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. 160300127

 

TYPE: POOLING

 

ORDER NO. 407-1701

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 an approximate 1,920-acre unconventional resource unit established by Order No. 407-1457 for Sections 10, 11 and 14, Township 6 North, Range 62 West, 6th P.M., and subject the nonconsenting parties 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 the costs specified in §34-60-116(7)(b), C.R.S., were first incurred for the drilling of the Ruh 6-62-11-0758B2 Well, Ruh 6-62-11-0659A2 Well, Ruh 6-62-11-0659B2 Well, and Ruh 6-62-11-0560A2 Well in the unconventional resource unit, for development and operation of the Codell and Niobrara Formations.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Bill Barrett Corporation, Operator No. 10071 (“BBC” 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 10, 11, and 14, Township 6 North, Range 62 West, 6th P.M. are subject to this Rule for the Codell and Niobrara Formations.

 

5.         On February 22, 2011 (corrected April 4, 2013), the Commission entered Order Nos. 407-779 and 535-4 which, among other things, established 640-acre drilling and spacing units for certain lands, including Sections 10, 11 and 14, Township 6 North, Range 62 West, 6th P.M., and approved one horizontal well for each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

6.         On June 17, 2013, the Commission entered Order Nos. 407-811 and 535-360 which, among other things, pooled all interests in the approximate 640-acre drilling and spacing unit established for Section 14, Township 6 North, Range 62 West, 6th P.M.

 

7.         On July 29, 2013, the Commission entered Order Nos. 407-822 and 535-382 which, among other things, approved an additional seven horizontal wells, for a total of eight horizontal wells, within the 640-acre drilling and spacing unit established for Section 10, Township 6 North, Range 62 West, 6th P.M., for production of oil, gas and associated hydrocarbons from the Niobrara Formation, and established an approximate 640-acre drilling and spacing unit for Section 10, Township 6 North, Range 62 West, 6th P.M. and approved up to four horizontal wells within the unit, for production of oil, gas and associated hydrocarbons from the Codell Formation.

 

8.         On January 27, 2014, the Commission entered Order No. 407-915 which, among other things, pooled all interests in the approximate 640-acre drilling and spacing unit established for Section 10, Township 6 North, Range 62 West, 6th P.M.

 

9.         On March 17, 2014, the Commission entered Order No. 407-943 which, among other things, established an approximate 1,280-acre drilling and spacing unit for Sections 11 and 14, Township 6 North, Range 62 West, 6th P.M. and approved up to 16 horizontal wells within the unit, for production of oil, gas and associated hydrocarbons from the Niobrara Formation; and an approximate 1,280-acre drilling and spacing unit for said Sections 11 and 14, and approved up to four horizontal wells within the unit for production of oil, gas and associated hydrocarbons from the Codell Formation.

 

10.       On October 26, 2015, the Commission entered Order No. 407-1457 which, among other things, maintained the approximate 640-acre drilling and spacing units established by Order Nos. 407-779 and 535-4, for Sections 10, 11 and 14, Township 6 North, Range 62 West, 6th P.M., for existing production of oil, gas and associated hydrocarbons from the Niobrara Formation; maintained an approximate 1,280-acre drilling and spacing unit established by Order No. 407-943 for Sections 11 and 14, Township 6 North, Range 62 West, 6th P.M., for existing production of oil, gas and associated hydrocarbons from the Niobrara Formation; maintained Order Nos. 407-811 and 535-360, which pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 14, Township 6 North, Range 62 West, 6th P.M., to accommodate the Dutch Lake 12-14H Well, for the development and operation of the Niobrara Formation; maintained Order No. 407-915 which pooled all interests within an approximate 640-acre drilling and spacing unit established for Section 10, Township 6 North, Range 62 West, 6th P.M. to accommodate the Dutch Lake #08-10H Well, for the development and operation of the Niobrara Formation, but only until such time as the unconventional resource unit is pooled by Commission Order.

 

11.       BBC presently operates the Dutch Lake 08-10H Well (API No. 05-123-35000), spud on October 27, 2013, under Order No. 535-4 within Section 10, Township 6 North, Range 62 West, 6th P.M., with production from the Niobrara Formation.

 

12.       BBC presently operates the Dutch Lake 09-11H Well (API No. 05-123-33450), spud on October 23, 2012, under Order No. 535-4 within Section 11, Township 6 North, Range 62 West, 6th  P.M., with production from the Niobrara Formation.

 

13.       BBC presently operates the Dutch Lake 12-14H Well (API No. 05-123-33954), spud on November 30, 2012, under Order No. 535-4 within Section 14, Township 6 North, Range 62 West, 6th P.M., with production from the Niobrara Formation.

 

14.       BBC presently operates the Ruh 6-62-11-0461BH2 Well (API No. 05-123-39416), spud on November 21, 2014, under Order No. 407-943 within Sections 11 and 14, Township 6 North, Range 62 West, 6th P.M., with production from the Niobrara Formation.

 

15.       The Dutch Lake 08-10H Well, the Dutch Lake 09-11H Well, the Dutch Lake 12-14H Well and the Ruh 6-62-11-0461BH2 Well are hereinafter referred to as the “Existing Wells.” 

 

16.       Order No. 407-1457 provides that production from the Existing Wells will be prospectively allocated based on the unconventional resource unit, effective from the date of the completion of the first new well within the unconventional resource unit, and the underlying spacing and/or pooling orders will terminate.

