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. 150700358
TYPE: POOLING
ORDER NO. 407-1455
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REPORT OF THE COMMISSION
The Commission heard this matter on October 26, 2015, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to: 1) vacate four approximate 80-acre drilling and spacing unit established by Order No. 407-87 for portions of Section 19, Township 5 North South, Range 65 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations; 2) establish an approximate 320-acre drilling and spacing unit for portions of Section 19, Township 5 North, Range 65 West, 6th P.M., and approve up to eight horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations; 3) pool all interests in the approximate 320-acre drilling and spacing unit established for portions of Section 19, Township 5 North South, Range 65 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations; and 4) subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., were first incurred for the drilling of the GP-J Evans 1-19-19 Well, GP-J Evans 2-19-19 Well, GP-J Evans 3-19-19 Well, GP-J Evans 4-19-19 Well, GP-J Evans 5-19-19 Well, GP-J Evans C4-19-19, GP-J Evans C2-19-19, and the GP-J Evans C3-19-19.
FINDINGS
The Commission finds as follows:
1. Extraction Oil & Gas LLC (Operator No. 10459) (“Extraction” 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. Section 19, Township 5 North South, Range 65 West, 6th P.M. is subject to this Rule for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
5. On February 19, 1992, the Commission entered Order No. 407-87 which established approximate 80-acre drilling and units for Section 19, Township 5 North, Range 65 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
6. On May 5, 2015 (mended June 4, 2015), Extraction, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to: 1) vacate four approximate 80-acre drilling and spacing unit established by Order No. 407-87 for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations; 2) establish an approximate 320-acre drilling and spacing unit for the Application Lands for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations; 3) approve up to eight 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 located 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 the unit, without exception granted by the Director; 4) pool all interests in the approximate 320-acre drilling and spacing unit established for the Application Lands for the development and operation of the Niobrara and Codell Formations; 5) subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., were first incurred for the drilling of the GP-J Evans 1-19-19 Well (API No. 05-123-41134), GP-J Evans 2-19-19 Well (API No. 05-123-40310), GP-J Evans 3-19-19 Well (API No. 05-123-41137), GP-J Evans 4-19-19 Well (API No. 05-123-41133), GP-J Evans 5-19-19 Well (API No. 05-123-41135), GP-J Evans C4-19-19 (API No. pending), GP-J Evans C2-19-19 (API No. pending), and the GP-J Evans C3-19-19 (API No. pending) (“Wells”); and 6) require Applicant to re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each of the Wells that are not drilled to total depth within two years of the date of the Commission’s order:
Township 5 North, Range 65 West, 6th P.M.
Section 19: N½
7. On June 29, 2015 (amended August 13, 2015 and August 20, 2015), Extraction, 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.
8. Land testimony and exhibits submitted in support of the Application by Jack Sattler, Land Manager of Mineral Resources, Inc., agent for Extraction, showed that Extraction holds oil and gas leasehold interests and has a right to drill in the Application Lands. The land testimony and exhibits further showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells. 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 and were received at least 35 days prior to the October 26, 2015 hearing date.
9. 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 GP-J Evans 1-19-19 Well, GP-J Evans 2-19-19 Well, GP-J Evans 3-19-19 Well, GP-J Evans 4-19-19 Well, GP-J Evans 5-19-19 Well, GP-J Evans C4-19-19, GP-J Evans C2-19-19, and the GP-J Evans C3-19-19, but did not provide testimony for any subsequent wells.
10. Geologic testimony and exhibits submitted in support of the Application by Matt Volkmar, Petroleum Engineer for Extraction, showed that the Niobrara Formation is present throughout the Application Lands, is approximately 310 to 325 feet thick, and is generally of uniform thickness throughout the Application Lands. The geologic testimony and exhibits further showed that the Codell Formation is present throughout the Application Lands, is approximately 18 to 19 feet thick, and is generally of uniform thickness throughout the Application Lands.
11. Engineering testimony and exhibits submitted in support of the Application by John Tonello, Engineering Manager for Extraction, showed that the drainage area for analog horizontal Niobrara Formation wells are estimated at 15 to 37 acres, and an approximate 320-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by a horizontal well producing oil, gas and associated hydrocarbons from the Niobrara Formation. The engineering testimony and exhibits further showed that the drainage area for analog horizontal Codell Formation wells are estimated at 73 to 154 acres, and an approximate 320-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by a horizontal well producing oil, gas and associated hydrocarbons from the Codell Formation.
12. 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.
13. Extraction agreed to submit sundry notices to vacate any designated horizontal wellbore spacing units previously approved for the Wells.
14. Extraction 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: 1) vacate four approximate 80-acre drilling and spacing unit established by Order No. 407-87 for the Application Lands, for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations; 2) establish an approximate 320-acre drilling and spacing unit for Application Lands, and approve up to eight horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations; 3) pool all interests in the approximate 320-acre drilling and spacing unit established for the Application Lands, for the development and operation of the Codell and Niobrara Formations; and 4) subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., were first incurred for the drilling of the GP-J Evans 1-19-19 Well, GP-J Evans 2-19-19 Well, GP-J Evans 3-19-19 Well, GP-J Evans 4-19-19 Well, GP-J Evans 5-19-19 Well, GP-J Evans C4-19-19, GP-J Evans C2-19-19, and the GP-J Evans C3-19-19.
ORDER
IT IS HEREBY ORDERED:
1. Four approximate 80-acre drilling and spacing unit established by Order No. 535-97 for N½ of Section 19, Township 5 North South, Range 65 West, 6th P.M., are hereby vacated, for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations:
2. An approximate 320-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to eight horizontal wells within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations:
Township 5 North, Range 65 West, 6th P.M.
Section 19: N½
3. The productive interval of the wellbore will be located 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 the unit, without exception granted by the Director.
4. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in an approximate 320-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Niobrara and Codell Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the GP-J Evans 1-19-19 Well (API No. 05-123-41134), GP-J Evans 2-19-19 Well (API No. 05-123-40310), GP-J Evans 3-19-19 Well (API No. 05-123-41137), GP-J Evans 4-19-19 Well (API No. 05-123-41133), GP-J Evans 5-19-19 Well (API No. 05-123-41135), GP-J Evans C4-19-19 (API No. pending), GP-J Evans C2-19-19 (API No. pending), and the GP-J Evans C3-19-19 (API No. pending):
Township 5 North, Range 65 West, 6th P.M.
Section 19: N½
5. 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.
6. The nonconsenting 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 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.
7. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Wells 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).
8. Each nonconsenting unleased owner within the drilling and 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.
9. The operator of the Wells drilled on the above-described drilling and 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.
10. 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.
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 4th day of November, 2015, as of October 26, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Julie Murphy, Secretary