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 AND NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1412-UP-367
ORDER NO. 407-1200 |
REPORT OF THE COMMISSION
The Commission heard this matter on January 26, 2015, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests in three approximate 320-acre designated horizontal wellbore spacing units, and all interests in three approximate 160-acre designated horizontal wellbore spacing units for Section 10, Township 4 North, Range 66 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 DCP #10-3H Well, the DCP #10-4H Well, the DCP #10-5H Well,, the DCP #10-6H Well, the DCP #10-7H Well, and the DCP #10-8H Well (“Wells”), for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. K.P. Kauffman Company, Inc. (“K.P. Kauffman” 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 10, Township 4 North, Range 66 West, 6th P.M. is 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 Niobrara Formation underlying certain lands, including the Application Lands, as defined below, with the permitted well locations in accordance with the provisions of Order No. 407-1.
6. On July 28, 2014, the Commission entered Order No. 407-2013 which pooled all interests in two approximate 720-acre designated wellbore spacing units established for lands including the Application Lands, for the development and operation of the Niobrara Formation.
7. On July 28, 2014, the Commission entered Order No. 407-2022 which pooled all interests in an approximate 720-acre designated wellbore spacing unit established for lands including the Application Lands, for the development and operation of the Niobrara Formation.
8. On September 15, 2014, the Commission entered Order No. 407-1118 which declared Order No. 407-2013 applicable to previously unlocatable parties, and pooled all interested in the approximate 720-acre designated horizontal wellbore spacing units established for lands including the Application Lands, for the development and operation of the Niobrara Formation.
9. On October 16, 2014, K.P. Kauffman, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to pool all interests, including leased mineral interest owners, in three approximate 320-acre designated horizontal wellbore spacing units, and all interests in three approximate 160-acre designated horizontal wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application or the date that the costs specified in C.R.S. § 34-60-116(7)(b) are first incurred for the drilling of the DCP #10-3H Well (API No. 05-123-38421), the DCP #10-4H Well (API No. 05-123-38424), the DCP #10-5H Well (API No. 05-123-38422), the DCP #10-6H Well (API No. 05-123-38426), the DCP #10-7H Well (API No. 05-123-38423), and the DCP #10-8H Well (API No. 05-123-40033):
Township 4 North, Range 66 West, 6th P.M. WSU #1
Section 10: N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #2
Section 10: N½ (Codell)
Township 4 North, Range 66 West, 6th P.M. WSU #3
Section 10: N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #4
Section 10: N½N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #5
Section 10: S½N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #6
Section 10: S½N½ (Niobrara)
10. On November 24, 2014, K.P. Kauffman, by its attorneys, requested, and Commission staff granted, a continuance to the January 26, 2012 hearing.
11. On January 5, 2015, K.P. Kauffman, 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.
12. Land testimony and exhibits submitted in support of the Application by Avi Mehler, Land Manager for K.P. Kauffman, showed that all non-consenting 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 January 26, 2015 hearing date.
13. 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 DCP #10-3H Well, the DCP #10-4H Well, the DCP #10-5H Well,, the DCP #10-6H Well, the DCP #10-7H Well, and the DCP #10-8H Well but did not provide testimony for any subsequent wells.
14. 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. K.P. Kauffman 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 Officer review of the Application under Rule 511, the Commission should enter an order to pool all interests in three approximate 320-acre designated horizontal wellbore spacing units, and three approximate 160-acre designated horizontal wellbore spacing units for Section 10, Township 4 North, Range 66 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 DCP #10-3H Well, the DCP #10-4H Well, the DCP #10-5H Well,, the DCP #10-6H Well, the DCP #10-7H Well, and the DCP #10-8H Well.
ORDER
NOW, THEREFORE IT IS ORDERED, that:
1. Pursuant to §34-60-116 C.R.S., a verified application (“Application”) for an order to pool all interests in three approximate 320-acre designated horizontal wellbore spacing units, and three approximate 160-acre designated horizontal wellbore spacing units established for the below-described lands, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application or the date that the costs specified in C.R.S. § 34-60-116(7)(b) are first incurred for the drilling of the Wells:
Township 4 North, Range 66 West, 6th P.M. WSU #1
Section 10: N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #2
Section 10: N½ (Codell)
Township 4 North, Range 66 West, 6th P.M. WSU #3
Section 10: N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #4
Section 10: N½N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #5
Section 10: S½N½ (Niobrara)
Township 4 North, Range 66 West, 6th P.M. WSU #6
Section 10: S½N½ (Niobrara)
2. The production obtained from the wellbore spacing units 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 wellbore spacing units; 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 units applicable to its interest in the wellbore spacing units.
3. The non-consenting 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 the wellbore spacing units representing the cost-bearing interests of the non-consenting 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 non-consenting as to the Wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.
5. Each non-consenting unleased owner within the wellbore spacing units 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 non-consenting 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 non-consenting mineral owner shall then own its proportionate 8/8ths share of the Wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Wells 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 non-consenting 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 units described above shall be considered drilling and spacing units 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 _____ day of February, 2015, as of January 26, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Jill Dorancy, Acting Secretary