BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS FOR THE FRUITLAND COAL FORMATION, IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO

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CAUSE NO. 112   DOCKET NO. 1409-UP-270   ORDER NO. 112-243

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on October 27, 2014, at the Durango Public Library, 1900 E. 3^rd Avenue, Durango, CO 81301, upon application for an order to pool all interests in an approximate 607.19-acre exploratory drilling and spacing unit for Section 20 and the W½W½ of Section 21, Township 32 North, Range 7 West, N.M.P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Southern Ute 706H well, for the development and operation of the Fruitland Coal Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips Company (“Burlington” 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 October 15, 1957, the Commission entered Order No. 112-1 which, among other things, established 320 acre drilling and spacing units for the production of gas from the Mesaverde pool of the Ignacio-Blanco Field and established 990’ setbacks from the boundaries of the unit.  E½E½ of Section 19 and W½ of Section 20, Township 32 North, Range 7 West, N.M.P.M. and E ½ of Section 20 and W½W½ of Section 21, Township 32 North, Range 7 West, N.M.P.M. are subject to Order No. 112-1

 

5.         On November 9, 1959, the Commission entered Order No. 112-6 which, among other things, established 320-acre drilling and spacing units for the production of gas from the Fruitland-Pictured Cliffs formation, each unit being the N½ and the S½  of each section with the permitted well for each unit located in the NW¼  and the SE¼  of the section and no closer than 990 feet from the boundaries of the quarter section upon which it is located. Sections 19, 20 and 21, Township 32 North, Range 7 West, N.M.P.M. are subject to this Order for the Fruitland Coal Formation.

                                                           

6.         On July 16, 1979, the Commission entered Order No. 112-46 which amended Order No. 112-6 and approved an additional well for an approximate 320-acre drilling and spacing unit, for the production of oil, gas, and associated hydrocarbons from the Fruitland-Pictured Cliffs, Dakota-Morrison, and Mesaverde Formations. Order No. 112-46 does not affect this Application.

 

7.         On June 17, 1988, the Commission entered Order No. 112-60 which established 320-acre drilling and spacing units for production of gas from the Fruitland coal seams, with the permitted well to be located no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line, including certain lands in Townships 32 through 34 North, Ranges 7 and 9 through 11 West, N.M.P.M., for the production of methane gas from the Fruitland coal seams. Sections 19, 20, and 21, Township 32 North, Range 7 West, N.M.P.M. are subject to this Order for the Fruitland Coal Formation.

 

8.         On August 15, 1988, the Commission entered Order No. 112-61 which amended parts of Order No. 112-60 and established rules for the production of coalbed methane in the Fruitland Coal Seams. Section 20, Township 32 North, Range 7 West, N.M.P.M. is subject to this Order for the Fruitland Coal Formation.

 

9.         On December 17, 1990, the Commission entered Order No. 112-85 which approved two additional field rules applicable to all wells producing from the Dakota, Mesaverde, Fruitland Pictured Cliffs, and Fruitland Coal Formations. Section 20, Township 32 North, Range 7 West, N.M.P.M. is subject to this Order for the Fruitland Coal Formation.

 

10.       On July 9, 1998, the Commission entered Order No. 112-145 which amended Order No. 112-61 and approved additional wells in irregular drilling and spacing units in Township 32 North, Ranges 8 and 9 West, N.M.P.M., for the production of oil, gas, and associated hydrocarbons from the Fruitland Coal seams. Section 20, Township 32 North, Range 7 West, N.M.P.M. is subject to this Order for the Fruitland Coal Formation.

 

11.       On April 24, 2000, the Commission entered Order No. 112-157 which approved additional wells for 320-acre drilling and spacing units established for the Township 32 North, Ranges 5-7 West, Township 33 North, Ranges 6-11 West, and Township 34 North, Ranges 6-10 West, N.M.P.M., south of the Ute Line, for the production of oil, gas, and associated hydrocarbons from the Fruitland Coal Formation. Section 20, Township 32 North, Range 7 West, N.M.P.M. is subject to this Order for the Fruitland Coal Formation.

