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

REPORT OF THE COMMISSION

The Commission heard this matter on February 11, 2013, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests within an approximate 320-acre drilling and spacing unit established for Section 13, Township 32 North, Range 6 West, N.M.P.M., to accommodate the Schumacher 32-6 13-1 Well, the Schumacher 32-6 13-2 Well, and the Schumacher 32-6 13-3 Well, for the development and operation of the Fruitland Coal Seam Formation, Ignacio Blanco Field, Archuleta County, Colorado.

FINDINGS

The Commission finds as follows:

1.         Energen Resources Corporation (“Energen” 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.

4.         On April 24, 2000, the Commission entered Order No. 112-157 which, among other things, established 320-acre drilling and spacing units for the production of gas from the Fruitland Coal Seam Formation, with the permitted well to be located in any undrilled quarter section no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.  Section 13, Township 32 North, Range 6 West, N.M.P.M. is subject to Order 112-157 for the Fruitland Coal Seam Formation.

5.         On July 10, 2003, Energen spud the Schumacher 32-6 13-1 Well (API No. 05-007-06198) within the established drilling and spacing unit as described on the approved APD.  Applicant seeks to pool all interests in the drilling and spacing unit to accommodate the Schumacher 32-6 13-1 Well. 

6.         On March 4, 2005, Energen spud the Schumacher 32-6 13-2 Well (API No. 05-007-06209) within the established drilling and spacing unit as described on the approved APD.  Applicant seeks to pool all interests in the drilling and spacing unit to accommodate the Schumacher 32-6 13-2 Well.  

7.         On June 6, 2005, the Commission issued Order No. 112-179 which, among other things, allowed to a total of three wells in an existing 320-acre drilling and spacing unit consisting of certain lands, including the Application Lands, for the production of gas and associated hydrocarbons from the Fruitland Coal Seam Formation.  Section 13, Township 32 North, Range 6 West, N.M.P.M. is subject to Order 112-179 for the Fruitland Coal Seams.

8.         On December 21, 2007, Energen spud the Schumacher 32-6 13-3 Well (API No. 05-007-06239) within the established drilling and spacing unit as described on the approved APD.  Applicant seeks to pool all interests in the drilling and spacing unit to accommodate the Schumacher 32-6 13-3 Well. 

9.         On December 9, 2008, the Commission entered Order No. 112-215 which includes portions of Section 13, Township 32 North, Range 6 West, N.M.P.M., but does not apply and has no effect on the relief requested.

10.       On November 1, 2012, Energen, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to pool all interests within an approximate 320-acre drilling and spacing unit for the below-described lands (“Application Lands”), to produce from the Fruitland Coal Seam Formation, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. § 34-60-116(7)(b)(II) were first incurred for the drilling of each respective well: the Schumacher 32-6 13-1 Well, the Schumacher 32-6 13-2 Well, and the Schumacher 32-6 13-3 Well (“Wells”), and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):

                        Township 32 North, Range 6 West, N.M.P.M.

                        Section 13:    N½

11.       On December 19, 2012, a Protest to the Application was filed with the COGCC by Steve J. Abraham, Charles M. Abraham, James J. Rubow and Nikola A. Rubow (“Abraham” or “Protestants”), by their attorneys, alleging Energen drilled three wells: : the Schumacher 32-6 13-1 Well, the Schumacher 32-6 13-2 Well, and the Schumacher 32-6 13-3 Well (“Wells”), on the Application Lands without providing notice or an opportunity to participate in the Wells.

12.       On December 26, 2012, Energen filed a Motion to Dismiss and Motion to Strike Parties from the Protest of Steve J. Abraham, Charles M. Abraham, Diane Abraham Henkle, Kenneth E. Guffey Sr. and Croudine O. Guffey, and James J. Rubow and Nikola A. Rubow.

13.       On December 26, 2012, Abraham filed a Motion for Continuance.

14.       On December 27, 2012, Abraham filed a Notice of Consent, Partial Reply to Energen’s Motion to Dismiss and Motion to Strike, and Motion to Dismiss.

