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 CODELL AND/OR NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 407

 

DOCKET NO. 1404-UP-103

 

ORDER NO. 407-1011

 

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 an approximate 640-acre drilling and spacing unit established for Sections 8 and 9, 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 Twell #5 through Twell #11 Wells, for the development and operation of the Codell and Niobrara Formations.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Extraction Oil and Gas, LLC (“Extraction” 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 December 19, 1983, the Commission entered Order No. 407-1 (amended March 20, 2000) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell Formation, with the unit to be designated by the operator drilling the first well in the a quarter section.  The permitted well shall be located in the center of either 40-acre tract within the unit with a tolerance of 200 feet in any direction.  The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.  Sections 8 and 9, Township 6 North, Range 67 West, 6th P.M. are subject to this Order for the Codell Formation.

 

            5.        On February 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993) which, among other things, established 80-acre drilling and spacing units for the production of oil and/or gas from the Codell and Niobrara Formations underlying certain lands, with the permitted well locations in accordance with the provisions of Order No. 407-1.  Sections 8 and 9, Township 6 North, Range 67 West, 6th P.M. are subject to this Order for the Codell and Niobrara Formations.

 

 

 

6.         On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule.  Sections 8 and 9, Township 6 North, Range 67 West, 6th P.M. are subject to Rule 318A for the Codell and Niobrara Formations.

 

            7.         On  February 27, 2014, Extraction, by its attorneys, filed with the Commission, pursuant to §34-60-116, C.R.S., a verified concurrent application (“Concurrent Application), Docket No. 1404-SP-2038, for an order to establish an approximate 640-acre drilling and spacing unit for  the N½ of Sections 8 and 9, Township 6 North, Range 67 West, 6th P.M., and approve up to eleven horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.  When the Application Lands were surveyed, Extraction determined that the unit would accommodate only seven horizontal wells, rather than the eleven wells which were originally planned.

9.         On February 27, 2014, Extraction, 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 640-acre drilling and spacing unit established for the below-described lands (“Application Lands”) for the development and operation of the Codell and/or Niobrara Formations, 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 Twell #5 Well, the Twell #6 Well, the Twell #7 Well, the Twell #8 Well, the Twell #9 Well, the Twell #10 Well, and the Twell #11 Well (“Initial Wells”):

 

                        ­­Township 6 North, Range 67 West, 6th P.M.

                        Section 8:  S½

                        Section 9:  S½

 

            9.         Applicant stated that existing vertical/directional wells shall be excluded from the unit and shall continue to pay on their current spacing or leasehold status.

            10.       Applicant stated it intends to drill the horizontal wells as part of a continuous drilling program, and will comply with Rule 530 for each of the eight authorized wells pursuant to §34-60-116(7), C.R.S., by providing a Pro Forma AFE and Election Letter to each nonconsenting party at least 30 days prior to the hearing on the matter.

            11.       Applicant stated that the horizontal wells will be drilled from a multi-well pad located in the W½SW¼ of Section 8, Township 6 North, Range 67 West, 6th P.M., from an authorized window pursuant to Rule 318A, or from an exception location with surface owner consent.

12.       On April 15, 2014, Extraction, 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.

 

 

 

 

13.       Land testimony and exhibits submitted in support of the Application by Allyson Vistica, Senior Landman for Extraction, 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.

 

14.       Land testimony showed Applicant complied with the elements of Rule 530 for each of the Initial Wells.  For purposes of pooling and cost recovery pursuant §§34-60-116(6) and (7), C.R.S.  Applicant requests the Commission:

 

            a.         require each interest owner who is not pooled voluntarily shall make an election to participate or be pooled by statute in the seven Initial Wells collectively, rather than in each Initial Well individually; and

 

            b.         for each nonconsenting owner, apply the cost recovery provisions of §34-60-116(7), C.R.S. to each of the Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and

 

            c.         require Applicant re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and

 

            d.         require Applicant re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the drilling and spacing unit.

 

15.       Applicant stated it will begin drilling the Initial Wells within one year from the date of entry of this Order, by obtaining the necessary approvals and permits to drill.  Failure to obtain the necessary permits shall not relieve Applicant from this requirement or extend the time period approved by this Order.

 

16.       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.

 

17.       Extraction agreed to be bound by oral order of the Commission. 

 

18.       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 within an approximate 640-acre drilling and spacing unit established for Sections 8 and 9, 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 Twell #5 through Twell #11 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 an approximate 640-acre drilling and spacing unit 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 Twell #5 Well, the Twell #6 Well, the Twell #7 Well, the Twell #8 Well, the Twell #9 Well, the Twell #10 Well, and the Twell #11 Wells:

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                        Township 6 North, Range 67 West, 6th P.M.

                        Section 8:  S½

                        Section 9:  S½

 

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 Well 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 Well (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.         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 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 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.         For purposes of pooling and cost recovery pursuant to §§34-60-116(6) and (7), C.R.S.:

 

            a.         Each interest owner who is not pooled voluntarily shall make an election to participate or be pooled by statute in the seven Initial Wells collectively, rather than in each Initial Well individually; and

 

            b.         For each nonconsenting owner, the cost recovery provisions of §34-60-116(7), C.R.S. shall apply to each of the eight Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and

 

            c.         Applicant shall re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and

 

            d.         Applicant shall re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the drilling and spacing unit.

 

8.         Applicant stated it will begin drilling the Initial Wells within one year from the date of entry of this Order, by obtaining the necessary approvals and permits to drill.  Failure to obtain the necessary permits shall not relieve Applicant form this requirement or extend the time period approved by this Order.

 

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.       Existing vertical/directional wells shall be excluded from the unit and shall continue to pay on their current spacing or leasehold status.

 

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   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