BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF
IN THE MATTER THE PROMULGATION AND ) CAUSE NO. 139
ESTABLISHMENT OF FIELD RULES TO GOVERN )
OPERATIONS IN THE HUNTER
FEDERAL UNITS,
This
cause came on for hearing before the Commission at 9:00 a.m. on January 6, 2004,
in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to allow wells
in the Grass Mesa Unit and the Hunter Mesa Unit be drilled such that surface
and bottom hole locations of each well are located less than 600 feet from the
common boundary between two federal units, as an exception to Commission Rule
318.d.(3), so long as surface and bottom hole locations of each well are 600
feet or more from any lands not included in either federal unit.
The
Commission finds as follows:
1. EnCana Oil & Gas (USA)
Inc. (“EnCana”) as applicant herein, is an interested party in the subject
matter of the above-referenced hearing.
2. Due notice
of the time, place and purpose of the hearing has been given in all respects as
required by law.
3. The Commission has jurisdiction over the subject
matter embraced in said Notice, and of the parties interested therein, and
jurisdiction to promulgate the hereinafter prescribed order pursuant to the Oil
and Gas Conservation Act and the
terms of the Memorandum of Understanding (“MOU”) between the Commission and the
Bureau of Land Management (“BLM”).
4. On
Township
7 South, Range 92 West, 6th P.M.
Sections 4
through 6: All
Township
7 South, Range 92 West, 6th P.M.
Sections 1
through 4: All
5.
Township 6
South, Range 92 West, 6th P.M.
Sections 31
and 32: All
Section 33:
N˝, SEĽ
Township 6
South, Range 93 West 6th P.M.
Sections 33
through 36: All
6. Grass Mesa Unit and Hunter Mesa Unit share a
common boundary extending from the northwest corner of Section 4, Township 7
South, Range 93 West, 6th P.M. to the northeast corner of Section 4,
Township 7 South, Range 92 West, 6th P.M. (the “Common Unit
Boundary”). All lands north of this
boundary, except the southwest of Section 33, Township 6 South, Range 92 West,
6th P.M. are committed to the Grass Mesa Unit. All lands south of this boundary are
committed to the Hunter Mesa Unit.
7. EnCana has drilled, completed and currently
operates multiple wells in both Hunter Mesa Unit and Grass Mesa Unit (the
“Unit(s)”). Wells in both Units produce
oil, gas and associated hydrocarbons from the Mesaverde Formation, which is the
unitized formation for both Units and is located at depths of greater than 2500
feet throughout both Units. Under the
terms of both unit agreements, EnCana is obligated to produce unitized
substances in the most economic and efficient manner, without waste. Information obtained from current and past
operations in both Units indicated the most economic and efficient development
of gas from the Mesaverde Formation in both Units requires wells to be located
less than 1200 feet from an adjacent well producing from the same
formation.
8. Colorado Oil and Gas Conservation Commission
(“Commission”) Rule 318.d.(3) provides that no well in excess of 2,500 feet in
depth shall be located less than 600 feet from the exterior boundary of a
federal unit unless authorized by the Commission after notice to owners outside
the federal unit area.
9.
On
November 17, 2003, EnCana, by its attorney, filed with the Commission a
verified application for an order to allow wells in the Grass Mesa Unit and the
Hunter Mesa Unit to be drilled such that surface and bottom hole locations of
each well are located less than 600 feet from the common boundary between the
two federal units, as exceptions to Commission Rule 318.d.(3), so long as
surface and bottom hole locations of each well are 600 feet or more from any
lands not included in either Unit.
EnCana further requested the Commission allow surface and bottom hole
locations of wells within either Unit and adjacent to the common unit boundary
to be located less than 600 feet from lands not included in either Unit, as
exceptions to Commission Rule 318.d.(3), provided a waiver or consent is
obtained in accordance with Commission Rule 318.c. only from the operator of a
contiguous or cornering drilling unit of unspaced offset lease outside either
Unit toward whom the well is proposed to be moved. If the operator of the proposed well is the
same as the operator of the drilling unit or unspaced offset lease toward which
the well is proposed to be moved, waivers must be obtained from the mineral
interest owners under such drilling unit or unspaced offset lease; however, no
waiver or consent shall be required from lease owners or mineral owners who own
interests within either Unit.
10. On
11. On December 15, 2003, Calpine Natural Gas
L.P. filed a letter with the Commission not objecting to EnCana’s application
as long as the final order contains language requiring EnCana to obtain a
waiver from Calpine when a surface or bottomhole location is proposed to lie
within 600 feet of any lands not included in either the Hunter Mesa Unit or the
Grass Mesa Unit and operated by Calpine.
12. On
13. On
14.
On
15. On December 30, 2003, William A. Keefe,
attorney, filed an Entry of Appearance on behalf of Protestants Jabek Ltd.,
ROGO LLLP and MORGO Family Limited Partnership.
16. A prehearing conference was held on this
matter on
APPLICANT’S
EVIDENCE
17. The Commission heard testimony from Doug Jones, Land
Team Lead for EnCana, describing the two federal units. He testified that the Hunter Mesa Unit is a
53,000 acre federal unit and the Grass Mesa Unit is a 9,300 acre federal
unit. Mr. Jones utilized exhibits to
show the border between the Units and the area that comprises the CPA. He indicated that wells would be located 600
feet from the unit boundaries and from any uncommitted tracts, such as the Calpine
acreage. Mr. Jones described the federal
unit process, including the drilling of the first well, the initial
participating areas and the circle-tangent method of determining a participating
area which is defined as an area that is reasonably proved to be
productive. He testified that during the
second five (5) years of a federal unit, an operator is obligated to drill one
well every ninety (90) days and once the five (5) years is up, the unit
contracts to participating areas only.
