Country State Forest as a fisheries researcher during the summer as a graduate student. (Tr, p 387). In 1975, when he became administrative assistant to Director Howard Tanner, he was assigned the responsibility to begin further negotiations on the controversy involving the oil and gas development in the Pigeon River Country State Forest. (Tr, p 388). Mr. Bails has had a continuing involvement with the PRCSF, first as administrative assistant to the Director, later as Chief of the Office of Environmental Enforcement, and currently in his position as Deputy Director. (Tr, p 388).

Mr. Bails testified about the background and history that lead up to the 1976 Stipulation and Consent Order ("1976 Original Order"). (Exhibit R-20). Following oil and gas lease sales in 1968, in the early 1970's, there was development of wells in what is known as the Charlton Complex in the Pigeon River, prior to it becoming known as Pigeon River Country State Forest. (Tr, p 388). Following development of the initial discovery wells around Charlton, there was controversy regarding road widenings, stream crossings from pipelines, odor, possible spills, and other concerns related to relatively undeveloped state land. (Tr, p 389). This resulted in a number of actions at the DNR level and at the Governor's level to slow down oil and gas development and examine what was going on with the new Saline Niagaran formation in Michigan. Id. There was a holdup on lease sales statewide until there was some zoning. Id.

In 1973, the Natural Resources Commission established a policy involving over 90,000 acres in a new area called the Pigeon River Country State Forest. (Tr, p 389). Much of the Forest, particularly the southern two-thirds, had been leased. In 1975, the DNR considered proposals from the primary leaseholders, Shell, Amoco, and Northern Michigan Exploration, about a process where they would combine efforts to minimize impacts and jointly develop oil and gas resources that they held under lease. Id. The primary leaseholders had some independent oil companies and private property owners in agreement on various proposals. (Tr, p 389).

All development proposals were rejected in 1975 and the Governor's office made a request to the DNR to prepare an Environmental Impact Statement to thoroughly evaluate the potential impacts of oil and gas development in the PRCSF. (Tr, 390).

At about the same time, an application for a permit to drill was submitted to the DNR by an independent oil company for a site known as the Corwith 1-22 (Section 22, Corwith Township, T32N, R1W, Otsego County). Id. A permit to drill was denied for the proposed Corwith 1-22 Well and the case went through a contested case hearing, the Natural Resources Commission, and through the Ingham County Circuit Court, Thomas L. Brown, J. ⁽⁶⁾ (Tr, p 390). The DNR took the position that without a plan of development, there would be waste and significant environmental impacts in the PRCSF. Id. Until there was a plan, the DNR was not permitted to issue any drilling permits in the Forest. Id. The circuit court sustained that position with a warning that the DNR obligated itself to try to work out a plan, which it subsequently did, and that plan is the 1976 Original Order.

The 1976 Original Order divided the Pigeon River Country State Forest into four units based primarily on its prospect and likelihood of oil and gas production. (Tr, pp 390-391). The 1976 Original Order limited development to Unit 1, which was in the southern one-third of PRCSF, with special controls on drilling. The plan provided for the appointment of a Unit Operator who, with all the companies involved, would solely develop, drill, and supervise the production of hydrocarbons. (Tr, p 391). The 1976 Original Order required minimizing impacts from seismic exploration, drilling, and production, which was limited to centralized facilities. Id.

The 1976 Original Order identified the areas in which drilling could occur, areas where the DNR would work with the Unit Operator to try to find suitable surface locations to drill, and those sensitive environmental areas where no drilling would be allowed. Id. The plan proscribed drilling in wetland areas, areas within one-quarter mile of surface water, and above a no-drill boundary. (Tr, p 391).

According to Bails, the no-drill boundary was primarily designed for three purposes: (a) to reduce the number of pipeline stream crossings, particularly of the Pigeon and Black Rivers; (b) to allow development in the southern portion of the Forest where directional drilling opportunities allowed the placement of surface locations; and (c) to limit development to an area where the impact was minimized. (Tr, p 391). The 1976 Original Order also allowed the northern two-thirds of the Forest to remain relatively undisturbed. (Tr, p 392).

Mr. Bails explained that as one moves northward in the oil and gas formation, there was evidence, which was supported by later information, that the oil and gas formation moves toward the surface and there are less opportunities for directional drilling. (Tr, p 392). The opportunity for less directional drilling creates problems in terms of trying to find acceptable surface locations. Id.

The 1976 Original Order had many criteria for allowing development to occur, dictating how it was to occur and prescribing in what sequence it would occur. (Tr, p 392). However, the 1976 Original Order was never implemented. Id. It was objected to by several environmental groups, who filed an action in the Ingham County Circuit Court, Thomas L. Brown, J., File No. 76-19335-CE, which was appealed to the Michigan Court of Appeals and Michigan Supreme Court (West Michigan Environmental Action Council ("WMEAC") case). Id. The Supreme Court indicated that even with the conditions and proscriptions in the 1976 Original Order, there was likely to be a significant impairment to a number of resources in the Forest. (Tr, p 392). The Michigan Supreme Court enjoined further oil and gas development in the Pigeon River Country State Forest. (Tr, p 393).

Following the Supreme Court decision, there were a number of discussions between intermediaries in the lawsuit. During a period in excess of a year, an attempt was made to renegotiate the 1976 Original Order. Id. The revised new consent order would address some of the remaining concerns of the litigants, primarily the environmental groups, as to how development could occur with sufficient controls to assure environmental protection. (Tr, p 393).

The concerns were addressed in a proposal and, to assure that the proposal was implemented, a proposed amended stipulation and consent order was made between the DNR, oil companies, and environmental groups. (Tr, p 393). The environmental groups agreed to seek approval of the Amended Stipulation and Consent Order ("Consent Order") from the Natural Resources Commission.

The NRC and the environmental groups would then jointly petition the Legislature for endorsement of the Consent Order. Id. Specifically, the NRC and environmental groups wanted an expression of legislative policy by the passage of a statute to ensure that the DNR would follow the Consent Order. (Tr, p 393). When the legislation was passed, which is PRHDA, MCL 319.121 et seq; MSA 13.140(51) et seq, the Ingham County Circuit Court (File No. 76-19335-CE), which had affirmed the 1976 Original Order, was petitioned and the Consent Order was incorporated as a Consent Judgment. (Exhibit R-26; Tr, pp 393, 395-396).

The 1976 Original Order, the Consent Order, and the PRHDA all endorse the modified plan for development of the southern one third of the Forest. (Tr, p 394).

Under the Consent Order, two drilling boundaries were established. (Tr, p 394). One boundary was identified as a limited development area. Id. Development in that area proceeded from the southern-most section, called Unit 1-a, to the northwest section, called Units 1-b and 1-c. If the oil companies could demonstrate in each of these progressive areas that they were carrying out oil and gas development consistent with all the requirements of the Consent Order and they were not creating any unnecessary waste or environmental damage, then they could progress to the next area. (Tr, p 395).

At the end of the period to develop Units 1-a to 1-c, the oil companies could petition the DNR to extend oil and gas development into what is known as the five-year moratorium area (or lease extension area). (Tr, p 395). The DNR did not make any commitments to issue permits in the five-year moratorium area, but the oil companies could petition the DNR five years after the date of the Consent Order for a permit, if they had demonstrated in their previous sequential development that no significant environmental impacts had occurred. (Tr, p 395). Additionally, the oil companies were required to present a plan for development of the five-year moratorium area. Id. Jack Bails explained that the purpose of having both a statute, PRHDA, and Consent Order was because there was concern among the oil and gas interests, private landowners, and environmental groups that if the Legislature chose to amend the OGCA or MEPA, it might affect the Natural Resources Commission's Consent Order or the Circuit Court's Consent Judgment. (Tr, p 396). There had been a move to amend MEPA to exclude oil and gas development following the injunction issued by the Michigan Supreme Court in the WMEAC case. Id. Consequently, once the parties agreed to the Consent Order, they wanted to legislatively memorialize it by having the Consent Order recognized and established by statutory authority and enforcement. (Tr, p 396).

In negotiating the terms of the Consent Order and in working with the passage of PRHDA, Mr. Bails testified that he was not involved in any discussions that intended to exclude private lands from the terms of the Consent Order. (Tr, p 397). In negotiating, Mr. Bails realized that private land would be covered by the Consent Order. (Tr, p 399).

Mr. Bails explained that privately-owned lands were central to some of the original development proposals because about 10 percent of the total ownership within the Pigeon River Country State Forest is in private hands and much of that was under oil and gas lease. (Tr, p 399). Part of the incentive for the development of the Unit Agreement and part of the difficult decision faced by the DNR was to provide some incentive for private landowners to join in the agreement. Id.

Through the Unit Agreement, private landowners were given the option of sharing in royalties, by having them join a pool with the state, regardless whether oil and gas was underlying their land. (Tr, p 399). Under the agreement, if there was oil and gas development anywhere, the private landowner would share on a prorated basis. (Tr, p 400). Each property owner and the leaseholders were given an opportunity to share in the royalties or they could opt out. (Tr, p 400). Each development well had a participating area and the owners could share on that basis. Id. It was not to the state's advantage, monetarily, to share royalties, but it was a way to reduce the impacts and provide encouragement to private landowners. Id.

Because of other litigation, at the time, the DNR recognized that it had to try to attempt to accommodate all the various interests within the PRCSF if the DNR was going to be successful in controlling the oil and gas development. Id. The DNR could not control development on state land only and have uncontrolled development on the 10 percent interest in private holdings. (Tr, pp 400-401).

A March 2, 1986, memorandum to the Chairman, Pigeon River EIS Committee, from Bails (Exhibit R-32) addresses a major concern regarding what mechanism, authority, or power the DNR had to assure that oil and gas development would not occur on private lands regardless of what agreements were made in relation to public lands. (Tr, p 408). The memorandum details the financial encouragement the DNR gave to the private landowners to encourage them to get involved with the Consent Order. Id. The criteria that was developed by the DNR was ownership neutral because it applied regardless whether the land was privately or publicly owned. (Tr, p 408). The DNR believed that if a well should not be drilled at a surface location on public land for specified reasons, for the same reasons, the well should not be drilled on private land. (Tr, p 408).

There are reasons in addition to those stated in the Consent Order why the DNR could deny a particular drill site, such as critical habitat, historical significance, or the location of a campground. (Tr, p 407). There is so much negotiability in finding a suitable surface location and still reaching a bottom hole target by directional drilling that there have not been problems avoiding surface locations in the PRCSF. (Tr, pp 407-408).

Jack D. Bails believes and it was always his suggestion, that because Hobson's mineral interests are in close proximity to the no-drill boundary, Hobson could reach its target from approvable sites south of the no-drill boundary. (Tr, p 411). In 1984, when Bails first communicated with Petitioner about the Schommer lease, Mr. Bails was optimistic that an approvable site could be found and, based on his present discussions with staff, there is a surface location from which Hobson can reach its bottom-hole target and be consistent with all the requirements of the Consent Order and PRHDC. (Tr, p 411). The recommendation of the DNR staff is to place the well surface location on the site of the Rupp-State Forest 1-21 Well and the DNR could provide an opportunity for Hobson to directionally drill the bottom-hole target. (Tr, p 414).

Mr. Bails testified that he has visited virtually every site that has been drilled and produced or drilled and abandoned within the Pigeon River Country State Forest. (Tr, p 420). Mr. Bails testified that based on the information available to him, he is satisfied that the surface location of the Rupp-State Forest 1-21 Well is a feasible location for drilling the subsurface target requested by Hobson Petroleum. (Tr, p 423). Taking into account environmental factors, the Rupp-State Forest 1-21 surface location is a prudent alternative for drilling to the subsurface location that Hobson Petroleum requested because the surface location was previously reviewed for SWEPI and SWEPI drilled a directional hole with equal or greater horizontal deviation. (Tr, pp 423-424). The bottom-hole location of the Rupp-State Forest 1-21 is almost directly beneath the Black River or in a very wet area adjacent to the Black River. (Tr, p 426).

There are no unusual circumstances or information that has developed since the first approval to SWEPI that indicates that the Rupp 1-21 site is not prudent. Id. Mr. Bails opined that directional drilling is a prudent approach based on the experience of the Unit Operator in the Forest and that directional drilling is a very safe and reliable alternative method for reaching bottom-hole targets. (Tr, pp 424-425).

On cross-examination, Jack D. Bails testified that the area in which drilling is allowed under the 1976 Original Consent Order is larger in aerial extent than the area in which it is recommended that drilling would be prohibited in the EIS. (Tr, p 436). The area in which drilling is allowed under the Consent Order is expanded further. (Tr, p 436). In addition, the Consent Order further expanded the area authorized for drilling by adding the five-year moratorium area. (Tr, p 437).

The no-drill boundary has not been modified since the Consent Order was executed. (Tr, p 439). Mr. Bails admitted that environmental conditions within the Forest have changed since the original EIS. Id. The environmental changes perhaps, in part, justified granting permits to drill in the five-year moratorium area, but the primary justification was the demonstrated effectiveness of the controls in the southern part of the Forest. Id.

Mr. Bails had some concerns whether Hobson Petroleum Corporation is capable of complying with the drilling restrictions that are imposed upon operators in the Forest. (Tr, p 441). Bails has concerns because there have been problems in the Pigeon River Country State Forest with the Unit Operator complying with the complicated and unusual restrictions on hydrocarbon development. (Tr, p 441). Bails believes that a new operator would have serious difficulty meeting all the requirements, which he describes as very complicated and sensitive, regardless whether the new operator is an independent or major oil company. Id.

Mr. Bails testified that since the first well was developed in the PRCSF: a) the DNR has had hundreds of meetings regarding controls with contractors, subcontractors, drilling operators, and others working within the Forest; b) it has conducted special training sessions; c) it has had experiences with brine spills; and d) it has developed an immediate recovery and response system. (Tr, pp 441-442). Mr. Bails opined that it would be extremely difficult for another company to come into the Forest and try to successfully meet all the requirements. (Tr, p 422). For example, the DNR has a complicated system on immediate response that is very unusual in the area. Id.

The drilling restrictions within the PRCSF are not all set out in the Consent Order. (Tr, p 442). There have been numerous subsequent agreements between the Unit Operator and the DNR that deal with every aspect of hydrocarbon development, including: a) response modification procedures; b) use of steel tanks for disposal; c) excavation of brine pits; d) re-covering and testing of brine pits; e) hydrogeological studies to monitor the ground water in order to trace, pump, and perk previous spills; f) road construction agreements; g) limits on size of equipment; and h) times of the year when drilling is allowed. Id. Some of these subsequent agreements are set out in letters of agreement between the Unit Operator and the DNR and others have been conditions of the various drilling permits. (Tr, pp 442-443).

Bails stated that one of the reasons why the DNR wanted a single Unit Operator was to build a trust, reliance, education, and experience for what was recognized as a very unique set of circumstances with very tight controls. (Tr, p 443). The DNR insisted upon a single Unit Operator because it knew that in trying to implement something unique, it could not forecast all of the kinds of conditions and controls that were going to be necessary. Id. Consequently, the DNR needed a Unit Operator who was willing to work with the Department and who would allow the DNR to modify its conditions and concerns so that the intended purpose of minimizing the environmental impacts in the Forest could be accomplished. (Tr, p 443).

Bails testified that SWEPI has the contractual obligation as Unit Operator to meet all reasonable requests for drilling within the PRCSF where drilling is authorized under the Consent Order. (Tr, p 445). Mr. Bails believes that SWEPI has a contractual obligation to drill and he would move, as Deputy Director of the DNR, to ask the Attorney General to pursue the matter in Court if SWEPI refuses to carry out their legal obligations. (Tr, p 446).

The Unit Agreement (Exhibit R-19) identifies the obligations of the Unit Operator and its relationship to the Director of the DNR and the Supervisor of Wells. (Tr, p 451). The Consent Order, the Consent Judgment, and the PRHDA require Unit Agreements to be in place prior to drilling in the PRCSF. (Tr, p 453). The substance of the original Unit Agreement has been incorporated into subsequent Unit Agreements. Id. A Unit Agreement does not presently exist for the Schommer land. (Tr, p 454).

Mr. Bails stated that the DNR has authority to force Shell Oil Company to include Mrs. Schommer's land in an existing Unit Agreement. (Tr, p 453). However, the Unit Agreement does not give the DNR authority to determine the price that SWEPI will charge for the service the DNR orders it to render. (Tr, p 455). The authority to set the price has been worked out in agreements between the leaseholders and the Unit Operator. (Tr, pp 455-456).

Bails testified that the DNR has the authority to issue to Hobson Petroleum a permit to drill which requires SWEPI to be the operator, and SWEPI has the obligation to be the operator. (Tr, p 456). If SWEPI sets an unreasonable rate, Bails assumes Hobson has the right to contest it. (Tr, p 456). When it issues a permit, the DNR has the authority to set the conditions under which the permit can be exercised, including the time to drill. (Tr, p 457). SWEPI has agreed in a separate document that the DNR can control the time of year when drilling can commence and must end in the PRCSF. (Tr, pp 457-458).

The Unit Agreement would not allow Hobson Petroleum to drill the well with a Shell representative on site directing Hobson's drilling activity. (Tr, p 461).

The Natural Resources Commission has the authority to dedicate boundaries of a state forest and to direct the DNR staff to acquire private inholdings through whatever legal process is available. (Tr, p 463). Without following proper procedure, the Natural Resources Commission cannot summarily change the title of ownership from private to state. Id.

Bails admitted that on December 7, 1973, the Natural Resources Commission did not have the authority, without the cooperation of Mrs. Schommer, to dedicate her land to the Pigeon River Country State Forest. (Tr, p 464). The NRC did have the ability to dedicate the privately-owned lands within the PRCSF boundary as a target area for acquisition and control. (Tr, p 464).

Bails believes that SWEPI, as Unit Operator, would have the obligation to allow Hobson to use central production facility ("CPF") located east of the Rupp-State Forest 1-21 (Forest 24 CPF). (Tr, 474). Mr. Bails believes that the DNR has the authority to compel SWEPI to do whatever the DNR thinks is best under all the circumstances because, in addition to the contractual obligations, state-owned land surrounds nearly all of the CPF and the state can control it through propriety interest. (Tr, p 477).

Regarding notice to Mrs. Schommer, Bails testified that there have been at least 50 to 100 public meetings throughout the state, with public notice to virtually everyone in every paper in the state, about private landowners' rights within the boundaries of the PRCSF and their opportunity to participate in the Consent Orders. (Tr, p 481). There has been extended litigation that has been highly publicized. Id. At last count, 37 editorials have appeared in the Detroit Free Press about hydrocarbon development in the PRCSF. (Tr, p 481). Mr. Bails believes that it is common knowledge to anyone who had an interest that there were on-going negotiations for resolution of the dispute over mineral interests in the Pigeon River Country State Forest. (Tr, pp 481-482).

