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

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 2:00 p.m. on October 26, 2009, in the Southwest Weld County Services Complex, Southwest Meeting Room, 4209 Weld County Road 24½, Longmont, Colorado, for an order to pool all nonconsenting interested in the established approximate 320-acre drilling and spacing unit consisting of the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the development and operation of the Fruitland coal seams.

FINDINGS

The Commission finds as follows:

1.     BP America Production Company (“BP”), 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.

4.     On July 16, 1979, the Commission issued Order No. 112-46, which among other things, established 320-acre drilling and spacing units for certain lands, including Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), and allowed a second well in each unit, for the production of gas from the Fruitland-Pictured Cliffs Formation, with the permitted well to be located no closer than 990 feet to any outer boundary of the unit nor closer than 990 feet from another well producing from the same formation.

5.     On July 11, 2000, the Commission issued Order No. 112-157, which among other things, allowed an optional second well to be drilled in each 320-acre drilling and spacing unit for certain lands, including the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the production of gas from the Fruitland coal seams, with the additional permitted well being located no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line.

6.     On September 26, 2005, the Commission issued Order No. 112-180, which among other things, amended Order No. 112-157 to allow a total of four wells to be optionally drilled in each 320-acre drilling and spacing unit for certain lands, including the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the production of gas from the Fruitland coal seams, with the permitted well to be located no closer than 660 feet to any outer boundary of the unit with no interior section line setback and utilizing a common or expanded pad with an existing well.

7.     On September 4, 2009, BP, by its attorneys, filed with the Commission a verified application for an order to pool all nonconsenting interests in the established approximate 320-acre drilling and spacing unit consisting of the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the development and operation of the Fruitland coal seams.  Records indicate that, on March 5, 2009, BP spud the Johnson VK GU A #3 Well on said unit.

8.     Testimony and exhibits submitted in support of the application showed a list of unleased and nonconsenting interests within the established approximate 320-acre drilling and spacing unit consisting of the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), and that the nonconsenting owners located within this unit comprise approximately 0.66% of said unit.  Additional testimony indicated that offers to participate were sent to unleased and nonconsenting owners, and that the offers were sent via US Mail, on or about August 10, 2009.  Testimony showed that the offers to lease/participate and the Authorizations for Expenditures (“AFEs”) were fair and reasonable, and similar to those prevailing in the area, and that BP has complied with the requirements of Rule 530.a. and §34-60-117(7)(d), C.R.S.

9.     BP America Production Company agreed to be bound by oral order of the Commission. 

10.   Based on the facts stated in the verified application, having received no protests, and based on the Hearing Officer review of the application under Rule 511., the Commission should enter an order to pool all nonconsenting interests in the established approximate 320-acre drilling and spacing unit consisting of the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the development and operation of the Fruitland coal seams. 

ORDER

                        NOW, THEREFORE IT IS ORDERED, that  1.  Pursuant to the provisions of §34-60-116 C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all the nonconsenting interests in the approximate 320-acre drilling and spacing unit consisting of the E½ of Section 14U, Township 34 North, Range 9 West, N.M.P.M. (S.U.L.), for the development and operation of the Fruitland Coal Formation are hereby pooled. 

2.     The production obtained from the drilling and spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within the drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive his/her share of the production of the well located on the drilling and spacing unit applicable to his interest in the drilling and spacing unit.

3.     Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

4.     Any nonconsenting unleased mineral owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116 (7)(b), C.R.S. as amended.  After recovery of such costs, the nonconsenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

5.     The operator of any well drilled on the above-described unit shall furnish all nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

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 November, 2009, as of October 26, 2009.

                                                                        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

November 2, 2009