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. 151000665
ORDER NO: 407-1675
TYPE: SPACING |
REPORT OF THE COMMISSION
The Commission heard this matter on October 26, 2015, and April 18, 2016, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to maintain the drilling and spacing unit within the Application Lands for the existing Greeley Tech Center No. 41-5 Well and reestablish and maintain Wellbore Spacing Units Nos. 1-8, for the development and production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations, in certain lands in Township 5 North, Range 66 West, 6th P.M. and Township 6 North, Range 66 West, 6th P.M.
Jurisdictional Findings:
1. Synergy Resources Corporation (“Synergy” or “Applicant”) is an interested party in the subject matter of the above-referenced hearing.
2. Briller, Inc., and Robert W. Loveless, d/b/a R.W.L. Enterprises (collectively “Briller” or “Protestant”) is an interested party in this matter.
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 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 on March 29, 2000 in accordance with Order No. 407-17, entered November 18, 1985), which, among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands.
6. On February 19, 1992, the Commission entered 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.
7. On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule.
8. On September 15, 2014, the Commission entered Order No. 407-1112, which pooled all non-consenting interests in four approximate 400-acre Wellbore Spacing Units in the NW1/4 of Section 3 and the NE1/4, E1/2NW1/4 of Section 4, Township 5 North, Range 66 West, 6th P.M. for the Kelly Farms #A-4-3CHZ Well (API No. 05-123-38138), Kelly Farms #A-4-3NHZ Well (API No. 05-123-38136), Kelly Farms #22-4-3-CHZ Well (API No. 05-123-38133), and Kelly Farms #12-4-3CHZ Well (API No. 05-123-38134), and imposed the statutory cost recovery provisions of §34-60-116(7)(b), C.R.S., upon all non-consenting parties for the wells.
9. In 2014, Synergy submitted applications for permits to drill eight horizontal wells in Townships 5 and 6 North, Range 66 West, 6th P.M., Weld County, Colorado. Synergy certified that it had notified all the owners(s) within each proposed wellbore spacing unit and that it received no objections within the Rule 318A.e.(5) thirty day notice period.
10. On August 19, 2014, the Commission approved and issued drilling permits for seven of Synergy’s applications for permits to drill eight horizontal wells: the SRC Wiedeman A-5-3NBHZ Well, the SRC Wiedeman 11-5-3NCHZ Well, the SRC Wiedeman 21-5-3NBHZ Well, the SRC Wiedeman 22-5-4NBHZ Well, the SRC Wiedeman 12-5-4CHZ Well, the SRC Wiedeman 22-5-4CHZ Well, and the SRC Wiedeman 12-5-4NCHZ Well. The Commission approved and issued a drilling permit for the eighth well, the SRC Wiedeman 21-5-3CHZ Well, on November 7, 2014. The eight wells are collectively referred to as the “Wells.” Under Rule 318A, issuing the drilling permits administratively created eight horizontal Wellbore Spacing Units as proposed by Synergy.
11. Between September and December 2014, Synergy drilled and cased the eight Wells. Synergy has not completed the Wells, nor have any of the Wells ever produced.
12. On March 27, 2015, Briller objected to all eight of the Wellbore Spacing Units, on grounds that it was an owner within each Wellbore Spacing Unit, and that Synergy had failed to notify it of the proposed units.
13. On April 14, 2015, in response to Briller’s objection, COGCC staff suspended approval of the eight Wellbore Spacing Units.
14. Synergy and Biller dispute whether Briller owns the working interest in an Oil and Gas Lease dated December 3, 1985, recorded in the Weld County Clerk and Recorder’s Office on February 18, 1986, in Book 1103, Page 0792, Reception No. 02043218 (“Lease”). The Lease, which covers the E1/2NE1/4 of Section 5 of Township 5 North, Range 66 West, 6th P.M., includes lands in each of the eight suspended Wellbore Spacing Units. Synergy and Briller currently are litigating the validity of the Lease in the United States District Court for the District of Colorado, Civil Action No. 1:15-cv-01337-RBJ (“Lease Dispute”).
15. On September 11, 2015, Synergy filed with the Commission a verified application (“spacing application”) pursuant to §34-60-116, C.R.S., for an order to reestablish and maintain Wellbore Spacing Units Nos. 1-8, for the development and production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations, for the below-described lands (“Application Lands”):
Wellbore Spacing Unit Nos. 1-3
Township 5 North, Range 66 West, 6th P.M.
Section 5: NE¼
Section 4: N½
Section 3: NW¼
Corresponding Wells:
SRC Wiedeman A-5-3NBHZ (API No. 05-123-40064)
SRC Wiedeman 11-5-3NCHZ (API No. 05-123-40066)
SRC Wiedeman 21-5-3NBHZ (API No. 05-123-40069)
Wellbore Spacing Unit Nos. 4-7
Township 5 North, Range 66 West, 6th P.M.
Section 5: NE¼
Section 4: NW¼
Corresponding Wells:
SRC Wiedeman 22-5-4NBHZ (API No. 05-123-40063)
SRC Wiedeman 12-5-4CHZ (API No. 05-123-40065)
SRC Wiedeman 22-5-4CHZ (API No. 05-123-40067)
SRC Wiedeman 12-5-4NCHZ (API No. 05-123-40068)
Wellbore Spacing Unit No. 8
Township 5 North, Range 66 West, 6th P.M.
Section 5: N½NE¼
Section 4: N½N½
Section 3: N½NW¼
Township 6 North, Range 66 West, 6th P.M.
Section 32: S½SE¼
Corresponding Well:
SRC Wiedeman 21-5-3CHZ (API No. 05-123-40560)
16. On September 11, 2015, Synergy concurrently filed an application for a Commission order pooling all interests within each of the eight Wellbore Spacing Units in Docket No. 151000666 (“pooling application”).