 

17.       On January 7, 2016, BBC, 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 the approximate 1,920-acre unconventional resource unit 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 C.R.S. §34-60-116(7) for the drilling of the Ruh 6-62-11-0758B2 Well, Ruh 6-62-11-0659A2 Well, Ruh 6-62-11-0659B2 Well, and Ruh 6-62-11-0560A2 Well (“Ruh Wells”):

 

Township 6 North, Range 62 West, 6th P.M.

Section 10:      All

Section 11:      All

Section 14:      All

 

18.       On February 12, 2016 (supplemented on May 20, 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.

 

19.       Testimony and exhibits submitted in support of the Application by Bryce Doty, Landman for Applicant, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and an offer to participate in the Ruh Wells.  Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operations and was received at least 35 days prior to the June 6, 2016 hearing date.

                                                 

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 Ruh Wells.

 

21.       “Initial Wells” are defined to include any wells drilled to total depth within two years from the date of this Order and exclude Ruh Wells.

 

22.       For purposes of cost recovery pursuant to §34 60-116(7), C.R.S., Applicant shall:

            a.         require those interest owners not leased or pooled voluntarily to elect whether to participate in the Initial Wells collectively;

            b.         provide the nonconsenting owners with new elections to participate in any well, whether or not designated as a Ruh Well or an Initial Well, that is not drilled to total depth within two years of the date of this Order; and

            c.         apply the cost recovery provisions of §34-60-116(7), C.R.S. to each of the Initial Wells that Applicant (or a successor in interest) drills and completes within two years of the date of this Order.   

 

23.       On February 22, 2016, Bonanza Creek Energy Operating Company, LLC (“Bonanza” or “Protestant”), by its attorneys, filed a written protest (“Protest”) to the Application alleging that, should the Commission grant the Application, it will not be on just and reasonable terms affording Bonanza to recover and receive, without unnecessary expense, just and equitable shares of proceeds from the Existing Wells for which it has elected to participate in the Application Lands.

 

24.       On March 14, 2016, the Hearing Officer held a prehearing conference with BBC and Bonanza pursuant to Rule 527. 

 

25.       On May 18, 2016, Bonanza withdrew its protest. 

 

26.       The above-referenced testimony and exhibits show that by granting the Application, coordinated development operations to recover the resources underlying the entire drilling and spacing unit will be authorized, thereby allowing more efficient reservoir drainage, preventing waste, assuring greater ultimate recovery of hydrocarbons, and protecting correlative rights.

 

27.       Applicant agreed to be bound by oral order of the Commission.

 

28.       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 an approximate 1,920-acre unconventional resource unit established by Order No. 407-1457 for Sections 10, 11 and 14, Township 6 North, Range 62 West, 6th P.M., and subject the nonconsenting parties 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 the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Ruh 6-62-11-0758B2 Well, Ruh 6-62-11-0659A2 Well, Ruh 6-62-11-0659B2 Well, and Ruh 6-62-11-0560A2 Well, for 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 an approximate 1920-acre unconventional resource unit established for the below-described lands, are hereby pooled, for the development and operation of the Codell and Niobrara Formations, and all nonconsenting interests are hereby subject 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 the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Ruh 6-62-11-0758B2 Well, Ruh 6-62-11-0659A2 Well, Ruh 6-62-11-0659B2 Well, and Ruh 6-62-11-0560A2 Well (“Ruh Wells”):

 

Township 6 North, Range 62 West, 6th P.M.

Section 10:      All

Section 11:      All

Section 14:      All

 

2.         The production obtained from the unconventional resource 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 unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Ruh Wells located on the unconventional resource unit applicable to its interest in the unit.

 

3.         The nonconsenting owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Ruh Wells (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the unconventional resource 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 owner whose interests are pooled hereunder that has not elected to participate in the drilling of the Ruh Wells shall be deemed to be nonconsenting as to the Ruh Wells and to be subject to the penalties provided by §34-60-116(7), C.R.S.

 

5.         For purposes of cost recovery pursuant to §34 60-116(7), C.R.S., Applicant shall:

a.         require those interest owners not leased or pooled voluntarily to elect whether to participate in the Initial Wells collectively;

b.         provide the nonconsenting owners with new elections to participate in any well, whether or not designated as a Ruh Well or an Initial Well, that is not drilled to total depth within two years of the date of this Order; and

c.         apply the cost recovery provisions of §34-60-116(7), C.R.S., to each of the Initial Wells that Applicant (or a successor in interest) drills and completes within two years of the date of this Order.

 

6.         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 Ruh Wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Ruh Wells as if it had originally agreed to the drilling.

 

7.         The operator of the Ruh Wells drilled on the above-described unconventional resource unit and any Initial wells 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.

 

8.         BBC agrees to provide all owners not previously given an offer to participate in the Existing Wells with an opportunity to prospectively participate in the Existing Wells by paying their proportionate share of the prospective costs of operating the Existing Wells in the unconventional resource unit, effective from the date of the completion of the first new well within the unconventional resource unit.  Any owner previously deemed a non-consenting owner with respect to any of the Existing Wells will continue to be treated as a non-consenting owner until the consenting working interest owners have been reimbursed for their share of the costs and risks of drilling and operating the Existing Wells (including penalties as provided by §34-60-116(7)(b), C.R.S.).   

 

9.         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 28th day of June, 2016, as of June 6, 2016.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Julie Murphy, Secretary