15.       On Decemer 27, 2012, Energen filed a Supplemental Motion to Dismiss and Motion to Strike Parties from the Protest of Steve J. Abraham, Charles M. Abraham, Diane Abraham Henkle, Kenneth E. Guffey Sr. and Croudine O. Guffey, and James J. Rubow and Nikola A. Rubow.

16.       On December 28, 2012, Energen filed a Response and Objection to Protestant’s Motion for Continuance.

17.       On December 28, 2012, pursuant to Rule 506(c), the Commission continued the matter to the February 11, 2013 hearing.

18.       On February 6, 2013, Energen, by its attorneys, accepted the express language set forth in Paragraph 7 of the Notice of Consent, filed December 27, 2012 by Abraham, which states “Owners consent to participate in the N½ of Section 13, Township 23 North, Range 6 West, [6^th P.M.], to accommodate the Schumacher 32-6 13-1, Schumacher 32-6 13-2 and Schumacher 32-6 13-3 wells.  This consent is given for purposes of confirming the Owners voluntarily pool their interests pursuant to C.R.S. 34-60-116(6).”

19.       On December 19, 2012, Energen, 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.

20.       Land testimony and exhibits submitted in support of the Application by Chandler Marechal, District Landman for Energen, showed that all working interest owners and unleased mineral owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Well. Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation.  Energen’s affirmation was signed on December 17, 2012, at least 30 days prior to the February 11, 2013 hearing date.

21.       On February 6, 2013, Protestants withdrew their protest and expressly stated that as consenting working interest owners in the Wells, Steve J. Abraham, Charles M. Abraham, Diane Abraham Henkle (“Owners”), that Owners did not waive any future challenges regarding the costs Energen provides in its accounting for the Schumacher 32-6 13-1, Schumacher 32-6 13-2 and Schumacher 32-6 13-3 Wells.  Energen acknowledged this reservation of rights.

22.       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 hydrocarbons, and will not violate correlative rights.

23.       Energen agreed to be bound by oral order of the Commission. 

24.       Based on the facts stated in the verified Application, having resolved all protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all interests within an approximate 320-acre drilling and spacing unit established for Section 13, Township 32 North, Range 6 West, N.M.P.M., to accommodate the Schumacher 32-6 13-1 Well, the Schumacher 32-6 13-2 Well, and the Schumacher 32-6 13-3 Well, for the development and operation of the Fruitland Coal Seam Formation, Ignacio Blanco Field, Archuleta County, Colorado.

ORDER

NOW, THEREFORE IT IS ORDERED, that Owner’s request to dismiss Kenneth E. Guffey Sr., Croudine O. Guffey, James J. Rubow and Nikola A. Rubow as protestants, is hereby granted.  Owners, Steve J. Abraham, Charles M. Abraham, Diane Abraham Henkle, are consenting unleased parties not subject to Energen’s request for statutory pooling.

IT IS FURTHER 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 in the approximate 320-acre drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Fruitland Coal Seam Formation, Ignacio Blanco Field, Archuleta County, Colorado, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. §34-60-116(7)(b)(II) were first incurred for the drilling of the Schumacher 32-6 13-1 Well, the Schumacher 32-6 13-2 Well, and the Schumacher 32-6 13-3 Well:

                        Township 32 North, Range 6 West, N.M.P.M.

                        Section 13:    N½

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.         The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Wells (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

4.         With the exception of Protestants, who are consenting unleased parties in the Schumacher 32-6 13-1, Schumacher 32-6 13-2 and Schumacher 32-6 13-3 Wells, any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

5.         Each nonconsenting unleased 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 its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each 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, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the Wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Wells as if it had originally agreed to the drilling.

6.         The operator of the wells drilled on the above-described drilling and spacing unit shall furnish the 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.

7.         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 _____ day of February, 2013, as of February 11, 2013.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary