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 NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 407

 

DOCKET NO. 1404-UP-95

ORDER: 407-1009

CORRECTED

 

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 application for an order to pool all interests in two approximate 640-acre drilling and spacing units established for Section 7, Township 5 North, Range 61 West, 6th P.M., to accommodate the Pronghorn 14-11-7HZ Well and the Pronghorn 44-41-7HNB, for the development and operation of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Bonanza Creek Energy Operating Company LLC ("Bonanza 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 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Section 7, Township 5 North, Range 61 West, 6th P.M. is subject to Rule 318A for the Niobrara Formation.

 

5.         On November 29, 2010, the Commission entered Order No. 407-380 which established 15 approximate 640-acre drilling and spacing units and approved one well within each unit for the Niobrara Formation. Section 7, Township 5 North, Range 61 West, 6th P.M. is subject to this Order for the Niobrara Formation.

 

6.         On May 29, 2012, the Commission entered Order No. 407-633 which approved one or more additional horizontal wells within each of 15 approximate 640-acre drilling and spacing units. Section 7, Township 5 North, Range 61 West, 6th P.M. is subject to this Order for the Niobrara Formation.

 

7.         On February 27, 2014, Bonanza, 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 two approximate 640-acre drilling and spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara 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 the Pronghorn 14-11-7HZ Well (API No. 05-123-39024) and the Pronghorn 44-41-7HNB, (API No. 05-123-36386) (“Wells”), and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):

 

Township 5 North, Range 61 West, 6th P.M.

Section 7:        All

 

            8.         On April 15, 2014, Bonanza, 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.

 

9.         Land testimony and exhibits submitted in support of the Application by Caroline Heuring, Landman for Bonanza, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Wells.  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.

 

10.       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.

 

11.       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 Pronghorn 14-11-7HZ and the Pronghorn 44-41-7HNB Wells, but did not provide testimony for any subsequent wells.

 

12.       Bonanza agreed to be bound by oral order of the Commission. 

 

13.       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 interests in two approximate 640-acre drilling and spacing units established for Section 7, Township 5 North, Range 61 West, 6th P.M., to accommodate the Pronghorn 14-11-7HZ Well and the Pronghorn 44-41-7HNB (“Wells”), for the development and operation of the Niobrara 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 two approximate 640-acre drilling and spacing units established for the below-described lands, are hereby pooled, for the development and operation of the Niobrara 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) are first incurred for the drilling of the Pronghorn 14-11-7HZ Well and the Pronghorn 44-41-7HNB (“Wells”):

 

Township 5 North, Range 61 West, 6th P.M.

Section 7:        All

 

2.         The production obtained from the drilling and spacing unit shall be allocated to each owner in the units 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 each 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 Wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

 

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

 

6.         The operator of the wells drilled on the above-described drilling and spacing units 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 30 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.

CORRECTED this 1st  day of July, 2014, as of April 2014.

           

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary