BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

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. 151200754

 

ORDER NO. 407-1697

 

TYPE: POOLING

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on June 6, 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 two approximate 480-acre horizontal wellbore spacing units established for portions of Sections 4 and 5, Township 2 North, Range 68 West, 6th P.M., for the drilling of the Fairview #9 Well and the Fairview #10 Well, for the development and operation of the Codell and Niobrara Formations.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Extraction Oil & Gas, LLC (“Extraction” 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 4 and 5, Township 2 North, Range 68 West, 6th P.M. are subject to this Rule for the Codell and Niobrara Formations.

 

5.         On October 8, 2015, Extraction, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to pool all interests in two approximate 480-acre horizontal wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, and to 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 Fairview #9 Well (API No. 05-123-41520) and the Fairview #10 Well (API No. 05-123-41517) in Wellbore Spacing Units (“WSU”) Nos. 1 and 2:

 

Township 2 North, Range 68 West, 6th P.M.

Section 4:        N½SW¼, S½NW¼

Section 5:        N½S½, S½N½

 

Fairview #9 Well (WSU No. 1) – Codell Formation

Fairview #10 Well (WSU No. 2) – Niobrara Formation

 

6.         On November 5, 2015, Extraction, by its attorneys, requested and Commission staff granted a continuance to the January 26-27, 2016 hearing.

 

7.         On January 13, 2016, Extraction, by its attorneys, requested and Commission staff granted a continuance to the March 7-8, 2016 hearing.

 

8.         On February 18, 2016, Extraction, by its attorneys, requested and Commission staff granted a continuance to the April 18-19, 2016 hearing.

 

9.         On March 28, 2016, 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. 

 

10.       On April 1, 2016, a protest was filed by Mary and Francis Berard (“Berards”) to the Application alleging that they had not received an opportunity to lease.  

 

11.       On April 11, 2016, the parties held a prehearing conference at which time the Berards agreed that they did not oppose the pooling portion of the Application.  Extraction agreed not to seek cost recovery penalties for this Application with respect to the Berards’ interest, and agreed to provide the Berards with additional time to negotiate the lease.

 

12.       On April 13, 2016, the matter was continued to the June 6, 2016 hearing.

 

13.       On May 20, 2016, the Berards withdrew their protest to the Application. 

 

14.       Testimony and exhibits submitted in support of the Application by Allyson Vistica, Land Manager for Applicant, showed that there are no unleased mineral owners within the Application Lands against whom cost recovery is being sought and that only the offer to participate was provided with an Authority for Expenditure ("AFE") for each of the Wells.  Further testimony concluded that the AFE sent by the Applicant to the working 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 June 6, 2016 hearing date.

                                                 

15.       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., against Nebraska Alliance Resources, LLC, for the Fairview #9 Well and the Fairview #10 Well, but did not provide testimony for any subsequent wells.

 

16.       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.

 

17.       Extraction agreed to be bound by oral order of the Commission.

 

18.       Based on the facts stated in the verified Application, having resolved all 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 two approximate 480-acre horizontal wellbore spacing units established for portions of Sections 4 and 5, Township 2 North, Range 68 West, 6th P.M., for the drilling of the Fairview #9 Well and the Fairview #10 Well, for the development and operation of the Codell and Niobrara 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 two approximate 480-acre horizontal wellbore spacing units established for the below-described lands are hereby pooled, 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 the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the Fairview #9 Well (API No. 05-123-41520) and the Fairview #10 Well (API No. 05-123-41517) (“Wells”):

 

Township 2 North, Range 68 West, 6th P.M.

Section 4:        N½SW¼, S½NW¼

Section 5:        N½S½, S½N½

 

Fairview #9 Well (WSU No. 1) – Codell Formation

Fairview #10 Well (WSU No. 2) – Niobrara Formation

 

2.         The production obtained from the wellbore spacing units 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 each wellbore spacing unit; each owner of an interest in each wellbore spacing unit shall be entitled to receive its share of the production of the Wells located on the wellbore spacing unit applicable to its interest in the 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 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 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.

 

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 unit described above shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.

 

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 20th day of June, 2016, as of June 6, 2016.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

By____________________________________

Julie Murphy, Secretary