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 AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO

 

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CAUSE NO. 407

 

DOCKET NO. 150700400

 

TYPE: SPACING

 

ORDER NO. 407-1416

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on September 14, 2015, at the Western State Colorado University, University Center, South Ballroom, 600 North Adams Street, Gunnison, Colorado, upon application for an order to establish an approximate 320-acre drilling and spacing unit for the N1/2 of Section 12, Township 4 North, Range 68 West, 6th P.M., and approve up to nine horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.

 

FINDINGS

 

Jurisdictional Findings:

 

1.         Cub Creek Energy, LLC (“Cub Creek” or “Applicant”) is an interested party in the subject matter of the above-referenced hearing.

 

2.         Kerr-McGee Oil & Gas Onshore LP (“Kerr-McGee” or “Protestant”) is an interested party in the subject matter of the above-referenced hearing.

 

3.         Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

 

4.         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.

 

Procedural History:

 

5.         On December 19, 1983, the Commission entered Order No. 407-1 (amended March 29, 2000) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell Formation, with the unit to be designated by the operator drilling the first well in the quarter section. Section 12, Township 4 North, Range 68 West, 6th P.M. is subject to this Rule for the Codell Formation.

 

6.         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. Section 12, Township 4 North, Range 68 West, 6th P.M. is subject to this Rule for the Codell and Niobrara Formations.

 

7.         On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Section 12, Township 4 North, Range 68 West, 6th P.M. is subject to this Rule for the Codell and Niobrara Formations.

 

8.           On May 20, 2015, amended June 10, 2015, Cub Creek, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to establish an approximate 320-acre drilling and spacing unit for the below-described lands (“Application Lands”) and to approve up to nine horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations, 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 such unit, unless an exception is granted by the Director:         

 

                                                Township 4 North, Range 68 West, 6th P.M.
                                                Section 12:      N1/2

 

9.         On June 29, 2015, Cub Creek, 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.

 

            10.       On July 6, 2015, Kerr-McGee timely filed a protest of Cub Creek’s Spacing Application, alleging, among other things, that the proposed unit would result in waste, the drilling of unncessary wells, and uneconomic and inefficient one-mile horizontal laterals.

 

            11.       On July 10, 2015, a prehearing conference was held at which the parties agreed to a continuance until the September 14, 2015 Commission hearing and also agreed to meet and confer on possible settlement.

 

            12.       On August 28, 2015, a second prehearing conference was held to establish guidelines for the Commission hearing.

 

            13.       On September 4, 2015, the Hearing Officer filed a recommendation to approve Cub Creek’s spacing application.

 

 

Testimony:

 

            14.       Land testimony and exhibits presented by Scott Baily, Vice President of Land & Business Development for Cub Creek, showed that Cub Creek holds a partial oil and gas leasehold interest in the NE1/4 of Section 12, Township 4 North, Range 68 West, 6th P.M.  Futher testimony showed that Cub Creek has obtained a surface use agreement to drill the proposed wells from the NW1/4 of Section 12.  

 

15.       Geologic testimony and exhibits presented by Daniel Berberick, Vice President of Exploration for Cub Creek, showed that the Niobrara and Codell Formations are present throughout the Application Lands, the Niobrara Formation is approximately 280 to 330 feet thick, and the Codell Formation is approximately 22 to 30 feet thick, and both are generally of uniform thickness throughout the Application Lands.  Further testimony showed that the regional dip for the Niobrara and Codell Formations is approximately 50 feet per mile to the west-northwest, and that horizontal wells are currently the most effective way to recover the resource.

 

16.       Engineering testimony and exhibits presented by Andrew Peterson, Consulting Engineer for Cub Creek, showed that one mile and one and a half mile length horizontal laterals are being drilled north of the Application Lands, and that boundary wells are drilled in the area.  Further testimony showed that the estimated recovery factor of hydrocarbons in the unit for one horizontal well is 3.5%, and 32% for all eleven wells including two existing vertical wells.

 

17.       Land testimony and exhibits presented by Enrique Nelson, Wattenberg Land Manager for Kerr-McGee, showed that in addition to the NW1/4 of Section 12, Kerr-McGee holds substantial mineral interests surrounding the proposed unit.  Further testimony showed that the NE1/4 of Section 12 includes residential development and that Kerr-McGee contests the validity of Cub Creek’s surface agreement.

 

18.       Engineering and Integrated Field Planning testimony and exhibits presented by Michael Tryggestad, Wattenberg Subsurface Manager for Kerr-McGee, showed that Kerr-McGee is developing Geographic Area Plans or Comprehensive Drilling Plans that include development of large acreage positions.  Further testimony showed Kerr-McGee’s pipeline investments, and consequent ability to limit surface disturbance and minimize emissions and truck traffic.

 

19.       Staff analysis presented by Jane Stanzcyk, Permitting and Technical Services Manager, showed that Cub Creek’s application is consistent with other applications and development practices submitted to the Commission.  Drilling and spacing units in the area have been drilled with one mile laterals similar to the proposed unit.  Staff recommends approval of the application.

 

Commission Deliberation Comments:

 

            20.       Commissioner Compton commented that he was concerned over the long-term and uncertain nature of Kerr-McGee’s plan.

 

            21.       Commissioners Benton, Craig, and Hawkins each expressed dismay about the lack of economic analysis presented by Kerr-McGee.

 

            22.       Commissioner Craig commented that she has a general preference for comprehensive development plans that incorporate smaller interest owners and operators.

 

            23.       Commissioner King stated that it is problematic that cases such as these should come before the Commission and are not worked out between operators privately.  Commissioner King also stated that our current rules do not fit the technology of horizontal drilling today.

 

            24.       Commissioner Benton stated this is a choice between truck trips versus time-value of money. He is concerned that economics of proposal were not presented by Cub Creek. Commissioner Benton also stated his frustration that Kerr-McGee was not willing to share seismic information with Cub Creek.

 

            25.       Commissioner Alward stated that he was hopeful that based on our rulemaking, Comprehensive Drilling Plans would be utilized and presented to Staff in a comprehensive way. He expressed disappointment that this has not been the case.

 

            26.       Commissioner Hawkins stated that he was unsatisfied with Cub Creek’s economic and engineering analysis, but also noted that Kerr-McGee did not investigate or contradict these assertions.  He stated his belief that a more consistent spacing plan would benefit the area, but that under the current rules and guidelines, he cannot find justification for not granting the application.

 

            27.       Commissioner Benton moved to approve Cub Creek’s application for a 320-acre drilling and spacing unit.  Commissioner King seconded the motion.  Commissioners King, Benton, Craig, Hawkins, Alward, and Holton voted for the motion.  Commissioner Compton voted against the motion.  The motion carried and the application was approved.

 

CONCLUSIONS OF LAW

 

            The Commission finds and concludes:

 

            1.         An approximate 320-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to 9 horizontal wells within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations:

 

                                    Township 4 North, Range 68 West, 6th P.M.
                                                Section 12:      N1/2

 

            2.         The productive interval of the wellbore will 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 such unit, unless an exception is granted by the Director.

 

3.         The wells will be drilled from no more than four well pads within the unit, unless an exception is granted by the Director.

 

4.         The allocation of all proceeds from existing vertical and directional wells located within the unit and producing from the Niobrara and/or Codell Formations shall be maintained.

 

ORDER

 

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 September, 2015, as of September 14, 2015.          

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By__________________________________

Julie Murphy, Secretary