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 NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
) ) ) ) ) |
CAUSE NO. 407
DOCKET NO. 1404-UP-106
ORDER NO. 407-1029 |
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 in three approximate 360-acre to 720-acre designated wellbore spacing units established for Sections 22, 23, 26, 27, 34, and 35, Township 2 North, Range 67 West, 6th P.M., to accommodate the Dugite 34N-35HZ Well in WSU #1, the Dugite 13C-35HZ Well in WSU #2, and the Dugite 13N-35HZ Well in WSU #3, for the development and operation of the Codell and Niobrara Formations.
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 April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Sections 22, 23, 26, 27, 34, and 35, Township 2 North, Range 67 West, 6th P.M. are subject to Rule 318A for the Codell and Niobrara Formations.
5. 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 and/or gas from the Codell-Niobrara Formation underlying certain lands, with the permitted well locations in accordance with the provisions of Order No. 407-1. Sections 22, 23, 26, 27, 34, and 35, Township 2 North, Range 67 West, 6th P.M. are subject to this Order for the Codell and Niobrara Formations.
6. On February 27, 2014, Kerr-McGee, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified now-amended application (“Application”) for an order to pool all interests in three approximate 360-acre to 720-acre designated wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, for the drilling of the Dugite 34N-35HZ Well (API No. 05-123-39328) in WSU #1, the Dugite 13C-35HZ Well (API No. 05-123-39330) in WSU #2, and the Dugite 13N-35HZ Well (API No. 05-123-39329) in WSU #3 (“Wells”) and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):
Township 2 North, Range 67 West, 6th P.M.
Section 22: SE¼ SE¼ (“WSU#1” – 720 acres - Niobrara Formation)
Section 23: SW¼ SW¼
Section 26: W½ W½
Section 27: E½ E½
Section 34: E½ E½
Section 35: W½ W½
Township 2 North, Range 67 West, 6th P.M.
Section 23: SW¼ SW¼ (“WSU#2” - 360 acres - Codell Formation)
Section 26: W½ W½
Section 35: W½ W½
Township 2 North, Range 67 West, 6th P.M.
Section 23: S½ SW¼ (“WSU#3” - 720 acres - Niobrara Formation)
Section 26: W½
Section 35: W½
7. On April 15, 2014, Kerr McGee, by its attorneys, requested, and Commission staff granted, a continuance to the June hearing.
8. On May 28, 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.
9. Land testimony and exhibits submitted in support of the Application by Gordon Palmer, Landman for Kerr-McGee, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Dugite 34N-35HZ Well in WSU #1. 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.
10. Land testimony and exhibits submitted in support of the Application by Nancy McDonald, Staff Landman for Kerr-McGee, showed certain royalty owners have oil and gas leases which pre-date the widespread use of horizontal drilling and did not contemplate the 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 confirmed that Commission Rule 530 does not apply as there are no working interest owners or unleased mineral interest owners subject to the Application, and Applicant is not seeking cost recovery pursuant to §34-60-116(7) for the Dugite 13C-35HZ Well in WSU #2, and the Dugite 13N-35HZ Well in WSU #3.
11. Land testimony further 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 Dugite 34N-35HZ Well in WSU #1, but did not provide Rule 530 testimony for Dugite 13C-35HZ Well in WSU #2, and the Dugite 13N-35HZ Well in WSU #3 or any subsequent Wells.
12. 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.
13. Kerr-McGee agreed to be bound by oral order of the Commission.
14. 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 three approximate 360-acre to 720-acre designated wellbore spacing units established for Sections 22, 23, 26, 27, 34, and 35, Township 2 North, Range 67 West, 6th P.M., for the drilling of the Dugite 34N-35HZ Well in WSU #1, the Dugite 13C-35HZ Well in WSU #2, and the Dugite 13N-35HZ Well in WSU #3, 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 three approximate 360-acre to 720-acre designated wellbore spacing units established for the below-described lands, are hereby pooled, for the drilling of the Dugite 34N-35HZ Well (API No. 05-123-39328) in WSU #1, the Dugite 13C-35HZ Well (API No. 05-123-39330) in WSU #2, and the Dugite 13N-35HZ Well (API No. 05-123-39329) in WSU #3, for the development and operation of the Codell and Niobrara Formations:
Township 2 North, Range 67 West, 6th P.M.
Section 22: SE¼ SE¼ (“WSU#1” - 720 acres - Niobrara Formation)
Section 23: SW¼ SW¼
Section 26: W½ W½
Section 27: E½ E½
Section 34: E½ E½
Section 35: W½ W½
Township 2 North, Range 67 West, 6th P.M.
Section 23: SW¼ SW¼ (“WSU#2” - 360 acres - Codell Formation)
Section 26: W½ W½
Section 35: W½ W½
Township 2 North, Range 67 West, 6th P.M.
Section 23: S½ SW¼ (“WSU#3” - 720 acres - Niobrara Formation)
Section 26: W½
Section 35: W½
2. The production obtained from the wellbore 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 wellbore spacing unit; each owner of an interest in the wellbore spacing units shall be entitled to receive its share of the production of the Wells located on the wellbore spacing unit applicable to its interest in the wellbore 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 Dugite 34N-35HZ Well in WSU #1 (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from each 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.
4. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Dugite 34N-35HZ Well in WSU #1 and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.
5. Each nonconsenting unleased owner within each 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 from the Dugite 34N-35HZ Well in WSU #1, 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 wellbore 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.
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