BEFORE THE OIL AND
GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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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. 1401-UP-39
ORDER: 407-1022 |
REPORT OF THE COMMISSION
The Commission heard this matter on June 17, 2014, at the Rifle Branch Library, Garfield County Public Library District, 207 East Avenue, Rifle, Colorado, upon application for an order to pool all interests, including leased mineral interests, in two approximate 480-acre designated wellbore spacing units established for Sections 12, 13 and 24, Township 2 North, Range 67 West, 6th P.M., for the development and operation of the Niobrara Formation.
FINDINGS
The Commission finds as follows:
1. Kerr-McGee Oil & Gas Onshore, LP (“Kerr-McGee” 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 12, 13 and 24, Township 2 North, Range 67 West, 6th P.M. are subject to this Order for the Niobrara Formation.
5. On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Sections 12, 13 and 24, Township 2 North, Range 67 West, 6th P.M. are subject to Rule 318A for the Niobrara Formation.
6. On October 17, 2013 (Amended March 10, 2014), Kerr-McGee, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified Amended Application (“Amended Application”) for an order to pool all interests (including royalty interest owners) in an approximate 640-acre designated wellbore spacing unit 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 §34-60-116(7)(b)(II), C.R.S. were first incurred for the drilling of the Kerr 28N-12HZ Well (API No. 05-123-38982) (“Well”) and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S.:
Township 2 North, Range 67 West, 6th P.M.
Section 12: W½ E½
Section 13: W½ E½
Section 24: NW¼ NE¼
7. On January 10, 2014, Don Sacks (“Sacks” or “Protestant”) filed a “Rule 509 Protest” alleging that Kerr McGee requested that he sign an amendment to his lease allowing for pooling because his lease did not contain a pooling provision. He requested as relief that Kerr-McGee negotiate a new lease with him and all other mineral owners in the same situations.
8. On January 10, 2014, Kerr-McGee requested, and Commission staff granted, a continuance to the March 17, 2014 hearing date.
9. On January 31, 2014, Kerr McGee filed a Response and Motion to Dismiss the Protest of Don Sack. In support of its response, Kerr McGee stated that the Commission lacks jurisdiction to remedy contractual issues particularly where there is a lease and signed lease amendment.
10. On February 27, 2014, the Hearing Officer granted Kerr-McGee’s Motion to Dismiss the Protest of Don Sack.
11. On March 6, 2014, Kerr-McGee requested, and Commission staff granted, a continuance to the April 28, 2014 hearing date.
12. On April 22, 2014, Kerr-McGee requested, and Commission staff granted, a continuance to the June 16, 2014 hearing date.
13. On April 15, 2014, Kerr-McGee, 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.
14. Land testimony and exhibits submitted in support of the Application by Nancy McDonald, Staff Landman for Kerr-McGee, stated 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 June 17, 2014 hearing date.
15. Testimony further showed that certain royalty owners have not agreed to participate in the Well. These parties’ oil and gas leases pre-date the widespread use of horizontal drilling and did not contemplate formation of large spacing units to accommodate long lateral wellbores. Applicant contacted each of these royalty owners, or has made diligent efforts to do so, to obtain their consent to participate in the spacing unit for purposes of royalty payments. Despite such diligent efforts, Applicant has not been able to contact some of these individuals, or has received no response from them. Applicant confirms that the cost recovery provisions shall not apply to these leased interest owners.
16. 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 Kerr 28N-12HZ Well, but did not provide testimony for any subsequent wells.
17. The above-referenced testimony and exhibits show that granting the Amended Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.
18. Kerr-McGee agreed to be bound by oral order of the Commission.
19. Based on the facts stated in the verified Amended Application, having resolved all protests, and based on the Hearing Officer review of the Amended Application under Rule 511., the Commission should enter an order to pool all interests, including leased mineral interests, in two approximate 480-acre designated wellbore spacing units established for Sections 12, 13 and 24, Township 2 North, Range 67 West, 6th P.M., 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 480-acre designated wellbore spacing units established for the below-described lands, are hereby pooled, for the development and operation of the Niobrara Formation:
Township 2 North, Range 67 West, 6th P.M.
Section 12: W½ E½
Section 13: W½ E½
Section 24: NW¼ NE¼
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.
8. The wellbore spacing unit described above, shall be considered a drilling and
spacing unit established by the Commission for purposes of Rule 530.a.
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 8th day of July, 2014, as of June 17, 2014.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________ Robert J. Frick, Secretary