The State of Michigan has made offers to purchase Mrs. Schommer's land. (Tr, p 482). The state has not made an offer to purchase the oil and gas in place. Id.

According to Bails, the DNR has received inquiries regarding development from private landowners north of the no-drill boundary, but none of the inquiries have resulted in legal challenges. Id. Mr. Bails states that if a private landowner challenges the no-drill boundary and wins in Court, the DNR strategy would be to try some sort of unitized approach to hydrocarbon development in one or more of the northern units. (Tr, p 489).

On re-direct examination, Mr. Jack D. Bails testified that he was involved in the review and the denial of the Hobson permit application for the Schommer 2-15 Well. (Tr, p 742). In reviewing that application, the DNR tried to apply the standards set out in the Michigan Oil (Corwith 1-22) and WMEAC cases and the EIS and the guidance the DNR received from the Consent Judgment. Id.

Neither the court cases nor the EIS make any distinction between private and public lands in relation to the effect on wildlife resources. (Tr, p 742). The 1976 Original Order, Consent Order, and EIS apply to wildlife resources on both private and public land within the Forest. (Tr, p 744).

Mr. Bails opined that based on the Consent Order, EIS, MEPA, and OGCA, the DNR had a basis for denial of Hobson's application without considering PRHDA. (Tr, p 744).

Edward W. Caveney

Petitioner's last witness was Mr. Edward W. Caveney. He has been employed by the DNR for 20 years. (Tr, p 576). Mr. Caveney has a Bachelor's and Master's Degree in Forestry from Michigan State University. Id. Mr. Caveney is the forest manager for the Pigeon River Country State Forest. He has been manager of the Forest since February 10, 1974. (Tr, p 577). Mr. Caveney became forest manager soon after the Forest was dedicated and no other person has served as forest manager of the PRCSF. Id.

As forest manager, Mr. Caveney manages and administers all of the resources and uses that occur in and on the Pigeon River Country State Forest. Id. As the forest manager, Mr. Caveney not only administers all of the resources in the forest on state lands, but also some of the resources on private lands. Mr. Caveney does not have jurisdiction over resources on private lands that do not require a permit. (Tr, p 578).

Mr. Caveney is an ex-officio member of the Pigeon River Country State Forest Advisory Council. Id. As forest manager, it is Caveney's responsibility to interact with the Advisory Council in bringing before them any matter that is appropriate for council review and take advice from the Council to the Director. (Tr, p 518).

As the area forest manager, Mr. Caveney has been involved in all of the steps and phases concerning oil and gas development in the Forest. Id. Since 1985, Mr. Caveney has been appointed by the Directors of the DNR as Special Enforcement Officer for oil and gas development in the Pigeon River Country State Forest. (Tr, p 578).

As Special Enforcement Officer, Caveney works with the Unit Operator on all matters pertaining to selection, location, and review, of well sites, pipeline routes, flow line routes, and access. (Tr, p 578-579). Mr. Caveney receives regular reports on anything that happens at any of the wells in the Forest. Id. Caveney testified that having one Unit Operator minimizes environmental impacts because, in a competitive development, there would be as many well sites, facility sites, sets of flow lines, pipelines, electric lines, and roads as the number of operators. (Tr, p 579). If there are three operators, there would be three times the impact. (Tr, p 579).

Edward Caveney stated that the Pigeon River Country State Forest is treated differently than any other state lands for evaluation of applications for drilling permits. (Tr, p 579). The DNR has an appointed evaluation committee, of which Mr. Caveney is the chairman. Id. Also sitting on the committee is a wildlife biologist, fisheries biologist, a geologist, and a wetlands specialist. (Tr, pp 579-580). The committee reviews the site of a proposed drilling location and submits a report. (Tr, p 580). When the committee was set up, there was no distinction between private or public lands for surface or mineral rights. (Tr, p 580).

Caveney identified Exhibit R-6 as an interoffice memorandum written by him following the DNR Site Review Committee's site inspection for the proposed Schommer 2-15 Well. (Tr, p 580). The reasons why the Committee recommended denial of the Hobson application for the proposed Schommer 2-15 Well are as follows: 1) The application is for a site within a non-development part of the Forest; 2) The site is in a large tract of non-developed land which provides solitude, peace, and quiet for people and for wildlife; 3) If Mrs. Schommer's land was developed as a well site, there would be impacts that would threaten resource values, such as wildlife; 4) There would be development that would change the character of the landscape, which would extend beyond the two-acre drill site or the 80-acre drilling unit; 5) There could be noise; 6) There could be traffic; and 7) There could be odor. (Tr, pp 581-582).

Mr. Caveney testified that in the last five years, he has been in the area of the proposed Schommer 2-15 Well at least 25 times. (Tr, p 282). Mr. Caveney has looked at the specific drill site two times and the 80 acres in question three times. (Tr, p 582).

Edward Caveney testified about the impacts to the area if an operating well was located on Mrs. Schommer's land. Caveney believes that the area would be affected because intrusion would be brought into the area that is not presently found there. (Tr, p 582). Presently, there is a little two-track road leading to the site and it is not a through road. Id. Presently people only use the road if they are going there for a reason, such as to recreate, hunt, or fish. Id. Solitude will be an important part of that recreational experience. (Tr, p 582). With a well site, all of that is lost. (Tr, pp 582-583).

Edward Caveney opined that the wildlife will be affected. (Tr, p 583). The non-development area was created so that wildlife could get away from disruption. (Tr, p 583). In all of northern Michigan, the Pigeon River Country State Forest is the only place the DNR is able to protect and preserve isolation so that there is an escape from disruption for wildlife. (Tr, p 583). The types of wildlife that will be protected from disruption are bear, bobcat, coyote, elk, eagle, osprey, pine marten, and otter. (Tr, p 583). Some species of wildlife use the Black River as a corridor. (Tr, p 584).

By its strictest definition, the PRCSF is not a wilderness, but it is a wild area. (Tr, p 585). By wild area, Mr. Caveney means it is remote and wildlife and people can find solitude there. (Tr, p 585).

Caveney stated that in order to drill at the proposed Schommer 2-15 Well site, the road would need to be improved. (Tr, p 585). If the well is productive, there are problems with getting product out because the producer would need a flow line or pipeline, there would be noise and odor, and traffic would need access to the well site. (Tr, p 585).

A pipeline or flow line in the area would result in another break or cut in the forest. (Tr, p 586). Breaks and cuts in the PRCSF slice the Forest into smaller pieces. It is important that the Forest have blocks without cuts and pieces. Id. Caveney stated that this is one of the reasons for a non-development area. (Tr, p 586). A "block" is a large area of undeveloped land. Id. In the area of Section 15 of Forest Township, Cheboygan County, there are several thousand acres of undeveloped land and further north, there are several thousand more acres of undeveloped area. Id.

There are some county roads that slice the Forest, but they are not developed and not passable at all times throughout the year. (Tr, p 586). The road to Mrs. Schommer's land is not plowed in the winter. (Tr, p 587). If the road is cleared in the winter time to service a well, it would have an impact on wildlife because winter is a quiet time throughout the Forest. Winter is also a time of stress for wildlife because of the cold. (Tr, p 587). Winter conditions do not affect bear because they hibernate, but it would affect the bobcat and browsing animals such as deer and elk. Id.

On the proposed Schommer site is a small pond, which connects to ground water and ultimately goes to the Black River. (Tr, pp 586-587).

Caveney stated that the danger of a pipeline under the Black River is a rupture in the pipe that would cause the contents to leak into the river or ground water. (Tr, p 588). That is why, in the 1976 Original Order, there was only one allowed crossing of the Black River to minimize the chance of rupture. Id. Caveney stated that there is a difference between a pipe going 5, 10 or 50 feet underground versus one going several thousand feet underground, such as in a directional drill. Id. The directional drill would be below the ground water because it would be below the glacial drift. (Tr, p 589). The clear-cut area north of the drill site was done under contract for the DNR to create wildlife habitat. (Tr, p 589). Caveney explained the difference between a 40-acre aspen clear-cut and a two-acre drilling pad clearing. The clear-cut is done to generate aspen and the clear-cut must be repeated once every 50 years. (Tr, pp 589-590). For thirty out of the 50 years, the clear-cut area is producing desirable food and cover for wildlife. (Tr, p 590) If the well site is not productive, the impacts from the drilling pad are minimal and the area becomes a wildlife opening. Id. If the well is productive, there is daily intrusion during the life of the well. (Tr, p 590).

Mr. Caveney testified that the greatest mitigating factor in the EIS that offsets the impacts to the elk herd is the non-development area itself. (Tr, pp 590-591). Mr. Caveney has been on the DNR's Elk Management Committee since 1975. (Tr, p 593). Mr. Caveney has participated as a member of that committee in the preparation of plans and surveys for the last four hunting seasons. (Tr, p 593).

Mr. Caveney stated that in l975, there were less than 200 elk. (Tr, p 593). The DNR had a Concept of Management on how the Forest was to be managed and from that concept an elk management plan was developed. Id. The DNR was successful in managing hydrocarbon development and the elk herd, but Caveney believes that anything that changes or alters that management plan could impact the elk in a negative way. (Tr, p 593). Some of the impacts that are identified in the EIS (Exhibit R-27, pp 191-194) could reoccur if drilling was allowed in the no-drill area. (Tr, p 593-594).

Caveney testified that the pine martens that were released in the PRCSF are still there. (Tr, p 594). During the last two winters, track counts have been done and a wildlife biologist has tracked martens for several weeks through the winter. (Tr, p 594). The pine martens are doing quite well. Id. Caveney suspects that pine martens are throughout the PRCSF, but the areas that the DNR concentrated on for track counts are north and west of the Schommer site, partially because other areas are not accessible to the DNR in the winter. (Tr, p 594). Pine marten tracks have been sited four and a half miles from the Schommer site. (Tr, p 594).

Mr. Caveney was involved in the ground selection for the single pipeline that exists across the Black River. (Tr, p 595). The pipeline crossing was chosen where there was upland as close as possible to both sides of the river to avoid any impacts on wetlands. (Tr, p 595). The route was chosen to be as short as possible and to fit aesthetically with the Forest and any crossings of roads or trails. (Tr, p 595).

A plan was developed on how the pipeline corridor was to be revegetated and what barriers were to be put up, including planting of shrubs. Id. Prior to development of the flow lines or pipelines, the DNR adopted a plan to have pipeline corridors that would not allow off-road vehicle ("ORV") use. Id. The DNR accomplished this by making the pipelines as invisible as possible, especially where they crossed roads. (Tr, p 596). At several road crossings, the pipe was pushed underneath the road through the adjoining line of timbers, which results in no break in the Forest at the edge of the road. (Tr, p 596). Standing on the road, someone could not see the break in the Forest for the pipeline for the first 100 feet into the woods. Stump barriers were also used to stop people from using pipeline corridors as ORV routes. Id.

The largest aspen clear-cut area allowed under the Concept of Management is 40 acres. (Tr, p 596). A few have gone beyond that with additional authorization, such as one 160-area clear-cut. Id. It was a larger area because trees were falling down or dying. (Tr, p 596).

Caveney testified that approximately 50 percent of the wells in the PRCSF have been directionally drilled for some environmental or mitigating factor. (Tr, p 597). There have been 89 permitted wells and 45 of them are directional. Id. The Rupp-State Forest 1-21 is directionally drilled about 3,400 feet. Id.

The reasons for the 3,400 foot kick on the Rupp-State Forest 1-21 are wetlands and the Black River. Id. The Rupp 1-21 Well site had to be placed along a developed county road. Id. Caveney reviewed three placement sites for the Rupp-State Forest 1-21. The reason why the present site was picked is because it was on Shan-gra-La Road and the other two sites were farther off the road closer to the Black River. (Tr, p 598). The Rupp 1-21 does not have a pump; there are power lines immediately in back of the well. (Tr, p 599).

Mr. Caveney testified that there is a great difference between the Forest in the area of the Rupp 1-21 and the proposed Schommer 2-15. The Black River, which runs between the Rupp 1-21 and the Schommer 2-15 is a good dividing line. (Tr, p 599). South of the river there is a lot of activity and development. Id. There is a county road that is plowed all year. Id. There are power lines and some habitation. Id. There is a flow line in the area from two well sites. Id.

North of the Black River, there is no development. Id. In Section 15, there is a year-round residence to the east of the Schommer site, but it is south of the Black River. (Tr, p 599)

Mr. Caveney pointed out the many restrictions that are placed on the Unit Operator, which are not placed on other operators within the state. (Tr, p 600). The Consent Order (Exhibit R-22) lists requirements, including no drilling sites within a quarter mile of surface water and no farm-out or assignments of production rights. (Tr, p 600). The reason for a prohibition against farm-outs or assignments is because the DNR wants assurance of a reliable operation by a reliable operator, who has a lot at stake if anything goes wrong. Id. The state is seeking confidence that the operator is concerned about how it would look to the public and how it treats the resources. (Tr, p 601).

The Consent Order has sound requirements, which have improved from 45 decibels at 1,500 feet to 35 decibels at 500 to 700 feet. Id.

Roads are limited to between 15 and 20 feet wide and flow line right-of-ways are 10 feet wide. Id. Additional restrictions are contained in paragraph 8(a)-(r) of the Consent Order (Exhibit R-22, pp 129-131). (Tr, p 601).

There is a sequence of development requirement that assists the DNR in assessing what impacts are being encountered. (Tr, p 601).

Two studies were completed pursuant to the Consent Order. One study measured the impacts of all oil and gas activity on recreation. Id. The other study was to enhance the wildlife values of the Pigeon River Country State Forest. The total cost of the studies was $85,000. (Tr, p 602).

As a result of these studies, the DNR learned how a specific well site might affect wildlife and recreation. Id. The Department can avoid development at mushroom picking season or when elk are calving. (Tr, p 603). Parts of the PRCSF are used for skiing in the winter, so those areas of the Forest are avoided during the winter. Id.

There are additional studies regarding the water and the soil that were not prescribed by the Consent Order. Some of these studies dealt with background levels for various compounds such as hydrocarbons and brines. (Tr, p 603). A number of wells were drilled to study the movement of ground water in the Pigeon River Country State Forest. Id. When oil and gas development began, monitoring wells were drilled and ground water and soil samples are taken quarterly. (Tr, p 604). Eleven drilling pits that were originally placed in the Forest have been removed and additional samples have been taken from those pits to determine residual effects. (Tr, p 604).

Monitoring wells were installed after the Pigeon River Country State Forest Advisory Council wanted assurances that drilling fluids and cuttings were being properly handled with closed-based systems encapsulated in plastic. (Tr, p 604). The DNR found that the systems did not work and, in almost every instance, some levels of chlorides above backgrounds existed. This necessitated going to a closed-pit system. (Tr, p 605). When SWEPI converted to a closed-pit system, there were several years where there was no drilling. Id. The technology for a closed-pit system developed at that time and when SWEPI resumed drilling, an engineer was on site full time to make recommenda- tions on how to improve the system. On every well site since drilling resumed, SWEPI has made improvements to the system. (Tr, p 605).

SWEPI has made other improvements at PRCSF well sites to safeguard the environment. For example, SWEPI puts Afton stone on the well site over a gutter system that can collect expected and possible spills. (Tr, p 606). The gutter system leads to the cellar, which is sealed, and fluids can be pumped out of the cellar into the fluid system of the well. Id. Plastic is put over gravel so that when trucks come in to unload or handle materials or supplies, or pump substances down the well, they are on top of plastic. (Tr, p 607).

The DNR reviews the routes used by drilling equipment to reduce and minimize conflict with other travellers in the Forest. (Tr, pp 607-608). SWEPI is interested in being as inconspicuous as possible. (Tr, p 608). There is a contingency plan concerning problems on wells where Caveney is notified along with other experts. (Tr, p 608).

By putting a road into the proposed Schommer 2-15 Well site, that part of the Black River becomes more accessible and their will be more trapping of otter and more hunting and trapping of coyote. (Tr, p 619). There will be more traffic into that area of the Forest and there will be more noise. (Tr, p 620).

Caveney testified that SWEPI has submitted a final development plan for the area around the Rupp 1-21. (Tr, p 620). The development plan calls for the drilling of the last well in 1989, but the last well will be drilled in August 1988. Id. Mr. Caveney believes that a directional drill is more accurate than a straight drill because SWEPI monitors where the bit is at all times with a directional hole and it can hit a target more accurately with a directional drill. (Tr, p 621). SWEPI monitors the bit with a magnetic needle so SWEPI can measure precisely where the bit is going and alter it at any point. (Tr, p 621).

On cross-examination, Caveney testified that the window period for drilling wells in PRCSF is between October 16 and November 14 and between December 15 and February or March with the Spring breakup. (Tr, p 624).

On a map of oil and gas wells (Exhibit P-28), two wells are inside the Pigeon River Country State Forest (State Forest 2-22 and Rupp 1-21) and the remainder of the wells are outside the Forest. (Tr, p 629). Black River Road is the easterly boundary of the Forest. (Tr, p 630). The red pen marks on Exhibit P-28 are the boundaries of the Forest and the roads marked with a blue pen no longer exist. (Tr, p 631). Clute Road is a county road that is impassable. (Tr, p 632). Exhibit P-28 is 12-years old and some roads have not been passable for 15 years. (Tr, p 633). In Section 16, there is an old road that has been allowed to deteriorate. A snowmobile cannot pass on that old road. (Tr, p 633). Clark and Clute roads are the same. (Tr, p 634).

The pothole located on Mrs. Schommer's land is about 15 feet wide and 30 feet long; the pothole is no deeper than a few feet. (Tr, p 638). Caveney has never seen the pothole dry. Id.

The first directionally drilled well in Michigan was drilled in the Pigeon River Country State Forest. Id.

On redirect examination, Caveney testified that there are two wells in the lease extension area; specifically, the Rupp 1-21 and State Forest 2-22. (Tr, p 662). If the Schommer 2-15 Well was located in the lease extension area, Mr. Caveney is reasonably sure that the Site Committee would recommend drilling from the Rupp 1-21 surface location. (Tr, p 651).

Rebuttal - Charles D. Hobson

Petitioner called one rebuttal witness, Mr. Charles D. Hobson. Mr. Hobson identified Exhibit P-31 as a letter from SWEPI to Hobson pursuant to a farm-out submittal. (Tr, p 663). The letter denies that SWEPI has any interest in farming in the Schommer project. Id.

