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, FORT HAYS, CODELL, AND CARLILE FORMATIONS, DJ HORIZONTAL NIOBRARA FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 535 DOCKET NO. 220400067 TYPE: POOLING ORDER NO. 535-1390

REPORT OF THE COMMISSION

The Commission heard this matter on July 27, 2022, 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 an approximate 1,280-acre drilling and spacing unit established for the below-described lands (“Application Lands”), and subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7), for the drilling of the Barracuda 0904-01H Well (API No. 05-123-51378), Barracuda 0904-02H Well (API No. 05-123-51376), Barracuda 0904-03H Well (API No. 05-123-51379), Barracuda 0904-04H Well (API No. 05-123-51377), Barracuda 0904-05H Well (API No. 05-123-51380), and Barracuda 0904-06H Well (API No. 05-123-51381) (“Wells”), for the development and operation of the Niobrara, Fort Hays, Codell, and Carlile Formations:

Township 7 North, Range 60 West, 6^th P.M.

Section 4:        All  

Section 9:        All

FINDINGS

The Commission finds as follows:

1. Verdad Resources LLC (Operator No. 10651) (“Verdad” 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 June 24, 2020, the Commission entered Order No. 535-1308, which, among other things, established an approximate 1,280-acre drilling and spacing unit for the Application Lands, and approved a total of up to 10 wells within the unit, with no more than eight wells to be drilled in the Niobrara Formation, for production from the Niobrara, Fort Hays, Codell, and Carlile Formations, with the productive interval of the wellbore to be located no closer than 300 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, unless the Director grants an exception.

5. On April 4, 2022, corrected May 16, 2022, which was at least 90 days before the Commission heard this matter, Verdad filed a verified application (“Application”) pursuant to C.R.S. § 34-60-116, for an order to pool all interests within an approximate 1,280-acre drilling and spacing unit established for the Application Lands for the development and operation of the Niobrara, Fort Hays, Codell, and Carlile Formations, and subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7), for the drilling of the Wells.

6. The Applicant filed with the Commission a written request to approve the Application based on the merits of the 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 Lemar Safi, Land Supervisor for Verdad, along with the verified Application, show that the Applicant owns, or has secured the consent of the owners of, more than 45% of the mineral interest to be pooled. The land testimony further showed that granting the Application is consistent with the protection of public health, safety, welfare, the environment, and wildlife resources.

8. The land testimony and exhibits also showed that there are no unleased mineral interests within the Application Lands, and that all owners within the unit received a reasonable offer to participate at least 90 days before the hearing date, and that the owners to be pooled did not elect in writing to consent to the Wells within 60 days after receiving the offer to participate.

9. In addition, the land testimony and exhibits show that the offers to participate contained the Commission’s pooling brochure or a link to access it, contained each owner’s particular share of the total estimated drilling and completion costs for the Wells, and also contained the following information for each Well: the location, measured depth, true vertical depth, and lateral length, the total estimated drilling and completion cost, and the estimated spud date.

10. Land testimony showed the Applicant complied with the requirements of Rule 506 and the Act, and is entitled to the cost recovery provisions pursuant to C.R.S. § 34-60-116(7), for the Wells, but did not provide testimony for any subsequent wells.

11. Verdad 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 Officer review of the Application under Rule 505, the Commission should enter an order to pool all interests in the Application Lands for the development and operation of the Niobrara, Fort Hays, Codell, and Carlile Formations, and subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7), for the drilling of the Wells.

ORDER

IT IS HEREBY ORDERED:

1.         Pursuant to the provisions of C.R.S. § 34-60-116, all interests in the drilling and spacing unit established for the Application Lands are hereby pooled, for the development and operation of the Niobrara, Fort Hays, Codell, and Carlile Formations, effective as of the date the Application was filed.

2.         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 Wells located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3.         The following working interest owner(s) did not elect to participate in the Well(s) or failed to make a timely election and are hereby deemed to be nonconsenting and subject to the penalties as provided for in C.R.S. § 34-60-116(7): Haimo Oil & Gas LLC.

4.         Each nonconsenting working interest owner must reimburse the consenting owners for the owner’s proportionate share of the costs and risks of drilling and operating the Well(s) from the owner’s proportionate share of production, subject to non-cost bearing interests, if and to the extent that the royalty is consistent with the lease terms prevailing in the area and is not designed to avoid the recovery of costs provided for in C.R.S. § 34-60-116(7)(b), until costs and penalties are recovered as set forth in C.R.S. § 34-60-116(7).

5.         The following unleased owner(s) did not elect to participate in the Well(s) or failed to make a timely election and are hereby deemed to be nonconsenting and subject to the penalties as provided for in C.R.S. § 34-60-116(7): None.

6.         Any nonconsenting unleased owner shall be deemed to have a landowner's royalty, proportionate to each owner’s record title interest, of:

a. for a gas well as defined in the Commission Regulations, 13% until the consenting owners recover, only out of each nonconsenting owner's proportionate 87% share of production, the costs specified in C.R.S. § 34-60-116(7)(b);

b. for an oil well as defined in the Commission Regulations, 16% until the consenting owners recover, only out of each nonconsenting owner's proportionate 84% share of production, the costs specified in C.R.S. § 34-60-116(7)(b).

After recovery of the costs specified in C.R.S. § 34-60-116(7)(b), each unleased nonconsenting mineral owner owns its proportionate 8/8ths share of the Wells, surface facilities, and production, and is liable for its proportionate share of further costs as if the nonconsenting owner had originally agreed to the drilling.

7.         The operator of the Wells 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.

8.         A nonconsenting owner is immune from liability for costs arising from spills, releases, damage, or injury resulting from oil and gas operations on the drilling and spacing unit.

9.         The operator shall not use the surface owned by a nonconsenting owner without the nonconsenting owner’s permission.

10.       Nothing in this order is intended to conflict with C.R.S. § 34-60-116. 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 27^th day of July 2022, as of July 27, 2022

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Mimi C. Larsen, Secretary