BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF AN APPLICATION CONCERNING PAYMENT OF PROCEEDS IN THE WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NO.  1

 

ORDER NO. 1-167

 

 

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission on May 16, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order finding that a condition under which the payment of proceeds shall be suspended exists for the suspension of payments due to reasonable doubt as to the payee’s identity, whereabouts, or clear title for an undivided mineral interest in 76.245 acres, consisting of the SE¼ of Section 22, Township 5 North, Range 66 West, 6th P.M., on which production has been established from certain wells.

 

FINDINGS

The Commission finds as follows:

1.    K. P. Kauffman, Inc. (“KPK” or “Applicant”), 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 (the “Act”).

           

4.    Section 34-60-118.5, C.R.S., provides a statutory framework under which the Commission can assert jurisdiction over matters pertaining to payments of proceeds derived from the sale of oil, gas, or associated products such that the proper party receives timely and proper payment.

 

5.    Section 34-60-118.5(2)(a), C.R.S., provides that payment of proceeds derived from the sale of oil, gas, or associated products shall be paid by a payor to the payee commencing not later than six months after the end of the month in which production is first sold, and, thereafter, on a monthly basis not later than sixty days for oil and ninety days for gas and associated products following the end of the calendar month in which subsequent production is sold.  Further, §34-60-118.5(3)(a)(II), C.R.S., provides that the payment deadlines, recited in §34-60-118.5(2)(a), shall  be suspended when payments are withheld due to a reasonable doubt by the payor as to the payee's identity, whereabouts, or clear title to an interest in proceeds.

 

6.    On March 17, 2011, KPK, by its attorneys, filed with the Commission a verified application (the “Application”) for an order finding that a condition under which the payment of proceeds shall be suspended exists for the suspension of payments due to reasonable doubt as to the payee’s identity, whereabouts, or clear title for an undivided mineral interest in 76.245 acres, consisting of the SE¼ of Section 22, Township 5 North, Range 66 West, 6th P.M., (the “Application Lands”).  The Application asserts there is reasonable doubt by the payor as to the payee’s identity, whereabouts, or clear title to an interest in proceeds with regard to the following wells located within the Application Lands (hereinafter referred to as the “Strong Wells”):

 

·         Strong #1-7 Well,  API #05-123-11391

·         Strong #2-8 Well,  API #05-123-11406

·         Strong #3-15 Well,  API #05-123-11661

·         Strong #4-22 Well,  API #05-123-11858

 

7.    On May 3, 2011, KPK, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified Application and the supporting exhibits as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the Application.

 

8.    Applicant is a “payor” as defined in the Act.  The relevant requirement of the Act with regard to this matter is the requirement to make payments of proceeds within specified time frames following the commencement of production, and on a monthly basis thereafter.  At present, Applicant has put payments of proceeds for the Strong Wells into suspense.

 

9.    Compliance with the payment schedule of the Act is suspended when payments are withheld due to a reasonable doubt by the payor as to the payee’s identity, whereabouts, or clear title to an interest in proceeds. 

10.  Under the Act, the Commission has the jurisdiction to determine the existence of an occurrence which would justifiably cause a delay in payment.

11.  Reasonable doubt about the payee’s identity – who is either Tuscany Parcel 2 LLC or Integrated Financial Associates, Inc. – and its title to an interest in proceeds from the Strong wells exists.  This title uncertainty was summarized in an opinion from a qualified title attorney, affirmed by a sworn statement.  Said opinion was attached as an exhibit to the verified Application in this matter.

12.  The verified Application and supporting exhibit show that granting the requested relief is consistent with the purposes of the Act, and appropriate under the circumstances.

13.  Applicant agreed to be bound by oral order of the Commission.

14.  Based on the facts stated in the Application, having received no protests thereto, and based on the Hearing Officer’s review of the Application under Rule 511., the Commission should enter an order excusing Applicant from the payment obligations under the Act until such time as reasonable doubt about the payee’s identity and title to an interest in proceeds from the Strong Wells is resolved.

ORDER

 

NOW IT IS THEREFORE ORDERED, that KPK is excused from the payment obligations under §34-60-118.5, C.R.S., of the Act, for an undivided mineral interest in 76.245 acres, consisting of the SE¼ of Section 22, Township 5 North, Range 66 West, 6th P.M. on which production has been established from the Strong Wells, until and unless reasonable doubt about the identity of the payee entitled to an interest in proceeds from the Strong Wells is resolved.  Until such time, KPK shall place such payments into suspense.

 

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.

           

                        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 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      23rd      day of May, 2011, as of May 16, 2011.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________         

                                                                                    Robert  A. Willis, Acting Secretary

 

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

May 23, 2011