After Mr. Hobson received Exhibit P-31, he followed a recommendation by the DNR to ascertain whether SWEPI would act as operator if Hobson was permitted to drill the Schommer project. (Tr, p 664). In a telephone conversation, Mr. Hobson asked for a joint operating agreement ("JOA") that would be acceptable to SWEPI and an authority for expenditure ("AFE"), which is an estimated cost for the drilling of the well. (Tr, p 664).

Hobson identified Exhibit R-51 as the cover letter and AFE for SWEPI to drill the Schommer project. (Tr, p 655). Hobson has never received a proposed JOA from SWEPI. (Tr, p 666). Exhibit R-51, subparagraphs 2(a)-(i), address items that should be included in a JOA. (Tr, p 670).

According to Hobson, the cost of drilling set forth in Exhibit R-51 is totally out of line. (Tr, p 670). Exhibit P-32 is an AFE prepared by Mr. Hobson for the Schommer 2-15 Well. Exhibit P-32 estimates the cost to drill the identical well that SWEPI has proposed in Exhibit R-51. (Tr, p 671). Hobson took into account the identical factors that SWEPI used in their cost estimate. Id. Hobson calculated a total of $247,505 to drill the well whereas SWEPI calculated a total of $414,000 to drill the identical well. (Tr, p 671). The AFE is estimated only for drilling and not for completion; it is drilled to the casing point. Id. An estimate of the cost to complete the well is $250,000. (Tr, p 672). SWEPI's estimated cost for completing the well is $583,000. (Tr, p 672).

Mr. Hobson could not discern any reason for the difference between Hobson's AFE and SWEPI's AFE because SWEPI solicited bids from primarily the same contractors that Hobson uses. (Tr, p 673).

Mr. Hobson believes that an oil delivery line could be placed under the Black River to the point of sale. (Tr, p 686). This would negate the need to truck out product. Id. Consequently, no trucking from the Schommer lease would be necessary. Id. Only a pumper would come to the well in a pick-up truck every few days and check the wellhead. (Tr, p 686).

There would be negligible, if any, noise and all that would be visible on the site is a wellhead with a pipe going approximately two feet then down into the ground. (Tr, p 686). In the event that a pumping jack would be needed, Hobson would use an electric pump to reduce the noise. (Tr, p 687). A power line could be run from the north or an electrical line could be placed through the under-river pipe crossing from the south where electricity is in place to run the Rupp-State Forest 1-21. (Tr, p 687). Odors would be on the same level as the Unit Operator because identical equipment is used and the same personnel install the equipment. Id.

Hobson testified that assuming a conventional straight hole and a directional hole reaches the target, the straight hole is a more cost-effective hole to drill. (Tr, p 690). By drilling a straight hole and cutting the reef from the top to the bottom, Hobson can identify the water contact point as well as the gas contact point with the oil section. Id.

It is also easier to find the porosity and permeability zones in a straight hole. Id. This is extremely important in the placement of perforations for the completion of the well. (Tr, p 691). A producer can get far more oil and gas out of a reservoir with this information than if the well was a directional drill and this information was unavailable. (Tr, p 691).

Hobson Petroleum Corporation is prepared to use steel brine disposal tanks that would be emptied by a tank truck and transported to an industrial hazardous waste disposal area. (Tr, p 695). In order to prevent spills, Hobson would cover the entire work area with a pit liner and dike up the sides. (Tr, p 696). Hobson is willing to have an engineer on site at all times. Id. Hobson is prepared to give daily drilling progress reports to the area forester. (Tr, p 696).

On cross-examination, Mr. Hobson testified that he could not comply with paragraph 8(c) of the Consent Order because Hobson Petroleum does not have the financial ability to develop the proposed Schommer 2-15 Well without taking in a partner. (Tr, pp 713-714). That is the same reason that Hobson would not agree to paragraph 8(d) of the Consent Order, which prohibits farm-outs or assignment of lease rights. Id. Hobson admitted that his total cost of $240,000 per well and SWEPI's cost of $394,000 for a dry hole is a difference of $147,000, much of which is explained by the $132,950 cost for "Other Drilling Expenditures" on line C of SWEPI's AFE. (Tr, p 728). Hobson objects to about every item in the SWEPI dry hole cost, including the eight percent that is added for "Operator Services". (Tr, p 737).

Findings of Fact
 

This contested case is an appeal from the Supervisor of Wells to the NRC under § 3(8) of the OGCA, MCL 319.3(8); MSA 13.139(3)(8). The relief Hobson Petroleum requests is a reversal of the Supervisor's decision to deny Hobson's application for a permit to drill the Schommer 2-15 Well. According to the OGCA, the grounds for taking such an appeal include the arguments that the Supervisor's decision is "burdensome, inequitable, unreasonable, or unwarranted." Id. The issue on appeal is whether the Supervisor had adequate grounds for denying the drilling permit. If the grounds for denial are "burdensome, inequitable, unreasonable, or unwarranted", Hobson Petroleum should be granted a permit to drill the Schommer 2-15 Well.

Scope and Standard of Review
 

The appellate review section of the OGCA, § 3(8), does not contain a scope and standard of review provision. An applicable standard of review is not found in other sections of the OGCA. Consequently, the first issue is the determination of the proper scope and standard for review.

This ALJ's efforts to find authority that construes the NRC's standard of review under § 3(8) of the OGCA have proved fruitless. Consequently, the Administrative Procedures Act, MCL 24.201, et seq; MSA 3.560(101), et seq, and case law were relied on in determining the applicable standard of review.

A de novo review of Hobson's application denial in this appeal from the Supervisor of Wells to the NRC is required. Under the grounds for an appeal stated in § 3(8) of the OGCA, the NRC has the responsibility to determine whether the action or inaction of the Supervisor is "burdensome, inequitable, unreasonable, or unwarranted". The NRC can discharge this responsibility to make such a determination only if it makes an independent, de novojudgment.

In Schommer v Director, Dep't of Natural Resources, 162 Mich App 110; 412 NW2d 663 (1987), the Michigan Court of Appeals rejected plaintiffs' claim that the OGCA affords a basis for judicial review directly from the Supervisor of Well's denial of their application. The appellate court based its decision on an exhaustion of administrative remedies analysis. The Court inSchommer, at 118, adopted the language in Saginaw School Dist vUnited States Dep't of Health, Education & Welfare, 431 F Supp 147, 154 (ED Mich, 1977) where the court stated that "[r]equiring exhaustion is preferred in order that the reviewing court may have the benefit of a factual record in which the issue is fully developed and clearly defined as opposed to being presented in a vacuum". Because the plaintiffs had failed to develop an administrative record, the court in Schommer held that plaintiffs had waived their challenge to the permit denial.

Applying the reasoning of Schommer in this case requires a de novo review. Without the opportunity for a full evidentiary hearing, a reviewing court would not "have the benefit of a factual record in which the issue is fully developed and clearly defined". The holding in Schommer, supra, requires plaintiffs to develop an administrative record to preserve their challenge to the permit denial. Consequently, Schommer compels de novo review.

In Schommer, 162 Mich App at 117, n 1, in arguing that the APA does not apply, the DNR states that plaintiffs, which includes Petitioner in this appeal, could have requested an evidentiary hearing. It is unclear on what authority the DNR relied to make this statement ⁽⁷⁾, but assuming that it is accurate, a de novo review would be required under the provisions of the APA. If Petitioner could have requested an evidentiary hearing, the licensing proceeding before the Supervisor of Wells constitutes a "contested case" as defined by Section 3(3) of the APA, MCL 24.203(3); MSA 3.560(103)(3). The application for a permit to drill is an agency activity involving the grant or denial of an agency permit in which a determination of the legal rights, duties, or privileges of Petitioner is required by law to be made by the Supervisor after an opportunity for an evidentiary hearing.

Under Section 3(3) of the APA, when a hearing is before an agency, in this case the Supervisor of Wells, and an appeal from its decision is taken to another agency, in this case the NRC, the hearing and the appeal are deemed to be a continuous proceeding as though before a single agency. Consequently, the appeal from the Supervisor of Wells to the NRC is also a contested case, which, by definition, requires an opportunity for an evidentiary hearing. MCL 24.203(3); MSA 3.560(103)(3).

The procedures in contested cases are set out in Chapter 4 of the APA, MCL 24.271, et seq; MSA 3.560(271), et seq. Final decisions of an agency in a contested case must include findings of fact and conclusions of law. MCL 24.285; MSA 3.560(185). The decision must be based exclusively on the whole record as supported by the competent, material, and substantial evidence. Id.

The NRC's decision on this appeal will be the final decision of the DNR. The exclusive means for the NRC to consider competent, material, and substantial evidence and apply it to the grounds for an appeal stated in Section 3(8) of the OGCA is to make an independent, de novo judgment.

Further support is found in Michigan Oil Co v Natural Resources Commission, 406 Mich 1, 21; 276 NW2d 141, cert den 444 US 980; 100 S Ct 482; 62 L Ed 2d 407 (1979) where in an appeal to the NRC from a denial of plaintiff's application for a

drilling permit, the NRC appointed an ALJ to conduct an administrative hearing. A written report proposing findings of fact and conclusions of law was filed following what appeared to be a de novo review.

Additionally, Petitioner challenges the Supervisor's denial of its permit application on the claim that the denial would not result in a violation of the Michigan Environmental Protection Act (MEPA), MCL 691.1201 et seq; MSA 14.528(201) et seq. Under MEPA, judicial review is de novo. West Michigan Environmental Action Council v Natural Resources Commission, 405 Mich 741, 752-754; 275 NW2d 538, cert den sub nom Shell Oil Co v West Michigan Environmental Action Council, 444 US 941; 100 S Ct 295; 62 L Ed 2d 307 (1979); Michigan Waste Systems v Dep't of Natural Resources, 147 Mich App 729, 735; 383 NW2d 112 (1985), lv den 424 Mich 900 (1986). By analogy, the same standard of review can be utilized by the NRC in reviewing the Supervisor's decision.

Based on the foregoing analysis, I find that de novoreview is the proper scope and standard of review under § 3(8) of the OGCA.

Rulings on Proposed Findings
 

Section 85 of the APA, MCL 24.285; MSA 3.560(185), provides, "if a party submits proposed findings of fact which would control the decision or order, the decision or order shall include a ruling upon each proposed finding". In Petitioner's pre-hearing statement, Hobson submitted two proposed findings of fact. The first proposed finding, that the Supervisor's issuance of a permit is a ministerial act, was not argued or briefed after the pre-hearing statement, but because it would control this decision if adopted, it is resolved first. The second proposed finding of fact is that the Supervisor abused his discretion. A ruling upon that proposed finding of fact is the most crucial and it is the subject of the majority of this PFD after this subsection.

Discretionary vs. Ministerial Act
 

In its pre-hearing statement, Petitioner argues that § 23 of OGCA, MCL 319.23; MSA 13.139(23), requires the Supervisor of Wells to issue a drilling permit after he received Hobson's written application for a permit to drill and the required bond and fee. Section 23 of OGCA provides in pertinent part:

Upon receiving and accepting a written application and payment of the fee required, the supervisor shall within 10 days thereafter issue to any owner or his authorized representative a permit to drill. A permit to drill shall not be issued to any owner or his authorized representative who does not comply with the rules and requirements or orders made and promulgated by the supervisor. A permit shall not be issued to any owner or his authorized representative who has not complied with or is in violation of this Act, or any of the rules, requirements or orders issued by the supervisor or the Department of Natural Resources. (emphasis added)

Petitioner claims that the Supervisor's letter of February 5, 1988 (Exhibit R-1), wherein Petitioner's application for permit to drill was denied, cites none of the disqualifying factors under § 23 of the OGCA. Consequently, Hobson argues that the Supervisor is without discretion to deny the permit and, in its view, the Supervisor is required to perform a strictly ministerial act.

Petitioner's narrow, semantic interpretation of § 23 of the OGCA has been previously rejected as "untenable" by the Michigan Court of Appeals in Schommer v Director, Dep't of Natural Resources, supra, pp 119-120.

The above-quoted provision of § 23 of the OGCA specifically prohibits the issuance of a permit to drill to any person who is in violation of the Act [OGCA] or "any of the rules, requirements or orders issued by the supervisor, or the Department of Natural Resources." MCL 319.23; MSA 13.139(23). The Michigan Supreme Court has construed this provision of the OGCA liberally to include unpromulgated rules. Michigan Oil Co, supra, pp 27-28. The Michigan Supreme Court relied on § 6 of the OGCA, MCL 319.6; MSA 13.139(6), which gives the Supervisor of Wells authority to deny a drilling permit to prevent waste by doing "whatever may be necessary with respect to the subject matter stated herein to carry out the purposes of this act, whether or not indicated, specified, or enumerated in this or any other section hereof." Id.

A rule promulgated under § 6 of the OGCA grants the Supervisor of Wells the power to deny a drilling permit based upon rationale appropriate to carry out the purposes of OGCA, and the rules promulgated thereunder, without regard to whether enumerated in OGCA or the rules and regulations. 1963 AACS R 299.2101,Michigan Oil Co, supra, p 28 n 1.

Further, § 4 of OGCA prohibits waste in the "exploration for or in the development, production, or handling or use of oil or gas". MCL 319.4; MSA 13.139(4). Waste is defined in Section 2(l) of OGCA to include "Underground waste" and "Surface waste," in addition to the "ordinary meaning" of "waste". MCL 319.2(l); MSA 13.139(2)(l). In Michigan Oil Co, supra, p 26, the "ordinary meaning" of the term "waste" was construed to mean "any spoilation or destruction of the land, including flora and fauna". The Michigan Supreme Court held that OGCA places an affirmative duty on the Supervisor of Wells to prevent waste and OGCA provides sufficient statutory authority to justify denial of oil and gas drilling that would be unnecessarily detrimental to natural resources of this state. Id, pp 23-29.

OGCA mandates that the Supervisor exercise discretion. I find that the Supervisor is precluded from performing a strictly ministerial act in reviewing Petitioner's application for a permit to drill.

Lastly, contrary to Petitioner's claim, I find that in his February 5, 1988, denial letter, the Supervisor of Wells specifically cited "disqualifying factors" in violation of OGCA, rules, requirements, and orders issued by the Supervisor or the DNR. (Exhibit R-1). The Supervisor of Wells denied Hobson's application for a permit to drill the Schommer 2-15 Well (Oil and Gas Permit Application No. 146) for the following reasons:

1. Drilling is precluded in the proposed drilling unit by the Consent Order, Consent Judgment and the PRHDA;

2. Construction of a second pipeline across the Black River, storage or treatment facilities and truck traffic for transportation of produced oil or gas is prohibited by statute [PRHDA] and would cause pollution, impairment and destruction of natural resources in violation the OGCA and MEPA;

3. There are prudent and feasible alternatives that would provide the environmental protection mandated by the Consent Agreement, Unit Agreement, PRHDA, OGCA and MEPA.

Analysis of Discretionary Act
 

Petitioner argues that assuming the Supervisor had the discretionary authority to deny Hobson's application, he abused his discretion by relying on the Consent Order, Consent Judgment, and statutes, all of which are not applicable to Hobson. Petitioner claims that the Consent Order and Consent Judgment are only applicable to the signatory parties. The PRHDA regulates only state-owned lands in the PRCSF, according to Hobson. Petitioner also contends that the drilling of the Schommer 2-15 Well would not, or is not likely to pollute, impair, or destroy the air, water, or other natural resources. Consequently, the proposed conduct is not in violation of MEPA and would not constitute "waste" under OGCA.

Thus, based on the whole record, including exhibits and the foregoing procedural history, the history of the PRCSF and testimony, the NRC must determine, de novo, whether the Supervisor of Wells relied on appropriate authority and properly applied the facts to the authority to deny Hobson Petroleum Corporation's application for a drilling permit for the Schommer 2-15 Well. Specifically, the NRC must determine, de novo, whether the (a) Consent Order; (b) Consent Judgment; (c) PRHDA, 1980 PA 316, MCL 319.12 et seq; MSA 13.140(51) et seq; (d) MEPA, 1970 PA 127, MCL 691.1201 et seq; MSA 14.528(201) et seq; and (e) OGCA, 1939 PA 61, as amended, MCL 319.1 et seq; MSA 13.139(1) et seq, provide proper authority to the Supervisor and whether facts applied to the proper authority are sufficient to justify the Supervisor's denial of Petitioner's application for a drilling permit.

The remainder of these Findings of Fact will address and make these determinations for each of the above authorities, in seriatim.

November 24, 1980, Amended Stipulation and Consent Order
 

The November 24, 1980, Amended Stipulation and Consent Order ("Consent Order"), by its own terms, is an agreement entered into by the DNR and Shell Oil Company, Amoco Production Company and Northern Michigan Exploration Company, owners of oil leases in the PRCSF. The Consent Order was approved by the NRC, which ordered the Director of the DNR to implement and enforce it and sign the Unit Agreement. I find that Hobson is not a party to the Consent Order, and, by the language within the four corners of the Consent Order, it has no legal effect on the rights of Hobson Petroleum Corporation.

Petitioner cannot be precluded from seeking to exercise its rights under its oil and gas lease with Mrs. Evelyn Schommer because the DNR agreed with other lessees to limitations of the provisions of their leases. Consequently, Hobson's right to develop oil and gas resources must be determined by the Consent Judgment or applicable statutory authority.

December 15, 1980 Consent Judgment
 

For the reasons stated in the preceding subsection, the December 15, 1980, Consent Judgment is not applicable to Hobson Petroleum Corporation. The Consent Judgment was entered in Ingham County Circuit Court, File No. 76-19335-CE, entitled West Michigan Environmental Action Council, Inc, Pigeon River Country Association, Detroit Audubon Society, Inc, Michigan Council of Trout Unlimited, Inc, Michigan Student Environmental Foundation, Inc, East Michigan Environmental Action Council, Inc, Michigan Lakes and Streams Association, Inc, Plaintiffs v Natural Resources Commission of the State of Michigan and Howard Tanner as Director of the Department of Natural Resources of Michigan, Defendants, and Shell Oil Company, Amoco Production Company, and Northern Michigan Exploration Company, Intervening Defendants. I find that Hobson Petroleum Corporation is not a party in the above-entitled litigation and, by the limited terms of the Consent Judgment, it has no legal effect on the rights of Hobson. Consequently, Hobson's right to the issuance of a permit to drill the Schommer 2-15 Well must be determined by the applicable statutory authority.

Pigeon River Country State Forest Hydrocarbon
 

The Pigeon River Country State Forest Hydrocarbon Development Act of 1980 ("PRHDA"), 1980 PA 316, MCL 319.121, etseq; MSA 13.140(51), et seq, on its face appears to be a precise act. The PRHDA has only five sections. The first section names the act and the last section sets January 1, 1981, as the time for the NRC to implement the hydrocarbon development plan for the PRCSF.

