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-NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 151200690
TYPE: POOLING
ORDER NO. 407-1547
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REPORT OF THE COMMISSION
The Commission heard this matter on December 8, 2015, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to: 1) establish an approximate 640-acre drilling and spacing unit for Section 8, Township 3 North, Range 68 West, 6th P.M., and approve up to nineteen horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation; 2) pool all interests in the approximate 640-acre drilling and spacing unit established for Section 8, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Codell-Niobrara Formation; 3) subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the date of the Application; and 4) maintain allocation of proceeds for any existing wells located within the proposed unit and producing from the Codell and/or Niobrara Formations and excluding those wells from the drilling and spacing unit proposed for Section 8, Township 3 North, Range 68 West, 6th P.M.
FINDINGS
The Commission finds as follows:
1. Cub Creek Energy, LLC (Operator No. 10542) (“Cub Creek” 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 8, Township 3 North, Range 68 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 December 19, 1983, the Commission issued 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. The permitted well shall be located in the center of either 40-acre tract within the unit with a tolerance of 200 feet in any direction. The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit. Section 8, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the Codell Formation.
6. On February 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993) which, among other things, 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 8, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.
7. On October 5, 2015, Cub Creek, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to: 1) establish an approximate 640-acre drilling and spacing unit for the for the below-described lands (“Application Lands”) for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation; 2) approve up to nineteen horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation, with the treated intervals of any horizontal well permitted under this Application located not less than 460 feet from unit boundaries and not less than 150 feet from any other well producing or drilling from the Codell-Niobrara Formation, without exception being granted by the Director; 3) with the wells to be drilled from no more than two multi-well pads within the drilling and spacing unit from Rule 318A drilling windows, or on adjacent lands with surface owner consent, without exception being granted by the Director; 4) pool all interests in the approximate 640-acre drilling and spacing unit established for the Application Lands for the development and operation of the Codell-Niobrara Formation; 5) 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; and 6) maintain allocation of proceeds for any existing wells (those being the Kintz 1 Well (API No. 05-123-10613) and the Kintz 2 Well (API No. 05-123-36621)) located within the proposed unit and producing from the Codell and/or Niobrara Formations and exclude those wells from the drilling and spacing unit proposed herein for the Application Lands:
Township 3 North, Range 68 West, 6th P.M.
Section 8: All
8. On November 16, 2015 (supplemented on November 20, 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.
9. On November 23, 2015, a protest was filed by Extraction Oil & Gas LLC (Operator No. 10459) (“Extraction”). On December 1, 2015, Extraction, by its attorneys, withdrew its protest.
10. Land testimony and exhibits submitted in support of the Application by Scott B. Bailey, Vice President of Land for Cub Creek, showed that Cub Creek 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 December 8, 2015 hearing date.
11. 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 nineteen wells to be drilled in the proposed drilling and spacing unit, but did not provide testimony for any subsequent wells.
12. Geologic testimony and exhibits submitted in support of the Application by Daniel J. Berberick, Vice President of Geology for Cub Creek, showed that the Codell-Niobrara Formation is present throughout the Application Lands, is approximately 300 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 27 feet thick, and is generally of uniform thickness throughout the Application Lands.
13. Engineering testimony and exhibits submitted in support of the Application by Andrew S. Peterson, Senior Vice President of Operations for Integrated Petroleum Technologies, Inc., showed that the drainage area for analog horizontal Codell-Niobrara Formation wells are estimated at 7.8 acres, and an approximate 640-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by nineteen horizontal wells producing oil, gas and associated hydrocarbons from the Codell-Niobrara Formation.
14. 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.
15. Cub Creek agreed to be bound by oral order of the Commission.
16. Based on the facts stated in the verified Application, the protest having been withdrawn, and based on the Hearing Officer review of the Application under Rule 511, the Commission should enter an order to: 1) establish an approximate 640-acre drilling and spacing unit for Section 8, Township 3 North, Range 68 West, 6th P.M., and approve up to nineteen horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation; 2) pool all interests in the approximate 640-acre drilling and spacing unit established for Section 8, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Codell-Niobrara Formation; 3) subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the date of the Application; and 4) maintain allocation of proceeds for any existing wells located within the proposed unit and producing from the Codell and/or Niobrara Formations and excluding those wells from the drilling and spacing unit proposed for Section 8, Township 3 North, Range 68 West, 6th P.M.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 640-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to nineteen horizontal wells within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation:
Township 3 North, Range 68 West, 6th P.M.
Section 8: All
2. The treated intervals of any horizontal well approved by this Order shall be located not less than 460 feet from unit boundaries and not less than 150 feet from any other well producing or drilling from the Codell-Niobrara Formation, unless an exception is granted by the Director.
3. The wells approved by this Order shall be drilled from no more than two multi-well pads within the drilling and spacing unit from Rule 318A drilling windows, or on adjacent lands with surface owner consent, unless an exception is 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 640-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Codell-Niobrara Formation, effective as of the date of the Application:
Township 3 North, Range 68 West, 6th P.M.
Section 8: All
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 nineteen 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. The allocation of proceeds shall be maintained for any existing wells (those being the Kintz 1 Well (API No. 05-123-10613) and the Kintz 2 Well (API No. 05-123-36621)) located within the unit and producing from the Codell and/or Niobrara Formations and those wells are excluded from the drilling and spacing unit established above for Section 8, Township 3 North, Range 68 West, 6th P.M.
11. 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 10th day of December, 2015, as of December 8, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Julie Murphy, Secretary