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. 1406-UP-190

 

ORDER No. 407-1079

 

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 an application for an order to approve an additional seven horizontal wells, for a total of eight horizontal wells within an approximate 640-acre drilling and spacing unit established by Order Nos. 407-514 and 535-104 for Section 31, Township 6 North, Range 61 West, 6th P.M., for the production of gas, oil and associated hydrocarbons from the Niobrara Formation; and to pool all interests in the approximate 640-acre drilling and spacing unit established for the development and operation of the Niobrara Formation, for the drilling of the L&S Capital LTD 31-1H Well.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Red Hawk Petroleum, LLC (“Red Hawk” 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 31, Township 6 North, Range 61 West, 6th P.M. is subject to Rule 318A for the Niobrara Formation.

 

5.         On December 12, 2011, the Commission entered Order Nos. 407-514 and 535-104 which established an approximate 640-acre drilling and spacing unit for Section 31, Township 6 North, Range 61 West, 6th P.M. and approved one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

6.         On April 15, 2014, Red Hawk, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S. for an order to: 1) approve an additional seven horizontal wells, for a total of eight horizontal wells within an approximate 640-acre drilling and spacing unit established by Order Nos. 407-514 and 535-104 for the below-described lands (“Application Lands”) for the production of gas, oil and associated hydrocarbons from the Niobrara Formation; 2) require the productive interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit; 3) to pool all interests in the approximate 640-acre drilling and spacing unit established for the development and operation of the Niobrara Formation; and 4) 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 any well for which cost recovery is granted by the Commission at the June 16-17, 2014 hearing:

 

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

                                    Section 31:      All

 

7.         On June 3, 2014, Red Hawk, 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.

 

8.         Land testimony and exhibits submitted in support of the Application by Matt H. Skinner, Land Contractor for Red Hawk, showed the surface of the Application Lands is owned in fee, the minerals in the Application Lands are owned in fee, and the Applicant is an owner with the right to drill within the unit.  Testimony further showed that all interested parties received notice and a copy of the Application.

 

9.         Land testimony and exhibits submitted in support of the Application by Matt H. Skinner, Land Contractor for Red Hawk, 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 June 17, 2014 hearing date.

 

10.       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 L&S Capital LTD 31-1H Well (No API No.) (“Well”), but did not provide testimony for any subsequent wells.

 

11.       Geologic testimony and exhibits filed in support of the Application by Constance M. Walker, Senior Geologist, Petrotek Engineering Corporation, as Contract Petroleum Geologist for Red Hawk, showed that the Niobrara Formation exists under the entirely Application Lands and is approximately 225-250 feet thick.

 

12.       Engineering testimony and exhibits filed in support of the Application by Kenneth J. Cooper, Engineering Manager, Petrotek Engineering Corporation, as Contract Petroleum Reservoir Engineer for Red Hawk, showed that the drilling, completion and production of up to eight horizontal Niobrara Formation wells in the subject 640-acre drilling and spacing unit will increase recovery from the reservoir and thereby prevent waste, will protect correlative rights, and can be done economically and efficiently.

 

13.       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.

 

14.       Red Hawk agreed to be bound by oral order of the Commission. 

 

15.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to approve an additional seven horizontal wells, for a total of eight horizontal wells within an approximate 640-acre drilling and spacing unit established by Order Nos. 407-514 and 535-104 for Section 31, Township 6 North, Range 61 West, 6th P.M., for the production of gas, oil and associated hydrocarbons from the Niobrara Formation; and to pool all interests in the approximate 640-acre drilling and spacing unit established for the development and operation of the Niobrara Formation, for the drilling of the L&S Capital LTD 31-1H Well.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         An additional seven horizontal wells, for a total of eight horizontal wells within an approximate 640-acre drilling and spacing unit established by Order Nos. 407-514 and 535-104 for the below-described lands, are hereby approved, for the production of gas, oil and associated hydrocarbons from the Niobrara Formation, with the productive interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director.

 

2.         Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in the approximate 640-acre drilling and spacing unit 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 §34-60-116(7)(b), C.R.S. are first incurred for the drilling of the L&S Capital LTD 31-1H Well:

 

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

                                    Section 31:      All

 

3.         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.

 

4.         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.

 

5.         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).

 

6.         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.

 

7.         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.

 

8.         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 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   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