Section 2 sets out legislative findings that "it is in the public interest to encourage and promote safe, effective, efficient, and environmentally prudent extraction of hydrocarbon resources in the Pigeon river country state forest...". MCL 319.122(1); MSA 13.140(52)(1). The Legislature further finds that "wise use of our natural resources essential for future energy needs requires that energy resource development must occur in harmony with environmental standards...". MCL 319.122(2); MSA 13.140(52)(2).

Section 3 of the PRHDA, MCL 319.123; MSA 13.140(53), provides:

The Pigeon river country state forest as dedicated by the commission of natural resources on December 7, 1973, is a valuable public resource. It is in the public interest to produce oil and gas as quickly as possible to minimize the duration of activities associated with hydrocarbon development in the Pigeon river country state forest. To expedite the development of oil and gas resources on certain lands presently under lease but undeveloped as of the effective date of this act and for which the amended stipulation and Consent Order has been adopted and approved by the commission of natural resources on November 24, 1980, and in consideration of the protracted nature of the controversy, the legislature finds that this amended stipulation and consent order constitutes an appropriate hydrocarbon development plan for the purposes and within the intent expressed in section 2 [MCL 319.122; MSA 13.140(52)].

Section 4 of the PRHDA, MCL 319.124; MSA 13.140(54), states:

The hydrocarbon activities within the Pigeon river country state forest authorized by the plan referred to in section 3, can be carried out without violation of law under terms of the amended stipulation and consent order referred to in section 3 [MCL 319.123; MSA 13.140(53)].

Petitioner claims that the PRHDA is not applicable to Hobson because the act finds that the Consent Order is an appropriate hydrocarbon development plan for the PRCSF "as dedicated by the commission of natural resources on November 7, 1973". Hobson argues that because the proposed drilling unit for the Schommer 2-15 Well is not on state-owned lands and because only state-owned lands were dedicated by the NRC on December 7, 1973, as the PRCSF, the proposed drilling unit is not covered by the PRHDA.

It is uncontroverted that Mrs. Evelyn Schommer's land is completely within the boundaries of the PRCSF and it was not dedicated by the NRC on December 7, 1973, as part of the PRCSF. The NRC only dedicated state-owned lands. (Exhibit R-52 Postscript, A Tr p 35; Tr p 464).

The PRHDA is not a precise act when construction of its terms are necessary. The statute is not a masterpiece of legislative drafting. The PRHDA does not contain a definitional provision. The word "prohibit" is not found in the act and the word "shall" is only found in what the act may be cited as in Section 1, and when the act will be implemented in Section 5. The legislative findings in Section 2, the declaration of public interest in Section 3, and the determination that hydrocarbons can be developed in concert with law under the terms of the Consent Order in Section 4, do not aid in resolving the applicability of the PRHDA to privately-owned lands within the Forest boundaries.

The PRHDA was introduced as Senate Bill No. 1119 ("SB 1119"). Substitute S-3 for Senate Bill No. 1119 contains much of the same language as PRHDA. House Substitute H-1 for Senate Bill No. 1119 ultimately became the PRHDA. During discussions of Substitute S-3 for SB 1119, Senator Faxon stated"

...I think this is a poor bill because I don't think we ought to get involved in what the department [DNR] does and try to write orders, and not write orders. I think it is very poorly written.

...
 

I think that this is a bad procedure to take a ruling of a department [DNR] and sanctify it with law and give it the State of Michigan enactment.

There's a lot of piety plussed up in these first two paragraphs about the way we think and the way we feel, not in legislative language, really. We've never gone into this so-called preamble business. This statute, the way it's written is full of preambles and pretense, and pre, pre, pre. But, I think, in general, the bill is not very well written any more... . [1980 Journal of the Senate, September 30, 1980, No. 109, p 2586]. (emphasis added)

The PRHDA, which, according to Faxon, is not written in "legislative language," must be construed to determine whether the act applies to privately-owned lands within the boundaries of the PRCSF.

The primary object of interpretation of statutes is to ascertain and give effect to the intention of the Legislature. Rosner v Michigan Mutual Insurance Co, 189 Mich App 229, 231; 471 NW2d 923 (1991). The specific language of the statute is the best source for ascertaining the intent of the Legislature. In re Forfeiture of $18,000, 189 Mich App 1, 3; 471 NW2d 628 (1991). The Legislature is presumed to have intended the meaning it plainly expressed. Id. If the meaning of the language is clear, interpretation and construction of terms are neither necessary nor permitted. Rosner, supra.

However, if an ambiguity exists, a statute must be construed in light of the purpose to be accomplished by its enactment. People v Hardy, 188 Mich App 305, 309; 469 NW2d 50, lvden 437 Mich 1040 (1991). Every word or phrase of a statute should be accorded it plain and ordinary meaning. Rosner, supra.

The legislative findings in Section 2 of PRHDA apply to both state-owned and privately-owned lands. A portion of one finding in subpart (1) of Section 2 applies to state-owned minerals, but not necessarily land, because the state normally would not receive royalties from the production of hydrocarbon deposits from privately-owned minerals. However, this is one of two ways the statute finds the state will economically benefit from production of energy resources. The other way is by taxation, which is applicable to all production of deposits, regardless of surface or mineral ownership. The legislative findings under subpart (2) of Section 2 are applicable to all lands in the state of Michigan regardless of ownership. The PRCSF is not mentioned in Section 2, subparagraph (2) of the PRHDA. MCL 319.122(2); MSA 13.140(52)(2).

Section 3 of the PRHDA states that the PRCSF is "a valuable public resource" and "[i]t is in the public interest to produce oil and gas as quickly as possible to minimize the duration of activities associated with hydrocarbon development in the PRCSF". However, the operative language of Section 3 is silent regarding the PRCSF. The operative language states:

[T]he Legislature finds that the amended stipulation and consent order constitutes an appropriate hydrocarbon development plan for the purposes and within the intent expressed in Section 2. (MCL 319.123; MSA 13.140(53)).

Section 4 references the Pigeon River Country State Forest by stating that hydrocarbon activities within the Forest are authorized by the hydrocarbon development plan referred to in Section 3 and can be carried out without violation of law under terms of the Consent Order. MCL 319.124; MSA 13.140(54).

The only reference to state-owned lands is in the first sentence of Section 3, which declares that the PRCSF, as dedicated by the NRC on December 7, 1973, is a valuable resource. The remainder of the PRHDA does not make a distinction between state-owned and privately-owned lands in the PRCSF. References to the PRCSF, as dedicated by the NRC, are not contained in other parts of the PRHDA, particularly the operative language in Section 3. I find that the PRHDA is applicable to both state-owned and privately-owned land within the PRCSF.

Additional support for this conclusion is found in the proceedings before passage of SB 1119. After Senate Bill No. 1119 was read a third time, a point of order was raised regarding whether the bill was a local or special act that required a two-thirds vote. [1980 Journal of the Senate, September 30, 1980, No. 109, p 2570]. The Chair of the Senate ruled that Senate Bill No. 1119 required approval of two-thirds of the members elected and serving in each House based on Const 1963, art IV, § 29, and based on Rohan v Detroit Racing Assoc, 314 Mich 326, 348-353; 22 NW2d 433 (1946). In Rohan, supra, the Michigan Supreme Court concluded that a statute relating to persons or things as a class is a general law, but a statute relating to particular persons or things of a class is a special act. The Chair of the Senate found that Senate Bill No. 1119 was a special act because "Section 3 of the bill states that language of the consent order adopted and approved by the Commission of Natural Resources on June 11, 1976, refers to a special situation". [1980 Journal of the Senate, September 30, 1980, No. 109, pp 2573-2574.]

Senator Kammer moved to appeal the ruling of the Chair and, following a roll call vote, the decision of the Chair was not sustained.

Senator Brown was allowed to make a statement in support of the Chair's decision. Brown pointed out the language in Section 3 that states, "The Legislature finds that the stipulation and consent order constitutes an appropriate hydrocarbon development plan." Senator Brown said:

The consent order, which I have before me, involves Dr. Howard Tanner, Director of the Michigan Department of Natural Resources, the Shell Oil Company, the Northern Michigan Exploration Company, and AMOCO Production Company. It refers to Dr. Tanner as the director and the three oil companies as oil companies.

Now, that was a lawsuit involving those 4 parties--3 oil companies and Dr. Tanner. It doesn't bind me, Mr. President, nor you, nor any of your constituents, or any of mine, unless they're stockholders in those companies. It binds nobody. But, the fact that we're prepared to write a state law that incorporates a consent order entered into between private litigees is, in my judgment, an absolute argument that this is special legislation. [1980 Journal of the Senate, September 30, 1980, No. 109, p 2575].

Senators Kammer and Faust, who voted against the Chair's ruling that SB 1119 was a special act, were allowed to make statements after the roll call vote. Senator Kammer called the Chair's ruling "the most liberal interpretation of a ruling that I've heard since I've been here". Senator Engler, now Governor Engler, injected the adjective "twisted". Senator Kammer agreed that "twisted is a very good word to construe that a bill that somehow broadly relating to how developments of a hydrocarbon resource shall occur as to mean that it somehow identifies as items within a class...would be a special act". Id.

Senator Faust, speaking in support of overturning the ruling of the Chair, stated that if the ruling confined the act to a class or individuals, it would have to be followed through the entire consent agreement. Senator Faust then references privately-owned lands within the boundaries of the PRCSF:

In there, in one of them [referring to the consent agreement], people, individual property-owners in the Pigeon River area have the option of doing a couple of things, but they also have the option anytime of selling their land.

There are more than 100 of them involved, I'm told, in one minimum spot and how you could say that in every instance where a sale goes underway that should this go in [referring to the act], that then special legislation is required. It seems far-fetched. Id.

The above statements from the 1980 Journal of the Senateindicate that the Senate was well aware that the consent order involved four parties, the DNR, and three oil companies. The Senate was also aware that over 100 individual property owners exist in the PRCSF. The Michigan Senate voted against the ruling that SB 1119 was a special act and the Senate made it applicable to all property owners in the PRCSF. Senator Kammer, one of the bill's sponsors, stated that the bill "broadly relat[es] to how developments of a hydrocarbon resource shall occur". The House did not discuss classification of SB 1119 as a special act.

The question of classification of a bill is for the Legislature and it is not reviewable unless palpably arbitrary. Rohan, supra, p 350-351. "Equal protection of the laws does not prevent a reasonable classification by legislative enactment and the ultimate decision as to the wisdom of such law rests with the legislature." Id. I do not find that regulation of how hydrocarbon resources will be developed in the boundaries of the PRCSF is an unreasonable or arbitrary classification.

An additional basis for application of the PRHDA to all lands within the boundaries of the PRCSF is the specific language of the Consent Order adopted and approved by the NRC on November 24, 1980. Under the subpart entitled, "Agreement on Nondevelopment Region," paragraph 1 of the Consent Order provides:

1. The Parties to this Amended Stipulation declare that an area within the Pigeon River Country State Forest, which is described as follows:

all the lands within the boundaries of the Pigeon River Country State Forest designated on the map in Appendix A as follows: Unit IV; Unit II; and, Unit III, except sections and portions of Sections 19, 20, 21, 22, and 23 in T33N, R1E.

(hereinafter referred to as the 'nondevelopment' region) will not be subject to oil and gas development. (emphasis in original)

Similarly, paragraphs 4 and 12, which describe the "limited hydrocarbon development region" and the "lease extension region," under the Agreement provisions of the Consent Order, refer to "all the lands within the boundaries of the Pigeon River Country State Forest designated on the map in Appendix A as...". It is clear that the language of the Consent Order, which "constitutes an appropriate hydrocarbon development plan" under the PRHDA, includes "all the lands within the boundaries of the Pigeon River Country State Forest".

The Consent Order fails to distinguish between state-owned and privately-owned lands within the boundaries of PRCSF when the nondevelopment, limited development, and lease extension regions are defined. The language of the Consent Order is unambiguous, all lands within the boundaries of the PRCSF are included in the Consent Order.

The Legislature is presumed to have intended the meaning it plainly expressed. In re Forfeiture of $18,000, supra. The Consent Order is incorporated in the PRHDA and the meanings plainly expressed in the Consent Order are incorporated in the PRHDA. Under Section 3 of PRHDA, the appropriate hydrocarbon development plan is the Consent Order, which applies to "all the lands within the boundaries of PRCSF".

Hobson Petroleum claims that the above-quoted language from Agreement paragraph 1 of the Consent Order applies only to state-owned lands. Consequently, the PRHDA would not apply to privately-owned lands within the boundaries of the PRCSF. Petitioner argues that the Consent Order only applies to those lands "designated" in the dedication by the NRC on November 7, 1973, which are only state-owned lands within the Forest boundaries.

The word "designated" in the description of the nondevelopment region, "all the lands within the boundaries of the Pigeon River Country State Forest designated on the map in Appendix A..." modifies "on the map in Appendix A". The construction espoused by Petitioner has the word "designated" modifying "lands," which results in the nondevelopment region being defined as "all the [designated] lands within the boundaries of the Pigeon River Country State Forest...". Because the lands designated as Pigeon River Country State Forest by the NRC on December 7, 1973, only include state-owned lands, Petitioner argues that the Consent Order, as incorporated in the Pigeon River Country State Forest Hydrocarbon Development Act of 1980, applies only to state-owned lands.

However, the language of the Consent Order is clear; all the lands within the boundaries of the PRCSF are included, regardless whether they are state-owned land or privately-owned land, if the land is designated on the map in Appendix A. I find that Mrs. Evelyn Schommer's land is designated on the map in Appendix A. (Exhibit P-5).

The introductory language of Agreement paragraph 1 of the Consent Order that "declare[s] that an area within the Pigeon River Country State Forest, which is described as...'all the lands within the boundaries of the Pigeon River Country State Forest...'" does not limit the applicability of the lands specifically-described, which is the indented language in the Consent Order, to only state-owned lands. The term "area within the Pigeon River Country State Forest" is an orientation term to acquaint the reader with the general area to which the indented language applies before setting out the specifically-described lands, which are "all the lands within the boundaries of the Pigeon River Country State Forest". Additionally, the orientation term is not limited to only state-owned lands.

In passing the PRHDA, the Michigan Legislature did not make a distinction as to whether an entity was a signatory to the Consent Order. The plain language of the PRHDA is applicable to all hydrocarbon development activities within the PRCSF.

Further support for application of the PRHDA to both state-owned and privately-owned lands within the PRCSF is found in the History of the Pigeon River Country State Forest, which is set out on pages 8 through 27 of this PFD and incorporated in these Findings of Fact. As stated in the history, the PRCSF had a special significance to many people in the state of Michigan. Because it is one of the largest remaining blocks of undeveloped land in lower Michigan and because of its disconnection from development, crowds, and traffic, the PRCSF provides prime habitat for various forms of wildlife, including bear, bobcat, the only large wild elk herd east of the Mississippi River, grouse, woodcock, deer, beaver, pine marten, eagles, osprey, and many other birds and animals. The streams provide excellent conditions for healthy populations of native brook trout. (Exhibit R-52).

The purpose of the Concept of Management for the Pigeon River Country, and one of the reasons for the NRC to dedicate lands as the Pigeon River Country State Forest, was to create a "special management area" to protect and manage the resources in the Pigeon River Country, particularly the fisheries and wildlife. The concept of management and the NRC's dedication of the PRCSF may have been predictable because in 1973, 65% of the state-owned lands in the Pigeon River Country were purchased by the use of money from the Game and Fish Protection Fund, then MCL 314.12; MSA 13.1361, now MCL 306.601; MSA 13.1350(601). (Exhibit R-52, p 7).

The 12-year controversy, which was waged in administra-tive agencies, the courts, the media, and the Legislature, between environmental groups, oil companies, citizens, and various government agencies involved rare, unique, and endangered natural resources, which were not easily replaceable, and an impact on one resource would have direct or consequential impacts on other natural resources. For example, if the cold water, high levels or oxygen, or gravel beds of the rivers and streams were impaired or destroyed, brook trout would be lost.

Mr. Gary Boushelle, Regional Wildlife Biologist Supervisor for the northern half of Michigan's Lower Peninsula, testified that wildlife had been the key resource that had been the issue in the propriety of hydrocarbon development within the PRCSF. (Tr, p 300).

In light of this history, background and concern, the Consent Order was approved by the NRC and adopted by the Michigan Legislature as "an appropriate hydrocarbon development plan" to "promote safe, effective, efficient, and environmentally prudent extraction of hydrocarbon resources" in the PRCSF. The hydrocarbon development plan also was a "wise use of our natural resources essential for future energy...in harmony with environmental standards".

Most privately-owned lands within the boundaries of the PRCSF are completely surrounded by state-owned lands. Access roads, pipeline corridors, utility lines, and intrusion cross state-owned lands. These actions disrupt wildlife, results in another break or cut in the Forest, and destroy habitat quality, which is the primary expected detrimental effect of unregulated hydrocarbon development. (Tr, pp 253-254, 262, 586).

Wildlife resources do not recognize ownership boundaries. (A Tr, p 6-7). Similarly, noise, odor, and intrusions do not stop at the boundaries of a drilling unit. Surface waters and ground water are not confined by legal property descriptions. Mr. Bails testified that the 1976 Original Order, Consent Order, and EIS apply to wildlife resources on both private and public land in the Forest. (Tr, P 744).

By passing PRHDA, the Legislature sought to protect all natural resources. This includes mobile resources, such as fish and wildlife resources, which travel over, on, or through privately-owned land, and stationary resources, such as components of wildlife habitat, which will always remain on state-owned land, but is affected by the activity on privately-owned lands. The legislative findings, declarations of public interest, and purposes of the PRHDA are applicable to both state-owned and privately-owned land within the PRCSF. The PRHDA regulates all land use within the boundaries of the PRCSF.

According to the testimony of Jack D. Bails, Deputy Director of the DNR, the intent of the PRHDA was to ensure that the Consent Order was recognized and established by statutory authority and could be enforced statutorily. (Tr, pp 393-396). The proponents of SB 1119, which ultimately became the PRHDA, successfully achieved their purpose by establishing the Consent Order as the appropriate hydrocarbon development plan for the entire PRCSF, regardless whether the landowner or leaseholder was a signatory to the Consent Order. Jack Bails' testimony cited on pages 88-89 of this PFD reflects that neither the Consent Order nor the PRHDA were intended to exclude private lands from their terms.

