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 CODELL-NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1412-UP-371
ORDER NO. 407-1192 |
REPORT OF THE COMMISSION
The Commission heard this matter on December 15, 2014 at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, CO, upon application for an order to: 1) amend Order Nos. 407-514 and 535-104 to include the Codell Formation for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell Formation; 2) approve an additional 15 horizontal wells, for a total of 16 horizontal wells, within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation; and 3) pool all interests within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 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 L.E. Gerkin 1H Well, L.E. Gerkin 2H Well, L.E. Gerkin 3H Well, and L.E. Gerkin 4H Well, for the development and operation of the Codell-Niobrara Formation.
FINDINGS
The Commission finds as follows:
1. Red Hawk Petroleum, LLC (Operator No. 10503) (“Red Hawk” 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 13 and 24, Township 2 North, Range 64 West, 6th P.M. are subject to this Rule for the Codell-Niobrara Formations.
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.
6. On December 16, 2011, the Commission entered Orders Nos. 407-514 and 535-104, which established an approximate 1280-acre drilling and spacing units for certain lands, including Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., and approved one horizontal well within each unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation.
6. On October 17, 2014, Red Hawk, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S. for an order to:1) amend Order Nos. 407-514 and 535-104 to include the Codell Formation for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell Formation; 2) approve an additional 15 horizontal wells, for a total of 16 horizontal wells, within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation, with the productive interval of the wellbore to be 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 by the Director; and 3) pool all interests in an approximate 1280-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Codell-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 date of the Application, for the drilling of the L.E. Gerkin 1H Well (API No. Pending), L.E. Gerkin 2H Well (API No. Pending), L.E. Gerkin 3H Well (API No. Pending), and L.E. Gerkin 4H Well (API No. Pending) (“Wells”)
Township 2 North, Range 64 West, 6th P.M.
Section 13: All
Section 24: All
7. On November 24, 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 Angelina Galvan, Land Contractor for Red Hawk, showed that Red Hawk holds oil and gas leasehold interests and has a right to drill in the Application Lands. Further testimony showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Wells. 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 35 days prior to the December 15, 2014 hearing date.
9. 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.E. Gerkin 1H Well, L.E. Gerkin 2H Well, L.E. Gerkin 3H Well, and L.E. Gerkin 4H Well, but did not provide testimony for any subsequent wells.
10. Geologic and engineering testimony and exhibits submitted in support of the Application by Michael Rozenfeld, Geoscience President for South Texas Reservoir Alliance LLC for Red Hawk, showed that the Codell Formation is present throughout the Application Lands, is approximately 15 to 20 feet thick throughout the Application Lands. Further testimony showed that the drainage area for analog horizontal Codell-Niobrara Formation wells are estimated at 41 acres for one section length horizontal well with a median drainage average of 37 acres and a maximum drainage area calculated from microseismic of 46 acres. An approximate 1280-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by 16 horizontal well producing oil, gas and associated hydrocarbons from the Codell-Niobrara Formation.
11. Applicant further requested that the Commission take administrative notice of the 511 geologic testimony submitted in Order Nos. 407-514 and 535-104 as further grounds to demonstrate that the Niobrara Formation is present throughout the Application Lands and is approximately 280 to 360 feet thick.
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. Red Hawk 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 Unit review of the Application under Rule 511., the Commission should enter an order to: 1) amend Order Nos. 407-514 and 535-104 to include the Codell Formation for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell Formation; 2) approve an additional 15 horizontal wells, for a total of 16 horizontal wells, within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation; and 3) pool all interests within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for L.E. Gerkin 1H Well, L.E. Gerkin 2H Well, L.E. Gerkin 3H Well, and L.E. Gerkin 4H Well, for the development and operation of the Codell-Niobrara Formation.
ORDER
IT IS HEREBY ORDERED:
1. Order Nos. 407-514 and 535-104 are hereby amended to include the Codell Formation for an approximate 1280-acre drilling and spacing unit established for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Codell Formation.
Township 2 North, Range 64 West, 6thP.M.
Section 13: All
Section 24: All
2. An additional 15 horizontal wells, for a total of 16 horizontal wells, within an approximate 1280-acre drilling and spacing unit established for Sections 13 and 24, Township 2 North, Range 64 West, 6th P.M., are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation, with the productive interval of the wellbore to be 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 by the Director.
3. The proposed wells shall be located on no more than one well pad per quarter section, subject to Rule 318A;
4, 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 1280-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 date of the Application, for the drilling of the L.E. Gerkin 1H Well, L.E. Gerkin 2H Well, L.E. Gerkin 3H Well, and L.E. Gerkin 4H Well (“Wells”)
Township 2 North, Range 64 West, 6th P.M.
Section 13: All
Section 24: All
5. 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.
6. The nonconsenting (unleased) 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.
7. 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).
8. 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.
9. 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.
10. 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 January, 2015, as of December 15, 2014.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Jill Dorancy, Acting Secretary