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 NIOBRARA AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 160300120
TYPE: POOLING
ORDER NO. 407-1655 |
REPORT OF THE COMMISSION
The Commission heard this matter on March 7, 2016, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests in one approximate 280-acre and three approximate 480-acre designated horizontal wellbore spacing units established for portions of Sections 1 and 2, Township 5 North, Range 65 West, 6th P.M., and Sections 35 and 36, Township 6 North, Range 65 West, 6th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the LDS 1U-234 Well, the LDS 1U-304 Well, the LDS 1W-414 Well, and the LDS 1W-314 Well, for the development and operation of the Niobrara and Codell Formations.
FINDINGS
The Commission finds as follows:
1. PDC Energy, Inc. (Operator No. 69175) (“PDC” 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 April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Sections 1 and 2, Township 5 North, Range 65 West, 6th P.M., and Sections 35 and 36, Township 6 North, Range 65 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.
5. On February 19, 1992 (amended August 20, 1993), Order No. 407-87 established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations, with the permitted well locations in accordance with the provisions of Order No. 407-1. Sections 1 and 2, Township 5 North, Range 65 West, 6th P.M., and Sections 35 and 36, Township 6 North, Range 65 West, 6th P.M., are subject to this Order.
6. On January 7, 2016, PDC, by its attorneys, filed a verified Application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in one approximate 280-acre and three approximate 480-acre designated horizontal wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara and Codell Formations, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the LDS 1U-234 Well (API No. 05-123-41128), the LDS 1U-304 Well (API No. 05-123-41129), the LDS 1W-414 Well (API No. 05-123-41205), and the LDS 1W-314 Well (API No. 05-123-41208) (“Wells”):
Township 5 North, Range 65 West, 6th P.M.
Section 1: N½N½
Section 2: N½NE¼
Township 6 North, Range 65 West, 6th P.M.
Section 35: S½SE¼
Section 36: S½S½
Wellbore Spacing Unit (“WSU”) No. 1
LDS 1U-234 Well
WSU No. 2
LDS 1U-304 Well
Township 5 North, Range 65 West, 6th P.M.
Section 1: S½N½, N½S½
Section 2: S½NE¼, N½SE¼
WSU No. 3
LDS 1W-414 Well
Township 5 North, Range 65 West, 6th P.M.
Section 1: S½N½
Section 2: S½NE¼, NW¼SE¼
WSU No. 4
LDS 1W-314 Well
7. On October 5, 2015, Applicant, 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 Sam McClung, Senior Regional Landman for PDC, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells. Land testimony further showed that on or about October 15, 2015, PDC mailed election letters to all of the working interest owners within the Application Lands offering these parties the opportunity to participate in the drilling and completion operations of the Wells. Of the 46 interested parties, only two working interest owners, Synergy Resources Corporation (“Synergy”) and Jack L. Schreiber, failed to respond to the offer. The election letters inadvertently referenced a 30-day response period, rather than the 35-day period currently referenced in Rule 530, to respond to each election letter. Synergy provided PDC with a waiver of the discrepancy in the election letters on February 23, 2016. On February 24, 2016, PDC mailed Jack L. Schreiber a second election letter correcting the discrepancy. The 35-day response period for this second letter will expire on March 30, 2016.
9. As a result, Applicant agreed that as to the interest of Jack L. Schreiber this Order should be conditional upon Mr. Schreiber having the right to elect to participate in the Wells by March 30, 2016. If Mr. Schreiber elects to participate in the Wells, then his interest will not be pooled pursuant to this Order. If Mr. Schreiber does not elect to participate in the Wells, then his interest will be pooled pursuant to this Order.
10. Land testimony showed the Applicant, except as otherwise stated in paragraphs 8 and 9, above, has 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 LDS 1U-234 Well, the LDS 1U-304 Well, the LDS 1W-414 Well, and the LDS 1W-314 Well, but did not provide testimony for any subsequent wells.
11. 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.
12. PDC agreed to be bound by oral order of the Commission.
13. 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 pool all interests in one approximate 280-acre and three approximate 480-acre designated horizontal wellbore spacing units established for portions of Sections 1 and 2, Township 5 North, Range 65 West, 6th P.M., and Sections 35 and 36, Township 6 North, Range 65 West, 6th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the LDS 1U-234 Well, the LDS 1U-304 Well, the LDS 1W-414 Well, and the LDS 1W-314 Well, for the development and operation of the Niobrara and Codell Formations.
ORDER
IT IS HEREBY ORDERED:
1. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in one approximate 280-acre and three approximate 480-acre designated horizontal wellbore spacing units 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 LDS 1U-234 Well (API No. 05-123-41128), the LDS 1U-304 Well (API No. 05-123-41129), the LDS 1W-414 Well (API No. 05-123-41205), and the LDS 1W-314 Well (API No. 05-123-41208):
Township 5 North, Range 65 West, 6th P.M.
Section 1: N½N½
Section 2: N½NE¼
Township 6 North, Range 65 West, 6th P.M.
Section 35: S½SE¼
Section 36: S½S½
Wellbore Spacing Unit (“WSU”) No. 1
LDS 1U-234 Well
WSU No. 2
LDS 1U-304 Well
Township 5 North, Range 65 West, 6th P.M.
Section 1: S½N½, N½S½
Section 2: S½NE¼, N½SE¼
WSU No. 3
LDS 1W-414 Well
Township 5 North, Range 65 West, 6th P.M.
Section 1: S½N½
Section 2: S½NE¼, NW¼SE¼
WSU No. 4
LDS 1W-314 Well
2. The production obtained from the designated horizontal wellbore 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 designated horizontal wellbore spacing unit; each owner of an interest in the designated horizontal wellbore spacing unit shall be entitled to receive its share of the production of the well located on the designated horizontal wellbore spacing unit applicable to its interest in the designated horizontal wellbore spacing unit.
3. The nonconsenting 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 designated horizontal wellbore spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
4. 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).
5. Each nonconsenting unleased owner within the designated horizontal wellbore 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.
6. The operator of the Wells drilled on the above-described designated horizontal wellbore spacing units 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.
7. 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.
8. The designated horizontal wellbore spacing units described above shall be considered drilling and spacing units established by the Commission for purposes of Rule 530.a.
9. As to the interest of Jack L. Schreiber, this Order is conditioned upon the Commission’s receipt of an affidavit from PDC before April 30, 2016, stating whether Mr. Schreiber has agreed to participate in the drilling of the Wells. If Mr. Schreiber elects to participate in the Wells, then his interest will not be pooled pursuant to this Order. If Mr. Schreiber does not elect to participate in the Wells, then his interest will be pooled pursuant to this 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 14th day of March, 2016, as of March 7, 2016.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Julie Murphy, Secretary