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, ADAMS COUNTY, COLORADO

 

)  CAUSE NO. 407

) 

)  DOCKET NO. 160800363

)

)  TYPE:  POOLING

)

) ORDER NO: 407-1798

 

 

 

 

 

 

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on October 24, 2016, in the Hayes Student Center Ballroom, Northeastern Junior College, 100 College Avenue, Sterling, Colorado, upon application for an order to pool all interests in an approximate 1,280-acre drilling and spacing unit in Sections 25 and 36, Township 1 South, Range 67 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Schaefer 2536-1-4HC well.

 

FINDINGS

 

The Commission finds as follows:

 

1.            Ward Petroleum Corporation (“Ward” or “Applicant”), 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 the Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

 

4.            On October 24, 2016, the Commission entered Order 407-1797, which established an approximate 1,280-acre drilling and spacing unit for Sections 25 and 36, Township 1 South, Range 67 West, 6th P.M., and approved up to twelve horizontal wells in the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.  

 

5.            On June 29, 2016, Ward, 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 1,280-acre drilling and spacing unit established for the beow-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the horizontal Schaefer 2536-1-4HC Well (API No. 05-123-09842) to the Codell Formation ("Well"):

 

Township 1 South, Range 67 West, 6th P.M.

Section 25:         All

Section 36:         All

 

6.            On August 10, 2016, Ward, by its attorneys, and the Colorado State Land Board (“SLB”) agreed that the Application Lands contain State leased and/or unleased minerals.  As such, Ward agrees to submit a Communitization Agreement to the SLB prior to drilling operations that access any such State minerals.

7.            On August 15, 2016, Tucson Water Company, Inc. (“Tuscon”), by its attorneys, filed a protest to the Application on behalf of certain of its members.  On September 23, 2016, Tuscon withdrew its protest to the Application.

8.            On August 30, 2016, Ward, by its attorneys, and the Bureau of Land Management (“BLM”) agreed that the Application Lands contain federal leased and/or unleased minerals.   As such, Ward agrees to submit a Communitization Agreement (“CA”) to the BLM at least 90 days before the anticipated date of first production (as defined in the Commission Rules) from the Well drilled in the drilling and spacing unit.

9.            On September 30, 2016, Ward, 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.          Testimony and exhibits submitted in support of the Application by Kent Craig, Landman - Rockies for Ward, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Well.  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 operation and was received at least 35 days prior to the October 24, 2016 hearing date.

11.          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 Schaefer 2536-1-4HC Well.

12.          The above-referenced testimony and exhibits showed that the granting of the Application will allow the owners of all interests in the unit the opportunity to recover, without unnecessary expense, their just and equitable share of the production in the unit.

13.          Ward has agreed to be bound by the oral order of the Commission. 

14.          Based on the facts stated in the Application, having resolved the protest, and based on the Hearing Officer review of the Application under Rule 511, the Commission should enter an order pooling all interests in an approximate 1,280-acre drilling and spacing unit in Sections 25 and 36, Township 1 South, Range 67 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Schaefer 2536-1-4HC well.


ORDER

 

NOW, THEREFORE IT IS ORDERED, that:

 

1.            Pursuant to the provisions of §36-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in the approximate 1,280-acre drilling and spacing unit 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 that any of the costs specified in §34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the the horizontal Schaefer 2536-1-4HC Well (API No. 05-123-09842) to the Codell Formation:

 

Township 1 South, Range 67 West, 6th P.M.

Section 25:         All

Section 36:         All

 

2.            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; and each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well applicable to its interest in the drilling and spacing unit.

 

3.            The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (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 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 Well 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 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 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 Well 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, and 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 thirty (30) days after the date of 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 4th day of November, 2016, as of October 24, 2016.

 

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Julie Murphy, Secretary