BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF 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. 160100001
TYPE: POOLING
ORDER NO. 407-1636 AMENDED
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REPORT OF THE COMMISSION
The Commission heard this matter on March 7, 2016, and December 12, 2016, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon an application for an order to: 1) establish an approximate 320-acre drilling and spacing unit for Section 20, Township 3 North, Range 68 West, 6th P.M., and approve up to 10 horizontal wells within the proposed unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, and 2) pool all interests within the unit, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Cub Creek Energy, LLC (“Cub Creek” 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 herein, 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.
5. On February 19, 1992 (amended August 20, 1993), the Commission entered Order No. 407-87 which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formations, the Codell Formation, and the Niobrara Formation underlying certain lands, including the Application Lands, with the permitted well locations in accordance with the provisions of Order No. 407-1.
6. On December 19, 1983 (amended March 29, 2000), the Commission entered Order No. 407-1 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.
7. On October 21, 2015, Cub Creek filed a verified application (“Application”) for an for an order to: 1) establish an approximate 320-acre drilling and spacing unit for the below-described lands, and approve up to 10 horizontal wells within the proposed unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; 2) pool all interests for the approximate 320-acre drilling and spacing unit for the Application Lands, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application or the date that the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the Well; and 3) maintain allocation of proceeds for any existing wells located within the proposed unit and producing from the Codell and/or Niobrara Formations:
Township 3 North, Range 68 West, 6th P.M.
Section 20: S½
8. On January 4, 2016, Cub Creek, by its attorneys, and Commission staff granted, a written request to bifurcate the matter and continue only the pooling portion of the Application to the March 7-8, 2016 hearing.
9. On January 4, 2016, 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 January 12, 2016, Extraction Oil & Gas LLC (“Extraction” or “Protestant”) filed a Protest and Motion to Dismiss alleging that based on the proposed unit, its working interest in the NW¼ of Section 20, Township 3 North, Range 68 West, 6th P.M. would be stranded from development. On January 29, 2016, Extraction voluntarily withdrew the Motion to Dismiss.
11. On February 17, 2016, Extraction, by its attorneys, withdrew the protest only as to the spacing request and maintained the protest on the pooling portion of the Application.
12. On February 18, 2016, Cub Creek, by its attorneys, requested the Application be bifurcated and requested a continuance of the pooling portion to the April hearing. The Hearing Officer granted the request.
13. On March 7, 2016, the Commission approved the spacing portion of the Application.
14. On November 14, 2016, Extraction, by its attorneys, withdrew its protest to the Application.
15. Land testimony and exhibits submitted in support of the Application by Scott B. Baily, Vice President of Land and Business Development for Cub Creek, showed that Cub Creek owns substantial leasehold interests underlying the Application Lands.
16. Geologic testimony and exhibits submitted in support of the Application by Dan Berberick, Vice President of Exploration for Cub Creek, showed the Niobrara Formation is a sequence of chalks, marls and limestones that were deposited in the Western Interior Seaway during Cretaceous time and the Niobrara Formation underlies the entirety of the Application Lands and is a common source of supply along with the Codell Formation. Further testimony showed the Codell Formation is a sequence of siltstones and sandstones that were also deposited in the Western Interior Seaway during Cretaceous time, and the Codell Formation underlies the entirety of the Application Lands and is a common source of supply with the Niobrara Formation.
17. Engineering testimony and exhibits submitted in support of the Application by Andrew S. Peterson, Consulting Petroleum Engineer for Cub Creek, showed volumetric calculations yielding ultimate recovery from the two existing conventional wells producing Codell-Niobrara Formation underlying the Application Lands. Furthermore, the establishment of the proposed approximate 320-acre drilling and spacing unit for the Application Lands, with nine horizontal wells drilled within the unit, is appropriate, will protect correlative rights, avoid waste, and benefit the mineral owners
18. On November 21, 2016, Cub Creek, by its attorneys, filed with the Commission a written request to approve the pooling portion of 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.
19. Land testimony and exhibits submitted in support of the Application by Scott B. Baily, Vice President of Land and Business Development for Cub Creek, showed that all non-consenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the below-listed wells (“Haley 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 12, 2016 hearing date.
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Well Name/No. |
API No. |
Planned Bottomhole Location |
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Haley 2HZ |
05-123-43131 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 3HZ |
05-123-43136 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 4HZ |
05-123-43132 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 5HZ |
05-123-43133 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 6HZ |
05-123-43129 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 7HZ |
05-123-43137 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 8HZ |
05-123-43135 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 9HZ |
05-123-43128 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 10HZ |
05-123-43134 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 11HZ |
05-123-43130 |
NE¼ SE¼, Sec. 20, T3N, R68W |
20. 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 Haley Wells.
21. The above-referenced testimony and exhibits show that granting the spacing and pooling portion of 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.
22. Cub Creek agrees to be bound by the oral order of the Commission.
23. Based on the facts stated in the verified Application, having resolved all protests, the Commission should enter an order to: 1) establish an approximate 320-acre drilling and spacing unit for Section 20, Township 3 North, Range 68 West, 6th P.M., and approve up to 10 horizontal wells within the proposed unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, and 2) pool all interests within the unit, for the development and operation of the Codell and Niobrara Formations for the drilling of the Haley Wells.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 320-acre drilling and spacing unit for the below-described lands, and a total of up to 10 horizontal wells are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations:
Township 3 North, Range 68 West, 6th P.M.
Section 20: S½
2. The productive intervals of any horizontal well permitted under this Order shall be located no less than 460 feet from unit boundaries and no less than 150 feet from any other well producing or drilling from the Codell or Niobrara Formation, without exception being granted by the Director.
3. The proposed wells shall be located on no more than two multi-well pads within the drilling and spacing unit, subject to Rule 318A, unless the Director granted an exception.
4. Allocation for the proceeds for the existing wells within the Application Lands and producing from the Codell and/or Niobrara Formations shall be maintained.
5. 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 480-acre horizontal wellbore spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Niobrara Formation, effective as of the earlier of the date of the Application, or the date the costs specified in §34-60-116(7)(b), C.R.S., are first incurred, for the drilling of the below-listed wells (“Wells”):
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Well Name/No. |
API No. |
Planned Bottomhole Location |
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Haley 2HZ |
05-123-43131 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 3HZ |
05-123-43136 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 4HZ |
05-123-43132 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 5HZ |
05-123-43133 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 6HZ |
05-123-43129 |
SE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 7HZ |
05-123-43137 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 8HZ |
05-123-43135 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 9HZ |
05-123-43128 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 10HZ |
05-123-43134 |
NE¼ SE¼, Sec. 20, T3N, R68W |
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Haley 11HZ |
05-123-43130 |
NE¼ SE¼, Sec. 20, T3N, R68W |
6. 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 Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
7. The non-consenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating each of 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 non-consenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
8. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to each of the Wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.
9. Each non-consenting 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 non-consenting 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 non-consenting 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.
10. The operator of the Well drilled on the above-described drilling and spacing unit shall furnish the non-consenting 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.
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.
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 11th day of March, 2016, as of March 7, 2016.
AMENDED this 28th day of December, 2016, as of December 12, 2016.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Julie Murphy, Secretary