BEFORE THE OIL AND
GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE APPLICATION OF TEKTON WINDSOR, LLC FOR AN ORDER TO POOL ALL INTERESTS IN NINE 400-ACRE DESIGNATED WELLBORE SPACING UNITS LOCATED IN SECTIONS 21 AND 22, TOWNSHIP 6 NORTH, RANGE 67 WEST, 6TH P.M., FOR THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1403-UP-85
ORDER NO. 407-1002 |
REPORT OF THE COMMISSION
The Commission heard this matter on April 28, 2014, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon an application for an order to pool all interests within nine approximate 400-acre designated wellbore spacing units established for Sections 21 and 22, Township 6 North, Range 67 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Diamond Valley SW #1 through #9 Wells, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Tekton Windsor, LLC (“Tekton” 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 February 19, 1992, the Commission entered Order No. 407-87 (amended August 20, 1993) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the permitted well locations in accordance with the provisions of Order No. 407-1. Sections 21 and 22, Township 6 North, Range 67 West, 6th P.M. are subject to this Order for the Codell and Niobrara Formations.
5. On April 27, 1998 (As of February 1, 2014), the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule (Amended December 5, 2005 and August 11, 2011). Sections 21 and 22, Township 6 North, Range 67 West, 6th P.M. are subject to Rule 318A for the Codell and Niobrara Formations.
6. On January 16, 2014, Tekton, 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 in nine approximate 400-acre designated wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, 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 drilling each of the nine Diamond Valley SW #1 through Diamond Valley SW #9 wells (“Wells”), and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S.:
Township 6 North, Range 67 West, 6th P.M.
Section 21: S½
Section 22: W½ SW¼
Applicant stated all nine designated wellbore spacing units contain the same Application Lands:
WSU #1 – Niobrara Diamond Valley SW #1 (API No. 05-123-37020)
WSU #2 – Codell Diamond Valley SW #2 (API No. 05-123-36116)
WSU #3 – Niobrara Diamond Valley SW #3 (API No. 05-123-37016)
WSU #4 – Niobrara Diamond Valley SW #4 (API No. 05-123-37015)
WSU #5 – Codell Diamond Valley SW #5 (API No. 05-123-36115)
WSU #6 – Niobrara Diamond Valley SW #6 (API No. 05-123-37018)
WSU #7 – Niobrara Diamond Valley SW #7 (API No. 05-123-36114)
WSU #8 – Codell Diamond Valley SW #8 (API No. 05-123-36166)
WSU #9 – Niobrara Diamond Valley SW #9 (API No. 05-123-37019)
7. On February 25, 2014 (Amended February 28, 2014, March 1, 2014 and March 2, 2014), Wendell G. Bradley (“Bradley”) filed a letter of protest with the Commission. The letter was included in the record as a Rule 510 statement.
8. On February 28, 2014, Linda G. Saxton (“Saxton”) filed a letter of protest with the Commission. The letter was included in the record as a Rule 510 statement.
9. On March 3, 2014, Great Western Operating Company, LLC (“Great Western”) on behalf of Grizzly Petroleum Company, LLC, filed a Protest to the Application alleging Tekton had not provided it with wellbore designation letters pursuant to Rule 318A.e.(6).
10. On March 3, 2014, Weld County School District RE-4 (“Weld RE-4”) filed a Protest to the Application alleging Tekton had not provided it with a reasonable offer to lease upon terms no less favorable than those currently prevailing in the area, pursuant to §34-60-116(7)(d) and Rule 530.c.
11. On March 10, 2014, Great Western withdrew its Protest. Tekton agreed to provide the wellbore designation letters for the Diamond Valley SW #1 through #9 wells and to allow Great Western an additional 30-days from receipt of the wellbore designation letters to make an election to participate or lease for each well.
12. On March 11, 2014, Weld RE-4 withdrew its Protest to the Application.
13. On March 13, 2014, the Commission was informed the Notice of Hearing was not published at least 10 days in advance of the March 17, 2014 hearing. Therefore, the Application was continued to the April 28, 2014 hearing and a Second Notice of Hearing was published at least 10 days prior to that date.