EnCana will not know the final participating area configuration for the
Hunter Mesa Unit until six (6) months from the first date of production from the
last well drilled by
18. The Commission
heard testimony from David Uhl, Geologist for EnCana regarding the structure of
the Mamm Creek Field and the description of the Williams Fork Formation. Mr. Uhl utilized exhibits to show that
production in the Williams Fork Formation is from a 1500 foot to 2500 foot gas
column. He described the reservoir
variability at 10-acre density, indicating that sands rarely extend greater
than ten (10) feet, and that the sands are highly discontinuous. He testified that there is nothing unique
about the lands within the CPA.
19. The
Commission heard testimony from Tom Hewett, Group Leader and Reservoir Engineer
for EnCana. Mr. Hewett utilized exhibits
to show the existing setbacks analogous to 40-acre spacing and the distance
between wells. He indicated that Mamm
Creek volumetrics show gas in place equal to 72.3 BCF and the recovery of gas
in place shows an approximate forty-nine percent (49%) recovery factor with
20-acre spacing. Mr. Hewitt testified
that the drilling of wells in the CPA will recover additional reserves while
protecting correlative rights, that would otherwise result in incomplete
drainage. He described exhibits showing
10-acre density drainage ellipses on all existing wells which show undrained
lands along the CPA area. Mr. Hewett
indicated that all parties will benefit from the approval of EnCana’s
application.
PROTESTANTS’ EVIDENCE
20. The
Commission heard testimony from Harold Shaeffer, royalty and mineral owner in
the Hunter Mesa Unit, and owner of Jabek.
Mr. Shaeffer stated that he has been authorized by his two sisters, of
MORGO Family Limited Partnership and ROGO LLLP, to testify on their
behalf. He testified that farmers and
ranchers have lost all control of their lands inside a federal unit, and as
such the mineral wealth of farms and ranches have been diluted. Mr. Shaeffer indicated that it is impossible
for farmers and ranchers to have control over well locations within federal
units. He testified that he has a
reputation for supporting gas development, however, he does not want the
Commission to allow inconsistent spacing to continue. Mr. Shaeffer described the length of time
that it takes for the BLM to approve Unit revisions. He believes that there is sufficient acreage
to drill without allowing the CPA area to be approved. Mr. Shaeffer testified that only thirty (30)
out of the four hundred and four (404) wells are located on federal leases.
21. The Commission heard testimony from Kelly Couey,
land owner in both the Hunter Mesa Unit and Grass Mesa Unit. Mr. Couey stated that he agreed with Mr.
Shaeffer about how private lands within federal units are being affected. He testified that he does not object to wells
being drilled on his land, but would like a say in where the wells are drilled
or if the wells are necessary. Mr. Couey
stated that he would prefer the COGCC to be the regulatory agency over his fee
lands.
PUBLIC COMMENT/PARTICIPATION
22.
Pursuant to Rule 510., Barrett Baker, owner and operator of Daniels
Petroleum Company, who owns an overriding royalty interest and a royalty
interest in both federal Units made a statement. Mr. Baker described his past experience with
Mobil Oil in leasing and drilling in the area, as well as his experience with
Snyder Oil to form both federal Units.
He testified that three (3) sections were not committed to the Hunter
Mesa Unit and that Synder Oil planned to drill on a 40-acre basis. Mr. Baker believes it is unfair to allow
unitization to govern so much fee land.
23.
The Commission heard testimony from Rick Ryan, Petroleum Engineer for the
BLM regarding the pending revisions submitted by EnCana for the Hunter Mesa
Unit. Mr. Ryan indicated that the Hunter
Mesa Unit will contract on
24.
After deliberations, the Commission found the application should be
approved, requiring that all wells should be drilled directionally from
existing pads and that new well locations may be approved if an Application for
Permit-to-Drill is submitted with a signed surface use agreement.
ORDER
NOW, THEREFORE, IT IS ORDERED, that an exception to Rule
318.d.(3) is hereby granted to allow
wells in the Grass Mesa Unit and the Hunter Mesa Unit be drilled such that
surface and bottom hole locations of each well are located less than 600 feet
from the common boundary between the two federal Units.
IT IS FURTHER ORDERED, that all wells shall be drilled
directionally from existing pads and new well locations shall be approved if an
Application for Permit-to-Drill is submitted with a signed surface use agreement.
IT IS
FURTHER ORDERED, that the provisions contained in the above order shall become
effective forthwith.
IT IS
FURTHER ORDERED, that the Commission expressly reserves its right, after notice
and hearing, to alter, amend or repeal any and/or all of the above orders.
IT IS
FURTHER ORDERED, that under the State Administrative Procedure Act the
Commission considers this order to be final agency action for purposes of
judicial review within thirty (30) days after the date this order is mailed by
the Commission.
IT IS FURTHER ORDERED,
that an application for reconsideration by the Commission of this order is not
required prior to the filing for judicial review.
ENTERED
this ______ day of January, 2004,
OIL
AND GAS CONSERVATION COMMISSION
OF
THE STATE OF
By
_______________________________________
Dated at