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. 150100057
ORDER NO. 407-1227 |
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 within nine approximate 240-acre to 480 acre designated horizontal wellbore spacing units established for Sections 21, 28, and 33, Township 3 North, Range 65 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 Cheese 16N-28HZ well, Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well, Cream 36N-28HZ well, Cream 15N-A28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well, and Cream 15N-B28HZ well, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Kerr-McGee Oil & Gas Onshore LP (Operator No. 47120) (“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 21, 28, and 33, Township 3 North, Range 65 West, 6th P.M. are subject to this Rule for the Codell and Niobrara Formations.
5. On November 17, 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 nine approximate 240-acre to 480 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, 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 Cheese 16N-28HZ well (API No. 05-123-40950), Cream 37N-28HZ well (API No. 05-123-40964), Cheese 37N-28HZ well (API No. 05-123-40964), Cream 15C-28HZ well (API No. 05-123-40959), Cream 36N-28HZ well (API No. 05-123-40960), Cream 15N-A28HZ well (API No. 05-123-40951), Milk 36C-28HZ well (API No. 05-123-41006), Milk 36N-28HZ well (API No. 05-123-41003), and Cream 15N-B28HZ well (API No. 05-123-40965) (“Wells”):
Township 3 North, Range 65 West, 6th P.M.
Section 21: SE¼ SE¼
Section 28: E½ E½
Section 33: NE¼ NE¼
Wellbore Spacing Unit (“WSU”) No. 1 (Cheese 16N-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: S½ SE¼
Section 28: E½
Section 33: N½ NE¼
WSU Nos. 2-4 (Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SE¼ SW¼, SW¼ SE¼
Section 28: E½ W½, W½ E½
Section 33: NE¼ NW¼, NW¼ NE¼
WSU Nos. 5-7 (Cream 36N-28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SW¼ SE¼
Section 28: W½ E½
Section 33: NW¼ NE¼
WSU No. 8 (Cream 15N-B28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SW¼ SE¼
Section 28: W½ E½, E½ SW¼, SE¼ NW¼
Section 33: NE¼ NW¼, NW¼ NE¼
WSU No. 9 (Cream 15N-A28HZ well)
6. On January 5, 2015, 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.
7. Land testimony and exhibits submitted in support of the Application by R.C. Kimbal, Staff 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 Wells, except for those interest owners in Well Spacing Unit No. 1 where there are no nonconsenting interest owners. Further testimony concluded that the AFE sent by the Applicant to the interest owners in Well Spacing Units other than Well Spacing Unit No. 1 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.
8. 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 Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well, Cream 36N-28HZ well, Cream 15N-A28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well and Cream 15N-B28HZ well but did not provide testimony for any subsequent wells.
9. Further land testimony and exhibits submitted in support of the Application by R.C. Kimbal, Staff Landman for Kerr-McGee, showed that Kerr-McGee has been unable to effect the voluntary pooling of interests within Wellbore Spacing Unit No. 1 established for the Application Lands, and that based upon examination of relevant contracts and records, all owners of an oil and gas interest in the tracts to be pooled (who could be located by Kerr-McGee) received timely notice of the Application.
10. Applicant confirmed that Commission Rules 530.b. and c. do not apply to Wellbore Spacing Unit No. 1 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).
11. 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.
12. Kerr-McGee agreed to be bound by oral order of the Commission.
13. 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 within nine approximate 240-acre to 480 acre designated horizontal wellbore spacing units established for Sections 21, 28, and 33, Township 3 North, Range 65 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 Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well, Cream 36N-28HZ well, Cream 15N-A28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well and Cream 15N-B28HZ well, 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 nine approximate 240-acre to 480 acre designated horizontal wellbore spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Codell and Niobrara Formation, effective as of the date of the Application, for the drilling of Cheese 16N-28HZ well (API No. 05-123-40950), Cream 37N-28HZ well (API No. 05-123-40964), Cheese 37N-28HZ well (API No. 05-123-40964), Cream 15C-28HZ well (API No. 05-123-40959), Cream 36N-28HZ well (API No. 05-123-40960), Cream 15N-A28HZ well (API No. 05-123-40951), Milk 36C-28HZ well (API No. 05-123-41006), Milk 36N-28HZ well (API No. 05-123-41003), and Cream 15N-B28HZ well (API No. 05-123-40965) (“Wells”):
Township 3 North, Range 65 West, 6th P.M.
Section 21: SE¼ SE¼
Section 28: E½ E½
Section 33: NE¼ NE¼
Wellbore Spacing Unit (“WSU”) No. 1 (Cheese 16N-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: S½ SE¼
Section 28: E½
Section 33: N½ NE¼
WSU Nos. 2-4 (Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SE¼ SW¼, SW¼ SE¼
Section 28: E½ W½, W½ E½
Section 33: NE¼ NW¼, NW¼ NE¼
WSU Nos. 5-7 (Cream 36N-28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SW¼ SE¼
Section 28: W½ E½
Section 33: NW¼ NE¼
WSU No. 8 (Cream 15N-B28HZ well)
Township 3 North, Range 65 West, 6th P.M.
Section 21: SW¼ SE¼
Section 28: W½ E½, E½ SW¼, SE¼ NW¼
Section 33: NE¼ NW¼, NW¼ NE¼
WSU No. 9 (Cream 15N-A28HZ well)
2. The production obtained from the drilling and 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 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.
3. The nonconsenting (unleased) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well, Cream 36N-28HZ well, Cream 15N-A28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well and Cream 15N-B28HZ 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.
4. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Cream 37N-28HZ well, Cheese 37N-28HZ well, Cream 15C-28HZ well, Cream 36N-28HZ well, Cream 15N-A28HZ well, Milk 36C-28HZ well, Milk 36N-28HZ well and Cream 15N-B28HZ 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).
5. Each nonconsenting unleased owner within Wellbore Spacing Units 2 through 9 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 within Wellbore Spacing Units 2 through 9 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.
6. The operator of the well drilled on the above-described drilling and spacing unit shall furnish the nonconsenting owners within Wellbore Spacing Units 2 through 9 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. 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 ___ day of February, 2015, as of January 26, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Jill Dorancy, Acting Secretary