17. On October 9, 2015, Briller protested both Synergy’s spacing and pooling applications alleging various improper actions by Synergy and requesting that Synergy’s applications either be denied or approved with modifications.
18. On October 14, 2015, a prehearing conference was held at which the Hearing Officer consolidated Synergy’s two applications for purposes of hearing and filings.
19. On October 22, 2015, the Hearing Officer issued a recommendation to approve Synergy’s spacing and pooling applications and require Synergy to hold proceeds attributable to the production from the E1/2NE1/4 of Section 5 of Township 5 North, Range 66 West, 6th P.M. until the United States District Court or any other court with appropriate jurisdiction enters a final order adjudicating the Lease Dispute and send a new Authority for Expenditure (“AFE”) using actual costs and a 35-day election period pursuant to Rule 530.b. to the proper owner(s) as determined by the Court. The recommendation also stated that the Enforcement Unit would investigate Synergy’s Wellbore Spacing Unit application notices and certifications to determine if any violations occurred.
20. On October 26, 2015, the Commission heard Synergy’s spacing and pooling applications. The Commission closed the record and voted unanimously to continue the hearing to a future date pending receiving a report from a staff investigation into Synergy and Briller.
21. Pending staff’s investigation, the hearing was first continued to the Commission’s January hearing, then its March hearing, and finally to its April 18, 2016 hearing date.
22. After receiving a confidential memorandum summarizing staff’s investigation, the Commission resumed deliberations on Synergy’s spacing and pooling applications on April 18, 2016.
Testimony:
23. Land testimony and exhibits presented by Craig Rasmuson, Chief Operating Officer for Synergy, showed Synergy’s interests in the Application Lands, the process by which Synergy applied for wellbore spacing units under Rule 318A, and his understanding of the contested Briller lease.
24. Engineering testimony and exhibits presented by Andrew Peterson, petroleum engineer and the senior vice president of operations for Integrated Petroleum Technologies, Inc., showed the predicted performance and rate of return for Synergy’s wellbore proposals.
25. Geologic testimony and exhibits presented by Steven Goolsby, petroleum geologist for Vecta Oil & Gas, Ltd., showed that the Niobrara Formation underlying the Application Lands is approximately 300 feet thick, and the thickness of the Codell Formation underlying the Application Lands is approximately 20 feet thick. Further testimony showed that the Codell and Niobrara Formations are a common source of supply underlying the Application Lands.
26. Testimony and exhibits presented by Robert W. Loveless, Owner of Briller and R.W.L. Enterprises, showed production reporting at the Greeley Tech Center Well within the Application Lands, and further testified to lack of notice from Synergy as to its proposed wellbore spacing units.
October 26, 2015 Commission Deliberation Comments:
27. Commissioner Compton asked whether Briller or the proper mineral interest owner would have a 35-day election period after the federal court determines the lease issue. Staff confirmed that the Hearing Officer recommendation includes such language based on actual costs. Also, he asked for the Briller production issue to be investigated.
28. Commissioner Benton asked if the Wells had been drilled and completed and whether it put any of the leases into jeopardy if we wait to resolve this matter. He expressed concern that a lot of money is wasted if the Wells just sit there.
29. Commissioner Spielman noted that there is a lot going on in this matter, several allegations, and difficulty assessing the veracity of a witness by telephone, and that he was inclined to stay this matter until these allegations of misrepresentation can be addressed. Also, he commented that this is primarily a commercial dispute between two parties, while our role is fostering orderly development of the resource.
30. Commissioner King asked if any of the issues to be investigated would impact the Hearing Officer’s recommendation. He made a motion to hold the applications in abeyance pending a Commission investigation and receiving a report from Staff and to consider the applications at the January or March hearing. The motion passed unanimously.
April 18, 2016 Commission Deliberation Comments:
31. Commissioner Randall recused.
32. Commissioner Benton moved to approve the October 22, 2015 Hearing Officer recommendation, which passed unanimously.
ORDER
1. The following Wellbore Spacing Units are hereby established and approved as of August 19, 2014, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations:
Wellbore Spacing Unit Nos. 1-3
Township 5 North, Range 66 West, 6th P.M.
Section 5: NE¼
Section 4: N½
Section 3: NW¼
Corresponding Wells:
SRC Wiedeman A-5-3NBHZ (API No. 05-123-40064)
SRC Wiedeman 11-5-3NCHZ (API No. 05-123-40066)
SRC Wiedeman 21-5-3NBHZ (API No. 05-123-40069)
Wellbore Spacing Unit Nos. 4-7
Township 5 North, Range 66 West, 6th P.M.
Section 5: NE¼
Section 4: NW¼
Corresponding Wells:
SRC Wiedeman 22-5-4NBHZ (API No. 05-123-40063)
SRC Wiedeman 12-5-4CHZ (API No. 05-123-40065)
SRC Wiedeman 22-5-4CHZ (API No. 05-123-40067)
SRC Wiedeman 12-5-4NCHZ (API No. 05-123-40068)
2. The following Wellbore Spacing Unit is hereby established and approved as of November 7, 2014, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations:
Wellbore Spacing Unit No. 8
Township 5 North, Range 66 West, 6th P.M.
Section 5: N½NE¼
Section 4: N½N½
Section 3: N½NW¼
Township 6 North, Range 66 West, 6th P.M.
Section 32: S½SE¼
Corresponding Well:
SRC Wiedeman 21-5-3CHZ (API No. 05-123-40560)
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 producing from the same source of supply within the unit, unless an exception is granted by the Director.
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 11th day of May 2016, as of April 18, 2016.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By________________________________
Julie Murphy, Secretary