Based on the foregoing analysis and authority, I find that Hobson Petroleum Corporation is bound by the Consent Order, but not because of any language within the four corners of the Consent Order; Petitioner is bound by the Consent Order by the terms of the Pigeon River Country State Forest Hydrocarbon Development Act of 1980, MCL 319.121, et seq; MSA 13.140(51), etseq.

The Michigan Legislature has police power authority to regulate the use of lands. For example, the Michigan Legislature has enacted statutes that regulate: a) use of Great Lakes' shore lands (Shore Lands Protection and Management Act of 1970), MCL 281.631, et, seq; MSA 13.1831, et seq; b) sandunes (Sandunes Protection and Management Act), MCL 281.651, et seq; MSA 18.595(1),et seq; c) lakes and streams and adjacent frontage (Soil Erosion and Sedimentation Control Act of 1972), MCL 282.101, et seq; MSA 13.1820(1), et seq, (Natural River Act of 1970), MCL 281.761, etseq; MSA 11.501, et seq (Inland Lake and Streams Act of 1972), MCL 281.951, et seq; MSA 11.475(1), et seq; and d) wetlands (Goemaere-Anderson Wetland Protection Act), MCL 281.701, et seq; MSA 18.595(51), et seq.

It is uncontroverted and I find that the proposed drilling unit for the Schommer 2-15 Well is within the nondevelopment region described in Agreement paragraph 1 of the Consent Order. I find that the real property owned by Mrs. Evelyn Schommer and leased to Hobson Petroleum Corporation is within the boundaries of the PRCSF and it is located in Unit III of the Forest. (Exhibit P-5). I find that the proposed drilling unit for the Schommer 2-15 Well is not within one of the wholly or partially excepted "sections and portions of Sections 19, 20, 21, 22, and 23 in T33N, R1E in Unit II," which is the lease extension region.

Under the terms of the Consent Order, made applicable to Petitioner through the PRHDA, "an area within the Pigeon River Country State Forest, which is described as [including Mrs. Schommer's land]...will not be subject to oil and gas development." (emphasis in original). From Agreement paragraphs 2 and 3 of the Consent Order, nondevelopment status "means no drilling or any other activity related to the extraction or transportation of oil and gas shall be conducted on the surface of the lands involved".

Consequently, the proposed drilling unit for the Schommer 2-15 Well is not subject to oil and gas development and Petitioner is prohibited from initiating "drilling or any other activities related to the extraction or transportation of oil and gas". I find that the Supervisor of Wells properly denied Hobson's application for a drilling permit under the terms of the PRHDA, 1980 PA 316, and the Consent Order for the area in which Petitioner proposed to drill.

As previously stated, I find that the Supervisor of Wells improperly found that Petitioner was precluded from oil and gas development activity in the area Hobson proposed to drill under the terms of the Consent Judgment. The Consent Judgment entered on December 15, 1980, is not incorporated in any way in the PRHDA or Consent Order.

Although I have found that the Supervisor properly denied Petitioner's application for a permit to drill the Schommer 2-15 Well in Section 15, T33N, R1E, Cheboygan County, the proposed drilling unit is adjacent to Section 22, T33N, R1E, Cheboygan County. Agreement paragraph 12 of the Consent Order, made applicable to Hobson by the PRHDA, states:

The Parties to this Amended Stipulation declare that an area within the Pigeon River Country State Forest which is described as follows:

all the lands within the boundaries of the Pigeon River Country State Forest designated on the map in Appendix A as: the following sections and portions of sections 19, 20, 21, 22, and 23, in T33N, R1E, in Unit III.

(hereinafter referred to as the lease extension region) will be subject to an extension of oil and gas leases.

Paragraph 14 of the Consent Order provides that "no drilling or any other activity related to the extraction or transportation of oil and gas shall be conducted on the surface of lands on the lease extension region for the first two years of this new lease extension". After the end of the two years of the new lease extension, it was discretionary with the NRC whether it would approve any hydrocarbon development activity in the lease extension area. The NRC subsequently allowed hydrocarbon development activity in the lease extension region and the Rupp-State Forest 1-21 Well and the State Forest 2-22 Well were drilled at surface locations in the lease extension region approximately 2,280 feet and one mile, respectively, from the surface location of the proposed Schommer 2-15 Well. (Exhibit P-19, p 128; Tr, p 662).

In the February 5, 1988, permit denial letter, the Supervisor stated that Petitioner could utilize one of the surface locations in the lease extension region "to directionally drill to the bottom hole target you propose". (Exhibit R-1). The Supervisor continued:

You must utilize the process established by all legal documents to drill to your proposed target. You may make arrangements with the Unit Operator to drill to your proposed target. The Unit Operator would then follow the necessary review procedures and environmental safeguards established by [Consent Order, Consent Judgment, and PRHDA].

Mr. Jack Bails, DNR Deputy Director, and Dr. Donald L. Inman testified that they were prepared to issue, or recommend issuance of, a permit to drill the Schommer 2-15 Well from the surface location of the Rupp-State Forest 1-21 Well. (Tr, pp 445-446, 456-461, 511). Hobson objects to the directional drill of the Schommer 2-15 Well based on technical, economic, and environmental reasons, and because Hobson cannot comply with provisions of the Consent Order. (Tr, pp 102-104, 713-714).

Although the limitations and conditions for oil and gas development in the lease extension region are not specifically set out in the Consent Order, it is clear that all oil and gas development in the PRCSF is pursuant to the limitations in paragraphs 5 to 11 of the Consent Order. The testimony of Jack Bails reveals that when the NRC made the discretionary decision to allow hydrocarbon development activity within the lease extension region, the limitations for development set out in Agreement paragraphs 5-11 would be applicable. (Tr, p 453). For the same reasons stated in the discussion of the nondevelopment region, the limitations and conditions for hydrocarbon development set out in paragraphs 5 to 11 of the Consent Order are applicable to Petitioner through the PRHDA.

Paragraph 5 of the Consent Order provides that oil and gas development would be unitized under the terms of a "Unit Agreement for the Development and Operation of the Pigeon River Area I Unit". (Exhibit P-1). The Unit Operator under the Unit Agreement is Shell. (A Tr, pp 13, 16; Tr, p 445). Petitioner objects to SWEPI, a subsidiary of Shell, drilling or operating the Schommer 2-15 Well from the site of the Rupp-State Forest 1-21 facility because, according to Mr. Hobson, the cost of drilling the Schommer 2-15 Well by Shell is "totally out of line". (Tr, p 670). He describes SWEPI's AFE as "ludicrous". (Tr, p 702).

The cost estimate for Shell to drill the Schommer 2-15 Well is set out in Exhibit R-51; Hobson's estimate for the same well is set out in Exhibit P-32. Hobson estimated that the cost for it to drill the Schommer 2-15 Well is $247,550, whereas Shell estimated that it would cost $414,000 to drill the identical well. (Tr, p 671). Mr. Hobson estimated that it would cost $250,000 for Petitioner to complete the well and Shell estimated that the costs for completing the well is $583,000. (Tr, p 672).

Paragraph 8 of the Unit Agreement states that the Unit Operator has "the exclusive right, privilege, and duty of exercising any and all rights of the parties hereto which are necessary or convenient for prospecting for, producing, storing, allocating, and distributing the unitized substances". Paragraph 7 of the Unit Agreement provides that if the Unit Operator is not the sole owner of the working interests, "costs and expenses incurred by Unit Operator in conducting unit operations hereunder shall be paid and apportioned among and borne by the owners of working interests, all in accordance with the agreement or agreements entered into by and between the Unit Operator and the owners of working interest, whether one or more, separately or collectively." (Exhibit R-19).

A total of 89 wells were drilled in the PRCSF. (Tr, p 597). Petitioner did not introduce any evidence that revealed other working interest owners who objected to the expenses incurred by the Unit Operator in drilling or completing other wells in the PRCSF. Because the Unit Operator drilled 89 wells in the PRCSF, I find that SWEPI has considerable expertise in estimating the cost of drilling and completing wells within the restrictive terms and conditions of the Consent Order, Unit Agreement, as amended, and conditions added by the Supervisor to drilling permits in the PRCSF. (See Tr, pp 441-443).

The Unit Agreement (Exhibit R-19) is silent regarding the amount the Unit Operator is allowed to charge for the drilling and completion of wells within the PRCSF. (Tr, p 455). Under paragraph 7, costs and expenses incurred by the Unit Operator in conducting unit operations shall be paid in accordance with the agreement or agreements entered into by and between SWEPI and the owners of working interests [Hobson]. Petitioner is free to negotiate with Shell to obtain the most oil and gas development services for the least amount of money. Bails testified that if SWEPI sets an unreasonable rate for carrying out its obligation as the Unit Operator, Hobson can contest it. (Tr, p 456). A provision of the agreement between Hobson and Shell can be justification of costs. Under paragraph 5 of the Unit Agreement, the Unit Operator may be subject to removal upon default or failure in the performance of its duties or obligations. (Exhibit R-19, p 77).

In the record before me, I cannot find that SWEPI's estimate for costs of drilling and completing the Schommer 2-15 Well is unreasonable. Mr. Hobson testified to how much he could drill an identical well, but concerns were expressed that he may not be aware of all of the conditions required by the DNR to drill in the PRCSF. (Tr, p 441-443). Even SWEPI has had some problems complying with all the restrictions. Id.

Mr. Hobson testified that many of the same contractors used by Shell would be used by Hobson. (Tr, p 673). Consequently, the cost of these contractors' services would be the same for Hobson and Shell.

Comparing SWEPI's AFE with Hobson's AFE reveals a $147,550 difference between SWEPI's and Hobson's dry hole costs. SWEPI has a $132,950 item labelled "Other drilling expenditures (tools, rentals)". A breakdown of these expenditures may explain most of the difference. Completion costs cannot be compared because Hobson did not introduce an AFE for completion.

Hobson objects to unitization of oil and gas development as required under the Consent Order and Petitioner does not want to be bound by the Unit Agreement. Consequently, the Supervisor properly denied issuance of a drilling permit for the alternative location of the Schommer 2-15 Well on the site of the Rupp-State Forest 1-21 Well site, pursuant to paragraph 5 of the Consent Order.

Paragraph 7 of the Consent Order prohibits well sites within one-quarter mile of surface water. The originally proposed Schommer 2-15 Well was 300 to 350 feet from a pothole. After the proposed surface location was moved to avoid the pothole, the well site is now 757 feet from the pothole. Bazeley testified that the pothole might hold snow run-off in the Spring. (Tr, p 151). Mr. Caveney called the pothole a small pond, which connects to ground water and goes to the Black River. (Tr, pp 586-587).

On September 26, 1989, during the view, the pothole was dry. I cannot make findings on this record whether the pothole contains surface water. In light of the other dispositive findings in this PFD and the feasible and prudent alternative surface location, additional evidence to resolve this issue was not requested.

Paragraph 8 of the Consent Order provides a list of restrictions that will apply to all oil and gas development. (Exhibit P-1). The following three restrictions are applicable in this appeal:

c. There will be no transfer of production rights to any other entity at any future date without the express approval of the Director and Natural Resources Commission;

d. There will be no farm-outs or assignments of lease rights to others for development purposes without specific approval of the Director;

q. ...Only one new pipeline crossing of the Black River within the Pigeon River Country State Forest will be allowed at or near the Tin Shanty Road Bridge. Flow lines and electric lines needed for hydrocarbon development within the Pigeon River Country State Forest will not cross the Black River in more than one new location unless the Director determines that more environmental impacts will result from the selection of an alternative route.

Charles Hobson testified that Petitioner could not abide by the restrictions in paragraphs 8(c) and (d) because Hobson would either need to add industry partners to the Schommer project or the project would need to be farmed out to another oil and gas development company. (Tr, pp 103-104, 713-714). Mr. Hobson stated that two companies would review the Schommer prospect after Petitioner received a permit to drill. (Tr, p 104).

It is uncontroverted that the Black River flows in an easterly direction across the southern portion of the proposed Schommer 2-15 drilling unit and once past the east unit line, the Black River runs in a generally north direction for a distance of approximately one mile. (Exhibit P-12; Tr, p 99). The closest central processing facility, which is the Forest 24 CPF, is in the southeast quarter of Section 24, T33N, R1E, Cheboygan County, adjacent to Canada Creek Road. Id. The shortest distance between the proposed Schommer 2-15 Well and the Forest 24 Central Processing Facility is a little less than three miles. Id. However, the shortest route directly to the CPF is across the Black River.

The shortest distance to a pipeline that already connects to a CPF is approximately 2,280 feet south at the site of the Rupp-State Forest 1-21. Id. This route also crosses the Black River.

The shortest route north and east to the PRCSF east boundary is 2.8 miles. Id. At that point, Black River Road crosses the Black River at the east-west quarter lines for and section line between Sections 11 and 12, T33N, R1E, Cheboygan County. At this point, the Forest 24 CPF is over two and a half miles away, but lines may be available to the CPF from wells located in Sections 13, 14, and 24, T33N, R1E, Cheboygan County. Id. (Exhibit P-28). However, this northerly and easterly route, which does not cross the Black River in the PRCSF, must cross private land and traverse the PRCSF. This would create another "slice" of the Forest, which Edward Caveney, the area forester, stated has a detrimental affect on wildlife. (Tr, p 586).

The shortest route across the Black River outside the Pigeon River State Forest via trails and existing roads is 5.9 miles via Schommer Road, Martin's Grove, Centerline Road, Buzzel's Road, and south on Black River Road to the bridge at the east-west quarter lines for and section line between Sections 11 and 12, T33N, R1E, Cheboygan County. (Exhibit P-28; Tr, p 99). Technologically, Petitioner could run flow lines and electric lines needed for hydrocarbon development without crossing the Black River within the boundaries of the PRCSF. However, the previous analysis shows that the available routes are miles longer than the prohibited routes that cross the Black River.

Petitioner admits that it would not comply with paragraph 8(c) or (d) of the Consent Order. It is questionable whether Petitioner could comply with paragraph 8(q). The restrictions set out in paragraph 8 of the Consent Order apply to all oil and gas development allowed in the PRCSF. The Supervisor properly denied issuance of a drilling permit for the Schommer 2-15 Well, pursuant to paragraph 8 of the Consent Order.

Paragraph 9 of the Consent Order provides that oil and gas development will proceed in accordance with the procedures and criteria outlined in the "Environmental Impact Statement for Potential Hydrocarbon Development on the Pigeon River Country State Forest," which was prepared by the Department of Natural Resources and dated December 15, 1975. (See Exhibit R-27). On page 29 of the Environmental Impact Statement ("EIS") are "environmental and safety precautions which will be adhered to in the drilling and completion of wells". Id. Under "Land Use--Drilling Sites," the EIS states: "Where practical, after consideration of all surface resource and land use values, wells will be drilled from common sites using the least possible number of surface drilling locations."

Edward Caveney, who has been the only forest manager of the PRCSF, has been involved in all of the steps and phases concerning oil and gas development in the Forest. (Tr, p 518). As a special enforcement officer, Caveney works with the Unit Operator on all matters pertaining to selection, location, and review of well sites, pipeline routes, flow line routes, and access. (Tr, p 578-579). Mr. Caveney testified that if the Schommer 2-15 Well were located in the lease extension area, the site committee would recommend drilling the well from the Rupp-State Forest 1-21 surface location. (Tr, p 651).

Drilling from the surface location of the Rupp-State Forest 1-21 would effect the EIS land use goal of reducing the number of surface drilling sites and sharing a common pipeline without crossing the Black River.

Under "Directional Hole Limitations," the EIS provides:

As a practical measure, maximum deflection angles will be limited to not more than 30 under normal development operations.

Efforts will be made by the Department to avoid the necessity of exceeding these limitations. (Exhibit R-27, p 30).

I find that the deflection angle from the surface location of the Rupp-State Forest 1-21 to the proposed target of the Schommer 2-15 Well is 32 ⁽⁸⁾. The "Directional Hole Limitations" section of the EIS states a guideline that the DNR will attempt to achieve, but the EIS does not set an absolute maximum deflection angle.

The Rupp-State Forest 1-21 Well begins as a vertical drill to approximately 350 feet. (Exhibit P-19, p 133). At that point, the hole angle is deflected to a deviation of 34 and carried to 2,660 feet measured depth. Id. At that point, the deviation is increased to 51 until the bottom hole target is reached. Id. The displacement from the Rupp 1-21 surface location to the bottom hole target was originally calculated as 2,706 feet, but a revision to the surface location resulted in a 3,574 foot horizontal displacement. (Exhibit P-19, pp 128, 133-134). Caveney testified that the deviation for the Rupp 1-21 is 3,400 feet. (Tr, p 597). The vertical depth of the Rupp 1-21 Well is 4,200 feet, according to SWEPI's EIA. (Exhibit P-19, pp 129, 133). The measured depth will be 5,800 feet, according to the drilling permit. Id, p 128.

Caveney testified that 45 of the 89 wells drilled in the PRCSF are directional wells. The largest offset of any of the wells in the PRCSF is approximately one mile for a well in Section 5, Charlton Township, T31N, R1W. (Tr, p 597).

The horizontal displacement from the Rupp 1-21 surface location to the Schommer 2-15 bottom hole location is 2,280 feet. This is over one-quarter mile less than the deviation for the Rupp 1-21. The 32 deviation required to reach the bottom hole target at 4,000 feet is considerably less than the 51 hole angle of the Rupp 1-21 to reach a bottom hole target at 4,200 feet.

I find that a directionally drilled well from the Rupp-State Forest 1-21 surface location to the target area of the Schommer 2-15 Well does not exceed the directional hole guidelines of the EIS and it would comply with the land use guidelines of the EIS. The feasibility and prudence of drilling the Schommer 2-15 Well from the Rupp 1-21 surface location is addressed in the next section.

Under the "Transportation System" section of the EIS, a pipeline system is required to move products from the facilities to market outlets outside the PRCSF. (Exhibit R-27, p 30). Trucking of product will be permitted only during the initial period of testing to ascertain production. Id. Consequently, trucking product is not an option for Petitioner and that is why trucking was not addressed as an alternative in the discussion regarding paragraph 8(q) of the Consent Order, regarding pipeline, flow line, and electric line crossings of the Black River.

Petitioner objects to the environmental precautions set out in the EIS, which are incorporated in the Consent Order pursuant to paragraph 9. Consequently, the Supervisor properly denied issuance of a drilling permit for the Schommer 2-15 Well under paragraph 9 of the Consent Order.

Petitioner claims that the environmental findings and safeguards in the EIS and Consent Order are not justified by any currently prevailing environmental conditions in the PRCSF. Petitioner did not present any evidence that contradicts the findings in the EIS, Consent Order, or PRHDA.