14. On April 14, 2014, Synergy Resources Corporation (“Synergy”) filed a Protest to the Application (“Synergy Protest”).
15. On April 17, 2014, a Prehearing Conference (“PHC”) was held to address the Synergy Protest.
16. On April 18, 2014, a teleconference was held with COGCC Hearings Unit Manager Bob Frick, Hearings Officer Roger Allbrandt, Dave Neslin - Attorney for Tekton and Mike Morgan - Attorney for Synergy. The parties agreed to bifurcate the request for cost recovery, §34-60-116 (7), C.R.S., pertaining to Synergy’s newly acquired mineral ownership in approximately 11 mineral leases and the purchase of two separate mineral interests within the Application Lands, as identified in COGCC Document No. 02578183 (“Synergy Interests”).
17. On April 21, 2014, Tekton, by its attorneys, filed an Objection to Wendell G. Bradley’s Rule 510 Statement, pursuant to Rule 510.c., requesting the materials filed by Bradley be excluded from the record.
18. On April 21, 2014, Bradley submitted by e-mail an Objection to Tekton’s Objection to Dr. Wendell G. Bradley’s Rule 510 Statement.
19. On April 22, 2014, Hearing Officer Roger Allbrandt issued an Order Granting Tekton's Objection to Wendell G. Bradley's Rule 510 Statement. Rule 510 materials filed by Bradley shall be excluded from the record. The Hearing Officer’s Order and materials filed by Bradley were provided to the Commission prior to the hearing on the matter.
20. On April 22, 2014, Hearing Officer Roger Allbrandt issued an order bifurcating those Synergy Interests listed on COGCC Document No. 02578183, attached to the Hearing Officer Order as Exhibit A, from the cost recovery penalties approved by this order.
21. On April 21, 2014, Tekton, 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.
22. Land testimony and exhibits submitted in support of the Application by Scott Baily, Landman for Tekton, 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 April 28, 2014 hearing date.
23. 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 Wells. Those Synergy Interests subject to the pending Protest are not subject to this Finding.
24. 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.
25. Tekton agreed to be bound by oral order of the Commission.
26. 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 nine approximate 400-acre designated wellbore spacing units established for Sections 21 and 22, Township 6 North, Range 67 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Diamond Valley SW #1 through #9 Wells, for the development and operation of the Codell and Niobrara Formations.
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 nine approximate 400-acre designated wellbore spacing units established for the below-described lands, are hereby pooled, for the development and operation of the Codell and Niobrara Formations, 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 Wells:
Township 6 North, Range 67 West, 6th P.M.
Section 21: S½
Section 22: W½ SW¼
All nine designated wellbore spacing units contain the same Application Lands:
WSU #1 – Niobrara Diamond Valley SW #1 (API No. 05-123-37020)
WSU #2 – Codell Diamond Valley SW #2 (API No. 05-123-36116)
WSU #3 – Niobrara Diamond Valley SW #3 (API No. 05-123-37016)
WSU #4 – Niobrara Diamond Valley SW #4 (API No. 05-123-37015)
WSU #5 – Codell Diamond Valley SW #5 (API No. 05-123-36115)
WSU #6 – Niobrara Diamond Valley SW #6 (API No. 05-123-37018)
WSU #7 – Niobrara Diamond Valley SW #7 (API No. 05-123-36114)
WSU #8 – Codell Diamond Valley SW #8 (API No. 05-123-36166)
WSU #9 – Niobrara Diamond Valley SW #9 (API No. 05-123-37019)
2. All interests in each wellbore spacing unit, including the Synergy Interests, are pooled by this Order.
3. The Synergy Interests subject to the pending bifurcated Protest shall not be subject to the cost recovery provisions approved by this Order. With respect to those interests listed on COGCC Document No. 02578183, issues regarding the applicability of §34-60-116(7), C.R.S. and Rule 530 are continued to the June 16-17, 2014 hearing.
4. As to each wellbore spacing unit, the production obtained from the wellbore 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 wellbore spacing unit; each owner of an interest in the wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the wellbore spacing unit applicable to its interest in the wellbore spacing unit.
5. 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 Well (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the wellbore spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
6. 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.
7. Each nonconsenting unleased owner within the wellbore 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.
8. The operator of the Well 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. The operator need only furnish such statements annually to those nonconsenting owners who receive annual payments under §34-60-118.5(2), C.R.S. because the aggregate sum they are due for twelve consecutive months is one hundred dollars or less.
9. 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.
10. The wellbore spacing units described above, shall be considered drilling and spacing units established by the Commission for purposes of Rule 530.a.
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 23rd day of May, 2014, as of April 28, 2014.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary