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

REPORT OF THE COMMISSION

The Commission heard this matter on March 5, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests in an approximate 397.92-acre drilling and spacing unit for certain lands consisting of the N½  of Section 12U (320 acres), and the entirety of Section 1U (77.92 acres), Township 34 North, Range 7 West, N.M.P.M., SUL, La Plata County, Colorado, excluding the interests of the Southern Ute Tribe of Indians, for the development and operation of the Fruitland Coal Formation.

FINDINGS

The Commission finds as follows:

1.         BP America Production Company (“BP” or “Applicant”), as applicant herein, is an interested party in the subject matter of the above-referenced hearing. Joining in the application is Lois Hood (“Co-Applicant”), another 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 June 17, 1988, the Commission entered Order No. 112-60 establishing an approximate 320-acre drilling and spacing unit for the production of gas from the Fruitland Coal Formation, including Section 1U and Section 12U, Township 34 North, Range 7 West, N.M.P.M. (“Section 12U”).

5.         On August 15, 1988, the Commission entered Order No. 112-61 recognizing the irregular and small sections adjoining the Southern Ute boundary line and included Section 1U in the 320-acre units established for Section 12U.  The COGCC’s order, Rule 5, states:
“The fractional sections south of the Southern Ute line in Township 34 North for all ranges so affected shall be included with the 320-acre drilling and spacing units in the full section to the south, and the units shall be stand-up if at all possible.”

6.         On April 25, 2000, the Commission entered Order No. 112-157, approving a second optional well for the Fruitland Coal Formation within each 320-acre drilling and spacing unit. Sections 1U and 12U, Township 34 North, Range 7 West, N.M.P.M are subject to this Order.

7.         On September 1, 2010, Applicant and Co-Applicant , by their  attorneys, filed with the Commission a verified application (“Application”) for an order to pool all interests in an approximate 397.92-acre drilling and spacing unit, established for the below-described lands (“Application Lands”), for the development and operation of the Fruitland Coal Formation:

Township 34 North, Range 7 West, N.M.P.M. SUL
Section 1U:               All       (72.92 acres)
Section 12U:             N½      (320.00 acres)

The Applicant requested that pooling be made effective upon commencement of operations on the wells located on the Application Lands, that had been previously drilled by other parties. The Application excluded the mineral interest of the Southern Ute Tribe of Indians within the Application Lands. 

8.         On October 6, 2010, Samson Resources Company (“Samson”) protested the Application. Samson is the current operator of the Echols-Ute #1-12U Well (API # 05-067-06859), SE Bayfield #12U-1 Well (API # 05-067-08754), and the Echols Ute #2-12U Well (API # 05-067-09168) (collectively referred to herein as the “Echols Wells”), all of which are located in the Section 12U, Township 34 North, Range 7 West, N.M.P.M. SUL and produce from the Fruitland Coal Formation. Samson opposed the retroactive application of the proposed pooling order to any date preceding the date of Application.

9.    SG Interests I, Ltd., and SG Interests V, Ltd., (collectively, “SG Interests”) the prior operator and working interest owner in two of the Echols Wells, permissively intervened in the proceeding and also protested the application.  SG Interests also opposed the retroactive application of the proposed pooling order to any date preceding the date of Application.

10.       On February 10, 2012, Applicant and Co-Applicant filed an Unopposed Motion to Amend the BP Pooling Application and to Enter an Order Pooling of All Interests (“Amendment”) as to the Fruitland Coal Formation.  In the Amendment, Applicant and Co-Applicant requested the Commission enter an order pooling all interests effective, September 1, 2010, the date of filing of the Application, contingent upon the Southern Ute Indian Tribe executing a Communitization Agreement effective the same date, pooling its minerals interests in the Application Lands as to the Fruitland Coal Formation.

11.       On February 17, 2012, BP and Co-Applicant, 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.  Sworn written testimony and exhibits were submitted in support of the Application.

12.       Testimony and exhibits submitted in support of the Application by Nathan Lambert, Contract Landman for BP, showed that all interest owners in the proposed drilling and spacing unit were sent notice of the Application.

13.       The above-referenced testimony and exhibits show that granting the Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

14.       All parties agreed to be bound by oral order of the Commission.

15.       On February 17, 2012, Adelante Oil & Gas, LLC, (“Adelante”) moved to intervene in the matter. This motion was withdrawn on February 27, 2012.

16.       Based on the facts stated in the verified Application, and having the protesting parties unopposed to the Amendment, and based on the Hearing Officer’s review of the Application under Rule 511., the Commission should enter an order pooling all interests, excluding the mineral interests of the Southern Ute Indian Tribe in an approximate 397.92-acre drilling and spacing unit established for:

Township 34 North, Range 7 West, N.M.P.M. SUL
Section 1U:   All (72.92 acres)
Section 12U:  N/2 (320.00 acres)

for the development and operation of the Niobrara Formation, effective September 1, 2010.

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, all interests excluding the mineral interests of the Southern Ute Indian Tribe in the approximate 397.92-acre drilling and spacing unit established for the below-described lands are hereby pooled for the development and operation of the Fruitland Coal Formation retroactive to September 1, 2010:

Township 34 North, Range 7 West, N.M.P.M. SUL
Section 1U:   All (72.92 acres)
Section 12U:  N/2 (320.00 acres)

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 its share of the production of the wells located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3.     This order is contingent upon the Southern Ute Indian Tribe executing a Communitization Agreement for the Fruitland Coal formation covering the Application lands and effective September 1, 2010, as to its mineral interest in the Application Lands.

4.         In the event that the Southern Ute Indian Tribe should fail within a reasonable period of time after entry of this order to execute a Communitization Agreement for the Fruitland Coal formation covering the Application lands and effective September 1, 2010, as to its mineral interest in the Application Lands, any party to this proceeding my make application to this Commission to modify, amend or rescind this order.

5.         Nothing in this order is intended to conflict with § 34-60-116, C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

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     8th  day of March, 2012, as of March 5, 2012.
           
                                                                        OIL AND GAS CONSERVATION COMMISSION
                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         
                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
March 8, 2012