An Environmental Impact Assessment is attached to Petitioner's Application for Permit to Drill. (Exhibit P-12, pp 100-104). Surprisingly, contrary to the testimony of Mr. Hobson, Petitioner's Environmental Impact Assessment states:

We agree to take the mitigating, protective, and corrective measures to reduce impact set forth at length in State of Michigan EIA [sic, EIS] dated 15 Dec 1976 and stipulation and Consent Order dated 11 June 1976 as amended 24 Nov 1980 ['Consent Order'] insofar as they apply to drilling on privately-owned land for privately-owned minerals; in short, we are agreeing to do all the things Shell is doing in their obviously successful operation in PRCSF. (Exhibit P-12, p 102).

Mr. Hobson claims that the EIA attached to Petitioner's Application for Permit to Drill is the same as all other EIAs prepared for a prospective well in the PRCSF. (Tr, p 47). Hobson stated that the issues addressed by Shell in the EIAs attached to their permit applications are addressed by Petitioner in its permit application. (Tr, p 48). Mr. Inman pointed out that SWEPI's EIAs are supplemental to an entire hydrocarbon development proposal for a unit or area. (Tr, p 247). An individual permit application may not have an extensive EIA because applicable factors are considered in the development proposal.

Dr. Donald L. Inman was qualified and allowed to testify as an expert in the area of impacts from oil and gas development on natural resources in the PRCSF. (Tr, pp 225-233). In relation to the EIA submitted by Petitioner, Inman stated that the EIA failed to mention eagles, osprey, and pine marten as endangered or threatened wildlife species. (Tr, pp 241-243).

Inman disagreed with the Hobson EIA claim that drilling and completion of a well will cause noise for a short, possibly two-week, period. Inman testified that transportation of product out of the Pigeon River area, if it is by truck, would be a continuous noise during the life of the production of the Well. (Tr, p 243). Bazeley testified that at 360 barrels per day, two tanker trucks per day would be needed to service the well. (Tr, p 166). Inman stated that this type of noise caused by trucks is a disturbance to elk. (Tr, pp 243-244).

Dr. Inman disagreed with Hobson's EIA observation that the location of production equipment in relation to the wellhead could not be ascertained. Inman stated that wells and production facilities are planned entirely to be the most environmentally sound way of proposing oil and gas development. Consequently, production facility and pipeline locations must be planned prior to permitting any well. (Tr, p 245).

Dr. Inman objected to Hobson's EIA statement that air quality would be minimally affected during testing because gas produced would be flared. Inman testified that flaring is not allowed in PRCSF. (Tr, p 245). Dr. Inman also challenged Hobson's failure to mention the possibility of a directional drill under the "Possible Alternatives" section of the EIA. (Tr, p 246).

Neither Petitioner's EIA nor rebuttal testimony dispute Dr. Inman's testimony that the Black River and its adjoining watershed is a significant natural resource because it has a significant brook trout population. (Tr, pp 203-204). The single pipeline crossing restriction of the EIS protects the significant features of the Black River, particularly as it relates to brook trout habitat. Id. I find that the currently prevailing environmental conditions in relation to the Black River, its adjoining watershed, and the brook trout population it supports has not changed since the EIS was first prepared in 1975.

Dr. Inman also testified regarding potential affects to the PRCSF by individuals who used motorized vehicles along pipeline right-of-ways. (Tr, p 204).

Pages 191 to 194 of the EIS describe the effects of oil and gas development upon elk, bobcats, deer, bald eagle, and other wildlife. Dr. Inman stated that any adverse impact on the elk herd from hydrocarbon development in the PRCSF has been masked by other factors, such as reduced poaching, intensive efforts to increase habitat, and strict adherence to restrictions intended to protect elk. (Tr, pp 209-210).

Effects on bear and bobcat remain the same since 1975. Dr. Inman testified that bear and bobcat require extensive home ranges (p 210). Based on studies conducted in Michigan and other parts of the United States, bear and bobcat are sensitive to intrusion and require quiet areas, which are primarily wetland, where they can move away from human disturbances. (Tr, pp 210-211). The northern two-thirds of the PRCSF contain the higher populations of bear and bobcat. (Tr, p 211). Significantly, this is the same area where hydrocarbon development is prohibited.

Dr. Inman testified that the no-drill boundary was placed where it is located because the northern two-thirds of the PRCSF has fewer roads, which means fewer intrusions. (Tr, p 222). It also means that it is more difficult for oil and gas development to occur and be located on an existing road. Because of less disturbance, sensitive wildlife species are present in greater numbers in the northern portion of the Forest. (Tr, p 222).

For the foregoing reasons, for the reasons stated in the next section regarding impairment and destruction standard under MEPA, and for the reasons given for the establishment of the no-drill boundary in Exhibit R-32, pp 248-251, I find that environmental findings and safeguards in the EIS and Consent Order, which were published 16 and 11 years ago respectively, are as applicable today as they were when originally released. Additional supporting testimony is cited on pages 47-54, 59, 63-64, 67, 71-73, 85, 92, 100-104, and 106-107 of this PFD.

For all of the foregoing reasons, the Supervisor of Wells correctly denied Petitioner's application for a permit to drill in paragraphs 1, 3, and 4 of his February 5, 1988, letter based on the Pigeon River Hydrocarbon Development Act of 1980, MCL 319.121, etseq, MSA 13.140(51), et seq, and incorporated documents.

The Thomas J. Anderson, Gordon Rockwell
 

Section 5(2) of MEPA, which is applicable in all administrative or licensing proceedings, provides:

(2) In any such administrative, licensing or other proceedings, and in any judicial review thereof, any alleged pollution, impairment, or destruction of the air, water, or other natural resources, or the public trust therein shall be determined and no conduct shall be authorized or approved which does, or is likely to have such effect so long as there is a feasible and prudent alternative consistent with the reasonable requirements of the public health, safety, and welfare.

In applying § 3(1) of MEPA, MCL 691.1203(1); MSA 14.528(203)(1), courts have construed a two-part test to determine if a prima facie case is established. By analogy, the same two-part test can be used to apply § 5(2) of MEPA to particular proposed actions. First, a determination must be made whether a natural resource is involved. Second, it must be determined whether the impact of the activity on the environment rises to the level of impairment or destruction. City of Portage v Kalamazoo County Road Comm, 136 Mich App 276, 280; 335 NW2d 913, lv den 422 Mich 883 (1985); Kimberly Hills Neighborhood Assoc v Dion, 114 Mich App 495, 503; 320 NW2d 668 (1982), lv den 417 Mich 1045 (1983).

Section 3 of the PRHDA, MCL 319.123; MSA 13.140(53), states that the PRCSF is a valuable "public resource". In West Michigan Environmental Action Council v Natural Resources Commission, 405 Mich 741, 760; 275 NW2d 538, cert den sub nom Shell Oil Co v West Michigan Environmental Action Council, 444 US 941; 100 S Ct 295; 62 L Ed 2d 307 (1979), in light of the limited number of elk, the unique nature and location of the elk herd in the PRCSF area, and the serious and lasting damage that would result to the herd, the Michigan Supreme Court found that the drilling of 10 exploratory wells in the PRCSF is conduct that constitutes an impairment or destruction of a natural resource.

There is no question that natural resources are involved in this appeal. The Michigan Legislature in the PRHDA, and the Michigan Supreme Court in West Michigan Environmental Action Council, supra, found natural resources in the PRCSF. Testimony also established that elk, bear, bobcat, osprey, bald eagles, pine marten, and other wildlife are natural resources in the PRCSF. Odor-free air, the Black River, wetlands, other surface water, and the aesthetic, recreational, forestial, and habitat values of the PRCSF are "air, water, or other natural resources" under MEPA.

The second issue is whether the proposed activity can be found to rise to the level of impairment or destruction of natural resources so as to constitute an environmental risk proscribed by MEPA. West Michigan Environmental Action Council, supra, p 760. In City of Portage, supra, p 282, the court set out four factors to consider in determining whether the impact of a proposed action on wildlife is so significant as to constitute an environmental risk. The environmental situation before the proposed action must be compared with the probable condition of the particular environment after the proposed action. The factors to consider include:

(1) whether the natural resource involved is rare, unique, endangered, or has historical significance, (2) whether the resource is easily replaceable (for example, by replanting trees or restocking fish), (3) whether the proposed action will have any significant consequential effect on other natural resources (for example, whether wildlife will be lost if its habitat is impaired or destroyed), and (4) whether the direct or consequential impact on animals or vegetation will affect a critical number, considering the nature and location of the wildlife affected.

The characteristics of the resource involved will directly influence the magnitude of the harm likely to result from the proposed action. Kimberly Hills, supra, p 508. Petitioner bears the burden of showing entitlement to a permit.

Respondent presented overwhelming competent and relevant testimony that Petitioner's proposed activity is likely to result in pollution, impairment, or destruction of the air, water, or other natural resources. Dr. Donald L. Inman testified that he was chairperson of the task force that developed the EIS for the PRCSF. (Tr, p 191). It took approximately six months for six professionals, each one of whom specialized in a different scientific field, under Dr. Inman's direction, to prepare the EIS. (Tr, p 199). Pages 18 and 19 of the EIS (Exhibit R-27) discuss the affects of transporting oil and gas by pipelines. Dr. Inman testified that pipelines can be a disruptive factor in the environment, particularly when they cross either wetlands or surface waters. (Tr, p 202). Erosion, sedimentation, interruption in the flow of ground water and compaction of soils all have damaging affects that go beyond the right-of-way of a pipeline. (Tr, pp 202-203). In relation to the Black River, the number of pipeline crossings is restricted to one site. Inman testified that site already exists and it is not near the Schommer lease. (Tr, p 203).

Edward Caveney's testimony regarding the danger of a pipeline under the Black River is cited on page 102 of this PFD. Inman's testimony regarding the significance of the Black River because of its brook trout population was previously discussed. I find that Hobson's need or plan to construct a pipeline crossing of the Black River rises to the level of impairment.

Mr. Gary Boushelle, DNR Regional Wildlife Biologist Supervisor, testified that wildlife has been the key resource that has been an issue in the propriety of hydrocarbon development in the PRCSF. (Tr, p 300). Following a site visit on January 23, 1987, Boushelle found that wildlife resource impacts identified in the EIS (Exhibit R-27, pp 191-194) would not be reduced or eliminated by Hobson's proposed activity. (Tr, p 260).

Other than in the PRCSF, pine martens occur in the Lower Peninsula only in Wexford County. Pine martens are normally found in areas that have small amounts of intrusion or disruption by man. (Tr, p 317).

Boushelle testified that there is a potential for impairment of elk if drilling is allowed for the Schommer 2-15 Well. (Tr, p 318). Mr. Boushelle believes that bald eagles go to the creeks and ponds along the Black River, which serve as a food source. (Tr, p 320). Bald eagles like undisturbed areas. (Tr, p 327). Oil and gas development activity would be a recognizable deterrent to a bald eagle. Id.

Boushelle opined that tanker truck removal of product from the well site would be disruptive to the wildlife in the area. (Tr, p 262). Boushelle's main concern with Hobson's proposed action is that many of the adverse impacts of oil and gas development will not be mitigated through the one operator unitization requirement. (Tr, p 312).

Mr. Edward W. Caveney, the PRCSF's only forest manager and special enforcement officer for the oil and gas development in the PRCSF, testified that a well on the proposed Schommer 2-15 drilling unit would adversely affect the area because it would disrupt a large tract of nondeveloped land, which provides solitude, peace, and quiet for people and for wildlife. (Tr, pp 581-583). Mr. Caveney stated that although the PRCSF is not a wilderness, by its strictest definition, in the area of the proposed Schommer 2-15 Well, it is a wild area and bear, bobcat, coyote, elk, eagle, osprey, pine marten, and otter are protected from disruption in this area. (Tr, p 583).

A pipeline or flow line in the area would result in another break or cut in the Forest, which slices the Forest into smaller pieces. (Tr, p 563). Caveney testified that it is important that the Forest have a large area of undeveloped land without cuts and breaks in it. (Tr, p 586).

Mr. Caveney testified that the greatest mitigating factor in the EIS to offset the impacts to the elk herd is the nondevelopment area itself. (Tr, pp 590-591). Caveney stated that the impacts to wildlife that are identified in the EIS would reoccur if drilling were allowed in the no-drill area.

In light of the foregoing unrebutted testimony, the limited number and location of rare, endangered or threatened species, the unique habitat provided to wildlife in the PRCSF and the lasting adverse impacts to wildlife and wildlife habitat that will result from the drilling of the Schommer 2-15 Well, I find that Petitioner's proposed action rises to the level of impairment or destruction of natural resources so as to constitute an environmental risk proscribed by MEPA.

Additional testimony that supports the above application of the impairment or destruction standard to wildlife populations and ecological communities, including wildlife habitat, on a statewide perspective, is found at pages 49-54, 71-76, 99-105, and 107. Based on the above-quoted factors from City of Portage,supra, the magnitude of harm particularly to elk, bobcat, bear, pine marten, osprey, and eagle and the habitat required to sustain these mammals and birds constitutes an environmental risk of likely impairment or destruction.

Further support for this finding is found in the history of the Pigeon River Country State Forest Hydrocarbon Development Act of 1980, MCL 319.121, et seq; MSA 13.140(51), et seq. Section 3 of the PRHDA states that the Consent Order constitutes an appropriate hydrocarbon development plan for the purposes and the intent expressed in Section 2 of the PRHDA.

The purposes and intent expressed in Section 2, MCL 319.122; MSA 13.140(52), include the "safe, effective, efficient, and environmentally prudent extraction of hydrocarbon resources in the Pigeon River Country State Forest" and "energy resource development...in harmony with environmental standards".

Section 4 of the PRHDA provides that hydrocarbon activities in the PRCSF authorized by the Consent Order can be carried out without violation of law under terms of the Consent Order. From the legislative record, it is clear that at least one law, if not the only law, the Legislature was seeking to avoid was MEPA. In the Senate Analysis Section's First Analysis of SB 1119 (S-3)(11-26-80), one of the arguments that opposed the hydrocarbon development act was:

[I]f the bill is enacted and enforced then it would effectively exempt all oil and gas drilling activities in the Pigeon River Country State Forest from the Michigan Environmental Protection Act ('MEPA'). The bill does so by legislatively authorizing the same stipulation and consent order which was nullified by the courts on the grounds that the activities permitted by the order could impair, damage, or destroy the environment--a clear violation of MEPA.

The response to this argument states:

The bill does, however, attempt to clarify the phrase 'impair, damages or destroy,' which is not defined in MEPA, by identifying those hydrocarbon development activities that would not be judged as impairing or destroying the environment'.

Senator Hertel's statement in protest of passing SB 1119 points out that the issue has been through the courts, including the circuit court, the Michigan Supreme Court, and the United States Supreme Court. Senator Hertel was referring to theWest Michigan Environmental Action Council v Natural Resources Commission, supra, case, wherein the Michigan Supreme Court found that the drilling of 10 exploratory wells in the PRCSF would result in an impairment or destruction of elk in violation of MEPA. Senator Hertel stated that by passing SB 1119, the Senate was "going around those decisions". 1980 Journal of the Senate, September 30, 1980, No. 109, p 2585.

Section 4 of the PRHDA, MCL 319.124; MSA 13.140(54), states that hydrocarbon activities in PRCSF authorized by the Consent Order are not in violation of law under the terms of the Consent Order. Application of the statutory interpretation maxim of "Expressio unius est exclusio alterius," which means that the expression of one thing is the exclusion of another, means that hydrocarbon activities within the PRCSF not authorized by the Consent Order would be in violation of law. If the Legislature had intended hydrocarbon development to occur in a manner differently than prescribed in the Consent Order and still not be a violation of law, the Legislature would not have expressly provided that the Consent Order can be carried out without violating the law under terms of the Consent Order.

The legislative history specifically references MEPA and the clear implication is that hydrocarbon development outside the Consent Order would be in violation of MEPA.

Although I have already found that Petitioner's action would rise to the level of impairment or destruction under MEPA, I will elucidate an initial concern I had in analyzing Petitioner's proposed activity in relation to the EIS, which is incorporated in the Consent Order, which is incorporated into the PRHDA. The Summary of the EIS succinctly sets out how the no-drill boundary was finally established. (Exhibit R-27, p 156). The EIS states:

The final line for the no-drill boundary option is somewhat arbitrary, but conservative and defensible on environmental grounds. It is likely that the northern limit of the most productive hydrocarbon pools lie three miles north or south of the line established. The northern limit is most likely an undulating, rather than a straight line, that can only be determined with certainty by exploratory drilling.

The east-west quarter line in Section 31, T33N, R1E, Cheboygan County, was the northern extent of the proposed no-drill boundary in the EIS. (Exhibit R-27, Figure 11, p 218). The three mile "most productive hydrocarbon pool" region north or south of the proposed no-drill boundary includes Mrs. Schommer's lands. The proposed drilling unit for the Schommer 2-15 Well is 2-1/2 to 3 miles north of the no-drill boundary proposed in the EIS. The no-drill boundary moved northward under the Consent Order to a location one mile south of Mrs. Schommer's lands. That no-drill boundary was moved one mile north when the NRC approved drilling in the lease extension area. (Tr, pp 436, 437).

During the hearing on this appeal, I repeatedly asked witnesses to differentiate the environmental impact between, on one hand, the Rupp-State Forest 1-21 and State Forest 2-22 Well sites and, on the other hand, the proposed well site for the Schommer 2-15 Well. The Rupp-State Forest 1-21 Well site is located approximately 2,280 feet from the proposed Schommer 2-15 Well and the State Forest 2-22 Well site is located approximately one mile from the Schommer well site.

At the hearing, it was difficult to accept that Petitioner's proposed conduct within 2,280 feet of the same conduct by SWEPI would likely pollute, impair, or destroy the air, water, or other natural resources.

Dr. Inman testified regarding the difficulty drawing a straight line in the environment because the environment does not act linearly. (A Tr, p 6). Inman acknowledged that the EIS states that the no-drill line is arbitrary, but Inman defended the decision because of the great amount of public input and scientific knowledge that went into the no-drill line. (A Tr, pp 56-58).

This issue was settled in my mind during the September 26, 1989, view of the proposed Schommer 2-15 Well drilling site and the surrounding area, including the site of the Rupp-State Forest 1-21 Well. The view also allowed me to put into perspective the testimony I had previously heard but was unable to fully comprehend.

I find that a significant difference exists between Petitioner's proposed conduct north of the no-drill boundary and the same conduct south of the no-drill boundary. All lands in the PRCSF located north and south of the no-drill boundary may not have the same distinctiveness, but at least the no-drill boundary is defensible in the area of Mrs. Schommer's land because of the Black River.