 

12.       On November 27, 2006, the Commission entered Order No. 112-197 which allowed an optional third or fourth well, for a total of up to four wells, to be drilled in each 320-acre drilling and spacing unit for certain lands in Townships 32 through 34 North, Ranges 7 and 9 through 11 West, N.M.P.M., for the production of methane gas from the Fruitland Coal seams. Section 20, Township 32 North, Range 7 West, N.M.P.M. is subject to this Order for the Fruitland Coal Formation.

 

13.       On July 17, 2014 (amended September 29, 2014), Applicant filed a concurrent Application (Docket No. 1409-SP-2105) for an order to: 1) vacate two approximate 320-acre drilling and spacing units established by Order No. 112-60  for Sections 19, 20 and 21 Township 32 North, Range 7 West, N.M.P.M.,, and 2) establish an approximate 607.19-acre drilling and spacing unit and approve up to one well within the unit, for the production of oil, gas, and associated hydrocarbons from the Fruitland Coal Formation.

 

14.       On July 17, 2014 (amended September 29, 2014), Burlington, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S. for an order to pool all interests in an approximate 607.19-acre exploratory drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Fruitland Coal Formation, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the initial horizontal well (No API No.) (“Well”):

 

Township 32 North, Range 7 West, N.M.P.M.

Section 20:  All

Section 21: W½NW¼, Lot 4 (aka W½W½)

 

15.       This Application concerns lands within the jurisdiction of the Southern Ute Indian Tribe (“SUIT”), in accordance with the terms of the Memorandum of Understanding dated August 22, 1991 between the Bureau of Land Management (“BLM”) and this Commission and separate Memorandum of Understanding dated August 22, 1991 between the Bureau of Indian Affairs, the BLM and the SUIT. The SUIT owns surface interests, mineral interests and leasehold interests underlying or adjacent to the Application Lands. 

 

16.        On October 14, 2014, the BLM, on behalf of SUIT, submitted a letter of concurrence in support of the pooling of all interests in the approximate 607.19-acre exploratory drilling and spacing unit, for the development and operation of the Fruitland Coal Seam Formation.

 

17.       On October 14, 2014, Burlington, 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

 

18.       . Land testimony and exhibits submitted in support of the Application by Patrick H. Noah, Attorney-in-Fact for BROG GP LLC, sole General Partner of Burlington, showed that all nonconsenting interest 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 and was received at least 30 days prior to the October 27, 2014 hearing date.

 

19.       Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the  Southern Ute 706H Well, but did not provide testimony for any subsequent wells.

 

20.       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.

 

21.       Burlington agreed to be bound by oral order of the Commission.

 

22.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to pool all interests in an approximate 607.19-acre exploratory drilling and spacing unit for Section 20 and the W½W½ of Section 21, Township 32 North, Range 7 West, N.M.P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Southern Ute 706H well, for the development and operation of the Fruitland Coal Formation.

 

ORDER

 

IT IS HEREBY ORDERED:

 

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 607.19-acre exploratory drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Fruitland Coal Formation, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. are first incurred for the drilling of the Southern Ute 706H well (API No. Pending):

 

Township 32 North, Range 7 West, N.M.P.M.

Section 20:       All

Section 21:       W½NW¼, Lot 4 (aka W½W½)

 

            2.         The production obtained from the exploratory 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 exploratory drilling and spacing unit; each owner of an interest in the exploratory drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the exploratory drilling and spacing unit applicable to its interest in the exploratory drilling and spacing unit.

 

3.         The nonconsenting owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the exploratory 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.         Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116(7), C.R.S.  Any party seeking the cost recovery provisions of §34-60-116(7), C.R.S., shall first comply with subsection (d) for any subsequent well(s).

 

5.         Each nonconsenting unleased owner within the exploratory 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 Well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Well as if it had originally agreed to the drilling.

 

6.         The operator of the well drilled on the above-described exploratory 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:

 

1.         The provisions contained in the above order shall become effective immediately.

 

2.         The Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

 

3.         Under the State Administrative Procedure Act, the Commission considers this Order to be final agency action for purposes of judicial review within 35 days after the date this Order is mailed by the Commission.

 

4.         An application for reconsideration by the Commission of this Order is not required prior to the filing for judicial review.

 

            ENTERED this 19^th day of November, 2014, as of October 27, 2014.        

 

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary