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

)

)

)

)

)

CAUSE NO. 407

 

DOCKET NO. 150500271

 

ORDER NO. 407-1310

REPORT OF THE COMMISSION

 

The Commission heard this matter on May 18, 2015, at the Aims Community College, Platte Building, 260 College Avenue, Fort Lupton, Colorado, upon application for an order to pool all interests in five approximate 320-acre designated horizontal wellbore spacing units established for portions of Sections 9 and 10, Township 1 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 Joker 27N1-9HZ Well, the Joker 27N2-9HZ Well, the Joker 1N1-9HZ Well, the Joker 26N1-9HZ Well, and the Joker 26N2-9HZ Well, for the development and operation of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Kerr-McGee Oil & Gas Onshore LP, Operator No. 47120 (“Kerr-McGee” 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.   Sections 9 and 10, Township 1 North, Range 65 West, 6th P.M. are subject to this Rule for the Niobrara Formation.

 

5.         On March 18, 2015, 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 five approximate 320-acre designated horizontal wellbore spacing units 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 C.R.S. §34-60-116(7), for the drilling of the Joker 27N1-9HZ Well (API No. 05-123-41329), the Joker 27N2-9HZ Well (API No. 05-123-41327), the Joker 1N1-9HZ Well (API No. 05-123-41326), the Joker 26N1-9HZ Well (API No. 05-123-41325), and the Joker 26N2-9HZ Well (API No. 05-123-41330) (“Wells”):

 

 

Township 1 North, Range 65 West, 6th P.M.

Section 9:        E˝  

 

Wellbore Spacing Unit (“WSU”) No. 1

Joker 27N1-9HZ Well

 

WSU No. 2

Joker 27N2-9HZ Well

 

WSU No. 3

Joker 1N1-9HZ Well

 

Township 1 North, Range 65 West, 6th P.M.

Section 9:        E˝ E˝

Section 10:      W˝ W˝         

 

WSU No. 4

                                    Joker 26N1-9HZ Well

 

                                    WSU No. 5

                                    Joker 26N2-9HZ Well

 

6.         On April 27, 2015, Applicant, 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.  The Applicant advised that it had reached agreements with interest owners in WSU No. 1, WSU No. 2, and WSU No. 3, but not with all owners in WSU No. 4 and WSU No. 5.

 

7.         Testimony and exhibits submitted in support of the Application by Tom Yaley, Staff Landman for Kerr-McGee, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells. The Applicant advised that it had reached agreements with interest owners in WSU No. 1, WSU No. 2, and WSU No. 3, but not with all owners in WSU No. 4 and WSU No. 5.  Further testimony concluded that the AFEs sent by the Applicant to the interest owners were fair and reasonable estimates of the costs of the proposed drilling operations for the Joker 26N1-9HZ Well and the Joker 26N2-9HZ Well and were received at least 35 days prior to the May 18, 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 Joker 26N1-9HZ Well and the Joker 26N2-9HZ Well but did not provide testimony for any subsequent wells.

 

9.         The above-referenced testimony and exhibits show that granting the Application as to WSU No. 4 and WSU No. 5 will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.

 

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

 

11.       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 two approximate 320-acre established designated horizontal wellbore spacing units located in portions of Sections 9 and 10, Township 1 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 Joker 26N1-9HZ Well and the Joker 26N2-9HZ Well, for the development and operation of the Niobrara Formation.

 

 

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 two approximate 320-acre designated horizontal wellbore spacing units established for the below-described lands are hereby pooled, for the development and operation of the Niobrara Formation, and all nonconsenting interests are hereby subject to the cost recovery provisions of C.R.S. §34-60-116(7) effective as of the earlier of the date of the Application or the date the costs specified in C.R.S. §34-60-116(7)(b) were first incurred for the drilling of the Joker 26N1-9HZ Well (API No. 05-123-41325), and the Joker 26N2-9HZ Well (API No. 05-123-41330):

 

Township 1 North, Range 65 West, 6th P.M.

Section 9:        E˝ E˝

Section 10:      W˝ W˝         

 

WSU No. 4

                                    Joker 26N1-9HZ Well

 

                                    WSU No. 5

                                    Joker 26N2-9HZ Well

 

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

 

3.         The nonconsenting owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Subject Wells (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the wellbore 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 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 the wellbore 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.

 

6.         The operator of the Wells 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.

 

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 June, 2015, as of May 18, 2015.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Julie Murphy, Secretary