During the view, the Schommer lands were approached from the north on Clute or Clark Roads. Clute and Clark Roads are the same roads. (Tr, p 634). This road had brush extending to the sides of the road and water was standing on both sides of the road to within inches of the gravel roadbed. At the end of Clute or Clark Roads is a gravel two-track trail that leads to Evelyn Schommer's property. This description is consistent with that contained in Hobson's EIA (Exhibit P-12, p 101) and the testimony of Paul Bazeley. (Tr, p 147). Edward Caveney testified that there is a little two-track road leading to the site and it is not a through road. (Tr, p 582).

Along the two-track trail, which is known as Martin's Grove, there are no houses or cottages until the end of the road at the Black River, where one cottage, which has been badly gnawed by animals, is located. The Black River is accurately described by Mr. Bazeley, as "a very nice stream" between 12 and 20 feet wide, and a few feet deep. (Tr, p 152). As Mr. Bazeley testified, the Schommer lease is not densely wooded and it is easy to get around on the property. (Tr, p 149).

The remoteness of Mrs. Schommer's lands was indicated when the view party drove from the proposed site of the Schommer 2-15 Well to the site of the Rupp-State Forest 1-21 Well located approximately 2,280 feet south. To reach the Rupp-State Forest 1-21 site, we drove 2.5 miles north up Martin's Grove and Centerline Roads to Buzzel's Road. We traveled two miles east on Buzzel's Road to Black River Road. We traveled 4.2 miles south and west on Black River Road to Shan-Gra-La Road. We drove west .75 mile and north .35 mile on Shan-Gra-La Road to the site of the Rupp 1-21 Well. In other words, we traveled almost 10 miles from Mrs. Schommer's lands to reach the adjacent property less than .5 mile south of the Schommer lease across the Black River. The Rupp-State Forest 1-21 surface location is adjacent to Shan-Gra-La Road. The eastern boundary of the Pigeon River Country State Forest intersects Shan-Gra-La Road approximately 1.1 mile from the site of the Rupp-State Forest 1-21 Well. Farms, permanent residences, and cottages are located along Black River Road, which is the eastern boundary of the PRCSF.

During the view, I observed the same conditions testified to by Mr. Caveney. He testified that there is a great difference between the PRCSF in the area of the Rupp-State Forest 1-21 Well and the proposed Schommer 2-15 Well. Caveney stated that the Black River, which runs between the Rupp-State Forest 1-21 Well and the Schommer 2-15 Well is a good dividing line. (Tr, p 599). South of the Black River there is activity and development. Id. The county road is plowed all year. Id. There are power lines and some habitation. There is a flow line in the area from two well sites. (Tr, p 599).

North of the Black River there is no development. Id. In Section 15, there is a year-round residence to the east of the Schommer site, but it is south of the Black River. (Tr, p 599). Based on the view and in light of Caveney's testimony, the location of the no-drill boundary adjacent to the Black River between Sections 15 and 22, Forest Township, T33N, R1E, Cheboygan County, is defensible when considering the likely impairment or destruction of the air, water, or other natural resources. The northern limit of the no-drill boundary may be "undulating rather than a straight line," but in the area of Mrs. Schommer's land, from a water and natural resources viewpoint, I find that the no-drill boundary is properly fixed.

Section 5(2) of MEPA prohibits authorizing or approving conduct which does or is likely to pollute, impair, or destroy the air, water, or other natural resources "so long as there is a feasible and prudent alternative consistent with the reasonable requirements of the public health, safety, and welfare".

In determining what is a "feasible and prudent alternative," Sylvester v US Army Corps of Engineers, 882 F2d 407 (CA 9th, 1989)(practicable and reasonable alternatives) is instructive. It is legitimate to give some deference to the applicant's purpose. Id, 409. This does not mean that the applicant's purpose is the only standard to be applied, but the Department can not substitute a purpose it deems more suitable. An applicant may not define alternatives in a manner so as to preclude any feasible alternatives. The purpose must be legitimate. Id, p 409. If alternative locations or methods are capable of meeting a legitimate purpose with less impact on the air, water, or other natural resources, they must be considered. The Corps of Engineers considers cost, existing technology, and logistics in light of the overall project. Id, p 408. Reasonable additional costs will not render alternatives infeasible or imprudent. A site will not be considered feasible and prudent if it will have a greater adverse impact on the environment.

Hobson Petroleum Corporation states that its purpose is to develop and produce hydrocarbon resources from the proposed Schommer 2-15 Well drilling unit. The proposed bottom hole target is 1,400 feet north and 460 feet east of the proposed drilling unit boundaries.

I find that Hobson Petroleum Corporation has not arbitrarily designed its goal to exclude alternatives. The goal of hydrocarbon development is a legitimate goal.

Dr. Donald L. Inman testified that using the standard of MEPA, the Rupp 1-21 surface location is a more environmentally acceptable site and it is a reasonable and prudent alternative to the proposed Schommer 2-15 Well site. (A Tr, p 20).

Petitioner maintains that the most economic, technologically easiest and least time-consuming way to achieve its purpose is to drill vertically from a surface location immediately above the bottom hole target. (Tr, pp 101-102).

Mr. Hobson admitted that from a technological standpoint, a slant drill and a vertical drill can both achieve the target. (Tr, p 95). Mr. Hobson testified that the disadvantages to a directional drill include: a) traversing the Niagaran reef from the side, which prevents testing the producing structure from top to bottom (Tr, pp 95-96); b) taking two to three times longer to drill a directional hole than a straight hole (Tr, p 96); c) expending more money because a directional hole cannot be drilled on a footage basis, but on a per diem basis (Tr, p 97); d) making it easier to lose a string of tools in a directional hole (Tr, p 97); and, e) encountering a loss circulation zone is more problematical with a directional drill than a vertical drill (Tr, p 99).

Hobson admitted that technologically, it is feasible to drill to the targeted bottom hole for the Schommer 2-15 Well from the surface location of the Rupp-State Forest 1-21 Well. (Tr, pp 101-102). In light of the monetary, technological, and environmental factors, Hobson would prefer to drill a straight hole. (Tr, p 102).

Mr. Bazeley opined that a slant drill is not a viable alternative. (Tr, p 168). Mr. Bazeley listed the same considerations raised by Mr. Hobson. Mr. Bazeley did admit that an angle of 10 probably is not difficult, but angles of 40-45 can run into extreme amounts of difficulty and cost considerably more. (Tr, p 169). Mr. Bazeley testified that the deviation from the Rupp-State Forest 1-21 Well would be around 1,900 feet and he would expect a deviation to be at least 45. (Tr, p 170).

Michael Bricker opined that it is feasible to directionally drill a well from the Rupp 1-21 surface location to a bottom hole location approximately 2,280 feet away at the proposed Schommer 2-15 Well location. (Tr, p 347). Bricker stated that on an average, in excess of 20% of all wells drilled in Michigan are drilled directionally. (Tr, p 337). In 1987, 24.2% of the wells drilled in Michigan were drilled direction- ally. (Tr, p 367). The longest horizontal displacement that Bricker had knowledge of in Michigan is 4,650 feet. (Tr, p 338). The horizontal displacement from the surface location to the bottom hole target of the Rupp-State Forest 1-21 Well is 2,706 feet, according to the permit to drill. (Tr, p 353). The hole angle is 34 to 2,660 feet and 51 to the expected bottom hole depth of 5,800 feet. (Tr, pp 352-353; Exhibit P-19, p 133).

Mr. Bricker agreed with Mr. Hobson that it is more expensive to drill directionally than vertically. (Tr, p 357). Mr. Bricker opined that it did not make a difference whether a vertical or horizontal drill was used to hit a desired bottom target but, assuming everything was equal, Bricker would rather drill a vertical hole than a directional hole. (Tr, pp 338, 371).

Mr. Jack D. Bails, DNR Deputy Director, testified that he has visited virtually every site that has been drilled and produced or drilled and abandoned within the PRCSF. (Tr, p 420). Taking into account environmental factors, the Rupp-State Forest 1-21 surface location is a prudent alternative because the surface location was previously reviewed for SWEPI and SWEPI drilled a directional hole with equal or greater horizontal deviation than the deviation to the proposed Schommer 2-15 Well. (Tr, pp 423-424). Mr. Bails stated that directional drilling is a prudent approach based on the experience of the Unit Operator in the PRCSF and directional drilling is a very safe and reliable alternative method for reaching bottom-hole targets. (Tr, pp 424-425).

Mr. Edward Caveney, as the area forest manager, has been involved in all of the steps and phases concerning oil and gas development in the PRCSF. (Tr, p 518). Mr. Caveney testified that there have been 89 permitted sites in the PRCSF and 45 of them are directional. (Tr, p 597). Mr. Caveney believes that a directional drill is more accurate than a straight drill because SWEPI monitors where the bit is at all times in a directional hole and it can hit a target more accurately with a directional drill. (Tr, p 621). Assuming that the no-drill boundary did not exist, Mr. Caveney testified that the site committee for approving surface locations of wells in the PRCSF would recommend drilling the Schommer 2-15 Well from the surface location of the Rupp-State Forest 1-21 Well. (Tr, p 651).

Based on the above analysis of the record, I find that there is an alternative location available to Petitioner that will meet its stated purpose of exploring for oil and gas reserves on the Schommer lease. Further, I find that the alternative method of meeting Petitioner's stated purpose, specifically a directionally-drilled well, represents the best feasible and prudent alternative method for meeting Hobson's purpose from the alternative location. As previously found, the deviation angle is 32 and by using Pythagoras' theorem, the measured depth with a 350 foot vertical hole is 653 feet greater than the true vertical depth of 4,000 feet.

Although testimony showed that directionally-drilled wells cost more than vertically-drilled wells, only Mr. Hobson showed the cost difference in the alternative methods of drilling. A straight hole costs $170,000 and a directional hole costs $247,550. (Tr, p 94).

I find that the additional 32% increase in cost is reasonable based upon the previous discussions, at length, regarding the hydrocarbon development alternatives and restrictions utilized to minimize environmental impacts. Twelve years of controversy followed by twelve years of relative success in implementing the balance represented in the Consent Order, EIS, Unit Agreement, and other documents indicate that the additional financial burden is reasonable in light of the purposes achieved.

In Wayne County Department of Health v Olsonite Corp, 79 Mich App 668-705; 263 NW2d 778 (1977), lv den 402 Mich 845 (1978), the court suggested that the "feasible and prudent" inquiry includes the consideration of any "truly unusual factors," costs of "extraordinary magnitude," or "unique problems" associated with the alternative. In light of the testimony showing that in excess of 50% of the wells drilled in the PRCSF are drilled directionally and in light of the success of the hydrocarbon development plan in having the Unit Operator continue drilling directionally while maintaining the environmental and safety considerations, I find no truly unusual factors, costs of extraordinary magnitude, or unique problems associated with a directional drill of the Schommer 2-15 Well from the surface location of the Rupp-State Forest 1-21 Well. Jack D. Bails, Deputy Director of the DNR, testified that SWEPI, as Unit Operator, has the contractual obligation to meet all reasonable requests for drilling within the PRCSF where drilling is authorized under the Consent Order. (Tr, p 445). Mr. Bails testified that he would move, as DNR Deputy Director, to ask the Attorney General to pursue SWEPI in court if it refuses to carry out its legal obligation under the Unit Agreement. (Tr, p 446). Consequently, Hobson Petroleum has a feasible and prudent alternative that is consistent with the PRHDC, Consent Order, EIS, and Unit Agreement. Hobson's chief objection appears to be the difference between the cost for Hobson to drill and the cost for SWEPI to drill the same directional well. This issue was previously addressed in this PFD and it does not raise the cost of the alternative to a level of economic infeasibility or imprudence.

I did not address the public trust in this PFD because of the overwhelming evidence of impairment or destruction to the air, water, and natural resources.

For the foregoing reasons, the Supervisor of Wells correctly denied Petitioner's application for a permit to drill the Schommer 2-15 Well in paragraphs 2 and 4 of his February 5, 1988, letter based on the Thomas J. Anderson-Gordon Rockwell Environmental Protection Act of 1970, 1970 PA 127, MCL 691.1201, etseq; MSA 14.528(201), et seq.

Oil and Gas Conservation Act, 1939 PA 61,
 

In Michigan Oil Co v Natural Resources Commission, 406 Mich 1, 21; 276 NW2d 141, cert den 444 US 980; 100 S Ct 482; 62 L Ed 2d 407 (1979), the Michigan Supreme Court found that the Oil and Gas Conservation Act ("OGCA"), 1939 PA 61, as amended, MCL 319.1,et seq; MSA 13.139(1), et seq, places an affirmative duty on the Supervisor of Wells, to prevent waste, including serious or unnecessary damage, spoilation, or destruction of the land, flora, fauna, and other natural resources, even in the absence of specifically promulgated rules and regulations. Support for the Supreme Court's holding in Michigan Oil Company is found in Section 23 of the OGCA, which provides: "A permit [to drill] shall not be issued to any owner or his authorized representative who has not complied with or is in violation of this act, or any of the rules, requirements, or orders issued by the Supervisor or the Department of Natural Resources, MCL 319.23; MSA 13.139(23).

The Consent Order is an order of the Department of Natural Resources and it is an order that the NRC directed the Director of the DNR to implement and enforce. (Exhibit R-22, p 139). Section 23 of the OGCA authorizes the Supervisor of Wells to deny Petitioner's drilling permit if Petitioner will not comply with the Consent Order. As previously addressed, Petitioner cannot or refuses to comply with various provisions of the Consent Order, which incorporates the EIA and Unit Agreement. Without the restrictions, protections, and safeguards set out in the Consent Order, EIA, and Unit Agreement, the Supervisor could properly find that the proposed Schommer 2-15 Well poses a serious or unnecessary threat to wildlife, wildlife habitat, the Black River, wetlands, ground water, and forestial and recreational values of the PRCSF. This serious or unnecessary threat falls within the statutory definition of ordinary, subsurface, and surface waste in Section 2 of OGCA, MCL 319.2; MSA 319.139(2).

Further, as the Supreme Court noted in Michigan Oil Co,supra, p 27, the specific reference to the DNR in Section 23 of the OGCA "demonstrates that the Legislature did not draft this act in a vacuum, intending to sacrifice all other natural resources in an effort to discover and produce oil and gas". In light of the previous analysis of the PRHDA, the Legislature's finding that the Consent Order constitutes an appropriate hydrocarbon development plan for the PRCSF indicates that the Supervisor is not to ignore the PRHDA when considering an application for a permit to drill under the OGCA. I have previously found that Petitioner's application is not within the provisions of PRHDA.

I find that the Supervisor of Wells properly denied Petitioner's application for a permit to drill under the Oil and Gas Conservation Act, MCL 319.1, et seq; MSA 13.139(1), et seq, as set out in paragraphs 2 and 4 of his February 5, 1988, letter.

Water Resources Commission Act, 1929 PA 245, As Amended,
 

The Michigan Water Resources Commission Act ("WRCA"), 1929 PA 245, as amended, MCL 323.1, et seq; MSA 3.521, et seq, is Michigan's most important state water pollution control act. The Supervisor of Well's February 5, 1988, denial letter does not base his decision on the Water Resources Commission Act. Consequently, there is no basis to review the Supervisor's decision based on the WRCA.

Additionally, the purposes and intent of the Water Resources Commission Act are incorporated in previously analyzed statutes or documents. Paragraph 7 of the Consent Order provides that well sites will not be placed within one-quarter mile of surface water. Only one pipeline crossing of the Black River is allowed in the EIS. Rules promulgated pursuant to OGCA provide for prevention of pollution and destruction of property or life by requiring dikes and prescribing procedures for the handling of waste oil, tank bottoms, crude oil, and refined products. 1963 AACS R 299.1904, 1905, 1906, and 1909.

Additionally, OGCA must be read in pari materia with the Water Resources Commission Act. As explained by the Michigan Supreme Court in Detroit v Michigan Bell Telephone Co, 374 Mich 543, 558; 132 NW2d 660 (1965); app dis and cert den 382 US 107; 86 S Ct 256; 15 L Ed 2d 191 (1965):

Statutes in pari materia are those which relate to the same person or thing, or the same class of persons or things, or which have a common purpose. It is the rule that in construction of a particular statute, or in the interpretation of its provisions, all statutes relating to the same subject, or having the same general purpose, should be read in connection with it, as together constituting one law, although enacted at different times, and containing no reference one to the other.

OCGA specifically prohibits waste, which not only includes ordinary waste, but underground waste and surface waste. MCL 319.2; MSA 13.139(2). Underground waste includes "unreasonable damages to underground fresh or mineral waters, natural brines, or other mineral deposits from operations for the discovery, development, and production and handling of oil or casing-head gas". Id. Surface waste embraces "the unnecessary damage to or destruction of the surface, soils, animal, fish or aquatic life, or property from or by oil and gas operations". Id.

With the foregoing references, specifically to ordinary waste, damage to underground, fresh or mineral waters, natural brines, and damage to or destruction of the surface, fish or aquatic life, or property from oil or gas operations, it is logical that the Oil and Gas Conservation Act should be read in parimateria with other statutes relating to waters of the state, such as the Water Resources Commission Act. The OGCA and WRCA protect the same resources from contamination.
 

Unconstitutional Taking
 

Petitioner contends that the DNR's refusal to issue a drilling permit or to issue a drilling permit, but prescribe the Unit Operator as the sole entity that can drill the Schommer 2-15 Well, is an unconstitutional taking without just compensation contrary to Article X, Section 2, of the Michigan Constitution. An appeal from the Supervisor of Wells to the Natural Resources Commission is not the proper forum to determine a constitutional taking issue. In Dation v Ford Motor Co, 314 Mich 152, 159; 22 NW2d 252 (1946), the Supreme Court held:

Generally speaking, an administrative board, commission or department possessing powers of such character [quasi-judicial] does not undertake to determine constitutional questions.

Further, the Court of Claims Act, 1961 PA 236, MCL 600.6419; MSA 27A.6401, vests exclusive power and jurisdiction in the Court of Claims "[t]o hear and determine all claims and demands, liquidated and unliquidated,...against the state and any of its departments, commissions, boards, institutions, arms, or agencies". MCL 600.6419(1)(a); MSA 27A.6419(1)(a). In Biff's Grills, Inc v Michigan State Highway Comm, 75 Mich App 154, 158; 254 NW2d 824 (1977), the Court of Claims was found to have proper subject matter jurisdiction over an action for inverse condemna- tion by the state.

