1410-UP-283 Kerr-McGee Draft Order.docx

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 AND BROOMFIELD COUNTY, COLORADO

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CAUSE NO. 407

DOCKET NO. 1410-UP-283

ORDER NO. 407-1132

REPORT OF THE COMMISSION

The Commission heard this matter on October 27, 2014 at the Durango Public Library, 1900 E. 3^rd Avenue, Durango, CO 81301, upon application for an order to pool all interests within an approximate 560-acre designated horizontal wellbore spacing unit established for Sections 11, 12, 13, 14, 23 and 24, Township 1 North, Range 68 West, 6^th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Front Range Farms 16N-14HZ Well, 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”) 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 11, 12, 13, 14, 23 and 24, Township 1 North, Range 68 West, 6^th P.M. are subject to this Rule for the Niobrara Formation.

5. On February 19, 1992 (amended August 20, 1993), the Commission entered Order No. 407-87 which 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 11, 12, 13, 14, 23 and 24, Township 1 North, Range 68 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5. On August 28, 2014, Kerr-McGee, 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 560-acre designated horizontal wellbore spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara Formation, 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 Front Range Farms 16N-14HZ Well (API No. 05-123-39435) (“Well”):

Township 1 North, Range 68 West, 6^th P.M.
Section 11:      E½ SE¼
Section 12:      W½ SW¼
Section 13:      W½ W½
Section 14:      E½ E½
Section 23:      NE¼ NE¼ (Broomfield)
Section 24:      NW¼ NW¼

7. On October 10, 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.

8. Land testimony and exhibits submitted in support of the Application by Tom Yaley, Staff Landman for Kerr-McGee, stated 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 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 Well.

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. Kerr-McGee agreed to be bound by oral order of the Commission.

12. 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 pool all interests in an approximate 560-acre designated horizontal wellbore spacing unit established for Sections 11, 12, 13, 14, 23 and 24, Township 1 North, Range 68 West, 6^th P.M., for the development and operation of the Niobrara Formation, 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 Front Range Farms 16N-14HZ Well.

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 the approximate 560-acre designated horizontal wellbore 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., were first incurred for the drilling of Front Range Farms 16N-14HZ Well (API No. 05-123-39435):

2. The production obtained from the designated horizontal wellbore 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 designated horizontal wellbore spacing unit; each owner of an interest in the designated horizontal wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the designated horizontal wellbore spacing unit applicable to its interest in the designated horizontal wellbore spacing unit.

3. The operator of the Well drilled on the above-described wellbore 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.

4. 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.

5. Any 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 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 18^th day of November, 2014, as of October 27, 2014.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By__________________________________

Robert J. Frick, Secretary