Consequently, the Natural Resources Commission, acting as an appeal board, is the improper forum in which to seek relief for an unconstitutional taking and the Natural Resources Commission does not have the power or jurisdiction over actions for inverse condemnation.
 

1. I conclude, as a matter of law, that Hobson Petroleum Corporation is an applicant for a permit to drill an oil and gas exploratory well on privately-owned lands within the boundaries of the Pigeon River Country State Forest ("PRCSF" or "Forest").

2. The drilling of an oil and gas exploratory well is an activity that requires a permit issued by the Supervisor of Wells. MCL 319.23; MSA 13.139(23).

3. This matter is an appeal to the Natural Resources Commission under Section 3(8) of OGCA, MCL 319.3(8); MSA 13.139(3)(8), and the proper scope and standard of review is denovo.

4. The Consent Judgment entered in Ingham County Circuit Court File No. 76-19335-CE, entitled, West Michigan Environmental Action Council, et al v Natural Resources Commission, et al, has no legal effect on the rights of Hobson Petroleum Corporation because Hobson was not a party in that litigation.

5. Based on the foregoing Findings of Fact, I conclude

that the Pigeon River Country State Forest Hydrocarbon Development Act of 1980 ("PRHDA"), 1980 PA 316, MCL 319.121, et seq; MSA 13.140(50), et seq, applies to state-owned, as well as, privately-owned lands within the boundaries of the PRCSF. The language of the PRHDA is applicable to all hydrocarbon development activities within the PRCSF. The PRHDA incorporates the November 24, 1980, Amended Stipulation and Consent Order ("Consent Order") as the appropriate hydrocarbon development plan for the PRCSF. MCL 319.123; MSA 13.140(53).

6. The Consent Order incorporates a "Unit Agreement for the Development and Operation of the Pigeon River Area I Unit" ("Unit Agreement") and an "Environmental Impact Statement for Potential Hydrocarbon Development on the Pigeon River Country State Forest ("EIS")," which is dated December 15, 1975. (Id, ¶¶ 5, 10, pp 3, 6). In addition, the Consent Order contains restrictions that apply to all oil and gas development in the regions of the PRCSF where hydrocarbon development is allowed.

7. The surface location for which Hobson Petroleum Corporation applied for a permit to drill an oil and gas well is within the area described in the Consent Order as the nondevelopment region, in which drilling or any other activity related to the extraction or transportation of oil and gas is prohibited. Based on the foregoing Findings of Fact, I conclude that the Supervisor of Wells properly denied Hobson's application for a drilling permit under the terms of the PRHDA and the Consent Order for the area in which Petitioner proposed to drill.

The Supervisor of Wells has offered to allow Petitioner to drill directionally from a surface location in the lease extension region. The limitations and conditions for hydrocarbon development in the lease extension region, as set out in the Consent Order, are applicable to Petitioner through PRHDA. Based on the foregoing Findings of Fact, I find, as a matter of law, that the Supervisor properly denied Hobson's application for a drilling permit under the terms of the PRHDA and Consent Order for a surface location in the lease extension region of the Forest. Petitioner is unwilling or unable to comply with paragraphs 5, and 8(c)(d) and (q) and 9 of the Consent Order.

Paragraph 5 of the Consent Order restricts oil and gas development to the terms of the Unit Agreement. Petitioner is unwilling or unable to comply with the Unit Agreement. Petitioner admits that it would not comply with paragraphs 8(c) or (d) of the Consent Order. It is questionable whether Petitioner could comply with paragraph 8(q). Petitioner objects to the environmental precautions set out in the EIS, which is incorporated in the Consent Order pursuant to paragraph 9.

Based on the above, I conclude that the Supervisor of Wells, as a matter of law, properly denied issuance of a drilling permit to Hobson Petroleum Corporation under the terms of the Consent Order.

8. The Findings of Fact detail, at length, the natural resources involved in this appeal. I conclude that Petitioner's proposed action will cause impairment and destruction of the air, water, and natural resources, which is prohibited by MEPA. The PRHDA specifically found that the Consent Order was an appropriate hydrocarbon development plan for the PRCSF and hydrocarbon development in conformity with the plan would not be violation of law. The PRHDC is a law of subsequent enactment to MEPA, and it deals specifically with the subject matter. As the primary statute, PRHDA determines the threshold for pollution, impairment, or destruction of air, water, or natural resources in the Pigeon River Country State Forest. An application for a permit to drill that proposes activity in conformity with the PRHDA is not violative of MEPA. MCL 319.124; MSA 13.140(54), Citizen's Disposal, Inc v Department of Natural Resources, 172 Mich App 541, 547; 432 NW2d 315 (1988), lv den 432 Mich 911 (1989). Proposed action that violates PRHDA is also unaccept- able under the standards of MEPA.

Based on the foregoing Findings of Fact, I conclude that a feasible and prudent alternative location is available to Hobson from which Petitioner can drill the proposed Schommer 2-15 Well.

In light of the foregoing Findings of Fact, I find, as a matter of law, that the Supervisor of Wells properly denied Hobson's application for a permit to drill because the proposed activity would violate the standards of the Michigan Environmental Protection Act, MCL 691.1201, et seq; MSA 14.528(201), et seq.

9. The Oil and Gas Conservation Act, MCL 319.1, et seq; MSA 13.139(1), et seq, places an affirmative duty on the Supervisor of Wells to prevent waste. I find, as a matter of law, that waste includes serious or unnecessary damages, spoilation, or destruction of the land, flora, fauna, and other natural resources, even in the absence of specifically promulgated rules and regulations. The Consent Order is an order of the Department of Natural Resources and it is an order that the NRC directed the DNR director to implement and enforce. I find, as a matter of law, that Section 23 of OGCA, MCL 319.23; MSA 13.139(23), authorizes the Supervisor of Wells to deny Hobson's application for a drilling permit because Hobson cannot or refuses to comply with the Consent Order in the ways set out in the Findings of Fact.

Based on the foregoing Findings of Fact, I conclude that the proposed Schommer 2-15 Well is within the statutory definition of "ordinary" and "surface waste" under Section 2 of OGCA, MCL 319.2; MSA 319.139(2). The Supervisor of Wells is required, as a matter of law, to prevent waste.

I conclude, as a matter of law, that the Supervisor of Wells properly denied Hobson's application for a permit to drill under the Oil and Gas Conservation Act.

10. The Water Resources Commission Act, MCL 323.1, etseq; MSA 3.521, et seq, is in pari materia with PRHDA, MEPA, and OGCA. Because previous sections of this PFD have discussed, at length, the known or potential consequences of oil and gas development to waters of the state, and because the Supervisor of Wells did not base the denial of Petitioner's application on the WRCA, the Water Resources Commission Act was not considered in this PFD.

11. I conclude, as a matter of law, that the Natural Resources Commission does not have the jurisdiction to consider the constitutional issue whether Petitioner's private property has been taken for public use without just compensation, in violation of Mich Const 1963, art X, § 2.

12. I conclude that the Supervisor of Wells' decision is not "burdensome, inequitable, unreasonable, or unwarranted".

Proposal
 

Based on the foregoing Findings of Fact and Conclusions of Law, it is proposed that on appeal, after a de novo review, based on the whole record supported by the competent, material, and substantial evidence, the Natural Resources Commission affirm the Supervisor of Wells' decision to deny Hobson Petroleum Corporation's application for a permit to drill the Schommer 2-15 Well within the boundaries of the Pigeon River Country State Forest. The Supervisor of Wells' decision is not "burdensome, inequitable, unreasonable, or unwarranted".

It is further proposed that Hobson Petroleum Corporation's application be reconsidered if Petitioner amends its application for a permit to drill the Schommer 2-15 Well to be in compliance with MEPA, OGCA, and PRHDA, which incorporates the Consent Order, Unit Agreement, and EIS.

DEPARTMENT OF NATURAL RESOURCES

OFFICE OF ADMINISTRATIVE HEARINGS
 

Charles R. Toy (P33116)

Administrative Law Judge

Dated: January 11, 1992

Petitioner's Exhibits

P-1 Amended Stipulation and Consent Order

dated November 24, 1980

P-2 Consent Judgment entered December 15, 1980, in Ingham

County Circuit Court Case No. 76-19335-CE

P-3 Unit Agreement for development of Pigeon

River Country State Forest

P-4 Copy of House Bill No. 6549

P-5 Map of Pigeon River Country State Forest

P-6 Notes of Thel Horn address to the Pigeon River

Country State Forest Advisory Council on

December 17, 1982

P-7 Minutes of meeting of Pigeon River Country State

Forest Advisory Council of December 17, 1982

P-8 Shell Oil Company Application of December 20, 1982

(State-Corwith 2-12)

P-9 Seismic map

P-10 Hobson Petroleum Corporation Application of May 31, 1984 (Schommer-Mallon 1-15)

P-11 Letter to Robert Lorenz dated September 6, 1984

P-12 Hobson Petroleum Corporation Application

of February 7, 1986 (Schommer 2-15)

P-13 Inman letter to Thel Horn dated March 21, 1986

P-14 Domagalski letter to Donald L. Inman dated

April 14, 1986

P-15 Inman letter to J. Andrew Domagalski dated

April 18, 1986

P-16 Domagalski letter to Donald L. Inman dated April 22,

1986

P-17 Detroit News article of August 23, 1987 [for impeachment purposes only]

P-18 Shell Western E&P, Inc. Application of

August 24, 1987, with Permit (State Forest 2-22)

P-19 Shell Western E&P, Inc. Application of

August 25, 1987, with Permit (Rupp-State Forest 1-21)

P-20 Page 8, Volume 8, No. 1, Natural Resources

Register, January 1988

P-21 Deposition of James Cleary taken March 27, 1987 and

April 17, 1987

and 4/17/87

P-24 Article from Page 1, Volume 93, No. 44,

Michigan's Oil & Gas News, October 30, 1987

P-25 McDaniel letter to Clerk of the Court dated

March 7, 1988

P-27 Model of Niagaran reef

P-28 Oil and Gas Production Map, Forest Township (South) Section T33N, R1E, Cheboygan County

P-29 Oil and Gas Production Map, Cheboygan County

P-30 Oil and Gas Production Map, Presque Isle County

P-31 Stewart Letter to Charles D. Hobson dated May 2, 1988

P-32 Authorization for Expenditures submitted by Pharis Petroleum Corporation for Schommer 2-15

Respondent's Exhibits

R-1Director's denial letter to Hobson,

February 5, 1988

R-2 Memo from Deputy Director Bails to Assistant

Attorney General McDaniel, January 14, 1988

R-3 Director's denial letter to Hobson,

September 6, 1984

R-4 Hobson Drilling Permit Application,

Schommer 2-15, February 7, 1988

R-5 Memo from Inman to Assistant Attorney General

McDaniel, February 18, 1987

R-6 Memo from Caveney, Area Forest Manager, to

Assistant Attorney General McDaniel on

Schommer 2-15, February 9, 1987

R-7 Letter from Boushelle, Wildlife Biologist, to

Assistant Attorney General McDaniel,

February 5, 1987

R-9 Letter from Inman to Domagalski, April 18, 1986

R-10 Inman letter to Hobson, March 21, 1986

R-11 Deputy Director Bails' letter to Domagalski,

October 17, 1984

R-12 Deputy Director Bails' letter to Domagalski,

February 4, 1984

R-15 Official Minutes, Pigeon River Country Advisory

Council, December 17, 1982

R-16 Private parcels in Pigeon River Country

State Forest

R-17 House Bill No. 6549

R-19 Pigeon River Unit Agreement

R-20 Stipulation and Consent Order, Natural Resources

Commission, June 11, 1976

R-21 WMEAC letter and settlement proposal,

August 18, 1980

R-22 Amended Stipulation and Consent Order, Natural

Resources Commission, November 24, 1980

R-23 Map of Pigeon River Country State Forest

indicating Units 1a, 1b, 1c, II, III, IV and

no-drill boundary

R-24 Set of 3 clear overlays indicating Units I, II,

III and IV, and all lands in Pigeon River

Country State Forest within wetland areas, within

1/2 mile of open water

R-25 Letter from Director Tanner to Governor Milliken,

November 13, 1980

R-26 Judgment WMEAC v NRC, Ingham County Circuit Court

Case No. 76-19335-CE, December 15, 1980

R-27 Environmental Impact Statement, December 15, 1975

R-28 Inman letter to Dick Parks, December 31, 1975

R-29 Bails' letter to Professor Joseph Sax,

January 5, 1976

Professor Sax's letter to DNR, December 23, 1975

R-30 Inman letter to Public Service Commission,

February 2, 1976

R-31 Inman letter to Department of Treasury,

February 19, 1976

R-32 Bails' memos to MERB, March 2 and 8, 1976

R-38 Inman memo to Keith Wilson re: brine

contamination, January 31, 1984

R-39 Director Skoog letter to Pigeon River Advisory

Council, February 2, 1984

R-40 Director Skoog letter to Shell re: brine

contamination, February 10, 1984

R-41 Director Skoog letter to WMEAC, April 11, 1984

WMEAC letter to Skoog re: brine contamination,

March 30, 1984

R-42 Gaylord Herald Times article, January 5, 1984

R-43 Detroit Free Press article, February 1, 1984

R-44 Director Skoog letter to J. D. Hughes, Shell Western,

November 15, 1984

R-45 1982 Annual Report, Pigeon River Country

Study Committee (partial, pp 3, 49-52)

R-46 DNR Management of Hydrocarbon Resources Plan

R-50 Shell Western E&P, Inc. Application of August 24, 1987, with Permit (Rupp-State Forest 1-21)

R-51 Bishop letter to C. Hobson dated June 20, 1988

R-52 DNR Concept of Management for the Pigeon River Country, October 1973

R-53 1988 Annual Report, Pigeon River Country

Study Committee (partial, pp 1-6)

1. Section 3(8) of the Oil and Gas Conservation Act, MCL 319.3(8); MSA 13.139(3)(8), provides that the Commission of Natural Resources shall act as an appeal board when a producer or owner considers an action or inaction as made by the Supervisor of Wells to be "burdensome, inequitable, unreasonable, or unwarranted". This appeal was treated as a contested case, as defined by the Administrative Procedures Act ("APA"), 1969 PA 306, as amended, MCL 24.201,et seq; MSA 3.560(101), et seq, and, consequently, the procedures in contested cases, as provided in the APA, are applicable. This appeal is a "contested case" under Section 3(3) of the APA, MCL 24.203(3); MSA 3.560(103)(3), because it is "a proceeding...in which a determination of the legal rights, duties, or privileges of a named party is required by law to be made by an agency after an opportunity for an evidentiary hearing".

2. Hobson also leased adjoining property from Mrs. Schommer and others on which Hobson proposed to drill a well commonly known as the Schommer-Mallon 1-15 Well. (Exhibit P-10). On September 6, 1984, DNR Director Skoog, as Supervisor of Wells, denied the application for a drilling permit. (Exhibit P-21). Hobson, the lessors, and other plaintiffs sought judicial review of the Supervisor's denial of a drilling permit in the Ingham County Circuit Court, James R. Giddings, J., File No. 85-53982-CZ. Appellate review of the Circuit Court's decision is found inSchommer v Director, Department of Natural Resources, 162 Mich App 110; 42 NW2d 663 (1987). Exhibits concerning the proposed Schommer-Mallon 1-15 Well were introduced in this appeal, but not considered material.

3. The 18-month delay between when this appeal was submitted for a PFD and the issuance of this PFD is wholly the fault of the administrative law judge ("ALJ"). The ALJ was painfully aware that Hobson Petroleum wanted a prompt decision (See Tr, p 710) and it was entitled to a decision within a reasonable amount of time. The ALJ knew that the DNR took over two years to initially decide that it would deny the application to drill a well. Much of the delay in writing this PFD was caused by attempting to use adjudicatory skills that would effect a result different from that contained in this PFD.

In Schommer v Director, Department of Natural Resources, 162 Mich App 110, 116, 118; 412 NW2d 663 (1987), Schommer contends that the Natural Resources Commission ("NRC") would merely "rubber stamp" the DNR director's decision. In Schommer, the plaintiffs asserted "that appeal to the appeal board [NRC] would have been an exercise in futility and nothing more than a formal step on the way to the courthouse". The ALJ in this action used his judicial independence from the DNR to consciously avoid "rubber stamping" the DNR's decision to deny the permit. This PFD is the most extensive PFD ever written for the NRC. One reason for this is the complexity of the issues involved. Another reason is to provide the decisionmaker, the NRC, with the whole record so that its decision is not a "rubber stamp" of the DNR director's decision, but a decision supported by the competent, material, and substantial evidence. See Section 85 of APA, MCL 24.285; MSA 3.560(185).

4. D Tr refers to Deposition Transcript, which is Exhibit P-21.

5. Dr. Inman's direct examination was continued on June 30, 1988 at night and a different court reporter transcribed the proceedings. Consequently, the pagination is not sequential with the remainder of the transcript. The continuation of Dr. Inman's testimony is denoted as A Tr, for transcript A.

6. Appellate review of the Corwith 1-22 Well case is found in Michigan Oil Co v Natural Resources Comm, 71 Mich App 667; 249 NW2d 135 (1976), aff'd 406 Mich 1; 276 NW2d 141,cert den 444 US 980; 100 S Ct 482; 62 L Ed 2d 407 (1979) and Michigan Oil Co v Department of Natural Resources, 148 Mich App 745; 384 NW2d 777 (1985).

7. The DNR may have been referring to an appeal under Section 3(8) of the OGCA. If the DNR is relying on Section 3(8) of the OGCA, the determination of standard for review using footnote 1 in Schommer is circuitous.

8. Paul Bazeley is the only witness that gave a specific deviation angle. He expected the deviation to be at least 45. (Tr, p 170). The north-south distance between the Rupp 1-21 site and Schommer 2-15 site is 2,182' (782' + 1,400'). (Exhibit P-19; Tr, p 57). The east-west distance is 660' (200' + 460' - 1,320'). Id. By using Pythagoras' theorem, the actual distance between the two sites is calculated as 2,280'. Two thousand two hundred eighty feet is one leg on the right triangle formed between the two sites and the target Niagaran reef. The other leg of the triangle is 4,000', which is the bottom-hole or true vertical depth, reduced by the depth that the hole is drilled straight. In the Rupp 1-21, the hole is deflected at 350'. If the Schommer 2-15 is deflected at 350', the true vertical depth leg is 3,650'. Using Pythagoras' theorem, the hypotenuse of the triangle is 4,303'. Using trigonometric functions, the deviation or deflection from vertical can be calculated. The deviation or deflection angle is 32. The actual deviation would be a slightly greater angle because the hole angle is increased at a particular rate per foot until the desired angle is reached.