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, ADAMS AND WELD COUNTIES, COLORADO |
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CAUSE NO. 407
DOCKET NO. 170300134
TYPE: POOLING
ORDER NO. 407-1911 |
REPORT OF THE COMMISSION
The Commission heard this matter on March 20, 2017, at the Larimer County Conference Center at The Ranch, First National Bank Building, 5280 Arena Circle, Loveland, Colorado, upon application for an order to pool all interests within an approximate 960-acre drilling and spacing unit established for Section 3, Township 1 South, Range 66 West, 6th P.M., and portions of Section 34, Township 1 North, Range 66 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Homestead 1 Well, Homestead 2 Well, Homestead 3 Well, Homestead 4 Well, Homestead 5 Well, Homestead 6 Well, Homestead 7 Well, Homestead 8 Well, Homestead 9 Well, Homestead 10 Well, Homestead 11 Well, Homestead 12 Well, Homestead 13 Well, Homestead 14 Well, Homestead 15 Well, Homestead 16 Well, Homestead 17 Well, Homestead 18 Well, Homestead 19 Well, Homestead 20 Well, Homestead 21 Well, Homestead 22 Well, Homestead 23 Well, and the Homestead 24 Well, for the development and operation of the Niobrara and Codell Formations.
FINDINGS
The Commission finds as follows:
1. Petro Operating Company LLC (Operator No. 10583) (“Petro” 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. Section 3, Township 1 South, Range 66 West, 6th P.M., and Section 34, Township 1 North, Range 66 West, 6th P.M., are subject to this Rule for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell formations.
5. On February 19, 1992 (amended August 20, 1993), the Commission entered Order No. 407-87 which established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formations, with the permitted well locations in accordance with the provisions of Order No. 407-1. Section 3, Township 1 South, Range 66 West, 6th P.M., and Section 34, Township 1 North, Range 66 West, 6th P.M., are subject to this Order for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell formations.
6. On November 16, 1992, the Commission entered Order No. 499-15, which established 320-acre drilling and spacing units for certain lands for production from the Dakota Formation, provided for procedures to obtain exceptions to the permitted well locations, and allowed the recompletion and downhole commingling of production from the Dakota, "J" Sand, Codell, Niobrara, Sussex, and Shannon Formations. Section 3, Township 1 South, Range 66 West, 6th P.M., and Section 34, Township 1 North, Range 66 West, 6th P.M., are subject to this Order for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell formations.
7. On March 20, 2017, the Commission entered Order No. 407-1908 which, among other things, established an approximate 960-acre drilling and spacing unit for Section 3, Township 1 South, Range 66 West, 6th P.M., and portions of Section 34, Township 1 North, Range 66 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, and approved up to 24 horizontal wells within the unit, with the productive interval of any horizontal well to 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 located in the unit, unless the Director grants an exception.
8. On January 19, 2017, Petro, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 960-acre drilling and spacing unit 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 Homestead 1 Well (API No. Pending), Homestead 2 Well (API No. Pending), Homestead 3 Well (API No. Pending), Homestead 4 Well (API No. Pending), Homestead 5 Well (API No. Pending), Homestead 6 Well (API No. Pending), Homestead 7 Well (API No. Pending), Homestead 8 Well (API No. Pending), Homestead 9 Well (API No. Pending), Homestead 10 Well (API No. Pending), Homestead 11 Well (API No. Pending), Homestead 12 Well (API No. Pending), Homestead 13 Well (API No. Pending), Homestead 14 Well (API No. Pending), Homestead 15 Well (API No. Pending), Homestead 16 Well (API No. Pending), Homestead 17 Well (API No. Pending), Homestead 18 Well (API No. Pending), Homestead 19 Well (API No. Pending), Homestead 20 Well (API No. Pending), Homestead 21 Well (API No. Pending), Homestead 22 Well (API No. Pending), Homestead 23 Well (API No. Pending), and the Homestead 24 Well (API No. Pending) (“Wells”):
Township 1 South, Range 66 West, 6th P.M.
Section 3: All
Township 1 North, Range 66 West, 6th P.M.
Section 34: S˝
9. On February 27, 2017, 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. Land testimony and exhibits submitted in support of the Application by Peter K. Scott, Senior Landman for Petro, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells. 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 operations and were received at least 35 days prior to the March 20, 2017 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 Homestead 1 Well, Homestead 2 Well, Homestead 3 Well, Homestead 4 Well, Homestead 5 Well, Homestead 6 Well, Homestead 7 Well, Homestead 8 Well, Homestead 9 Well, Homestead 10 Well, Homestead 11 Well, Homestead 12 Well, Homestead 13 Well, Homestead 14 Well, Homestead 15 Well, Homestead 16 Well, Homestead 17 Well, Homestead 18 Well, Homestead 19 Well, Homestead 20 Well, Homestead 21 Well, Homestead 22 Well, Homestead 23 Well, and the Homestead 24 Well, but did not provide testimony for any subsequent wells.
12. 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.
13. Petro agreed to be bound by oral order of the Commission.
14. 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 an approximate 960-acre drilling and spacing unit established for Section 3, Township 1 South, Range 66 West, 6th P.M., and portions of Section 34, Township 1 North, Range 66 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Homestead 1 Well, Homestead 2 Well, Homestead 3 Well, Homestead 4 Well, Homestead 5 Well, Homestead 6 Well, Homestead 7 Well, Homestead 8 Well, Homestead 9 Well, Homestead 10 Well, Homestead 11 Well, Homestead 12 Well, Homestead 13 Well, Homestead 14 Well, Homestead 15 Well, Homestead 16 Well, Homestead 17 Well, Homestead 18 Well, Homestead 19 Well, Homestead 20 Well, Homestead 21 Well, Homestead 22 Well, Homestead 23 Well, and the Homestead 24 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 an approximate 960-acre drilling and spacing unit 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 Homestead 1 Well (API No. Pending), Homestead 2 Well (API No. Pending), Homestead 3 Well (API No. Pending), Homestead 4 Well (API No. Pending), Homestead 5 Well (API No. Pending), Homestead 6 Well (API No. Pending), Homestead 7 Well (API No. Pending), Homestead 8 Well (API No. Pending), Homestead 9 Well (API No. Pending), Homestead 10 Well (API No. Pending), Homestead 11 Well (API No. Pending), Homestead 12 Well (API No. Pending), Homestead 13 Well (API No. Pending), Homestead 14 Well (API No. Pending), Homestead 15 Well (API No. Pending), Homestead 16 Well (API No. Pending), Homestead 17 Well (API No. Pending), Homestead 18 Well (API No. Pending), Homestead 19 Well (API No. Pending), Homestead 20 Well (API No. Pending), Homestead 21 Well (API No. Pending), Homestead 22 Well (API No. Pending), Homestead 23 Well (API No. Pending), and the Homestead 24 Well (API No. Pending):
Township 1 South, Range 66 West, 6th P.M.
Section 3: All
Township 1 North, Range 66 West, 6th P.M.
Section 34: S˝
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; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Wells located on the drilling and spacing unit applicable to its interest in the drilling and 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 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 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 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 unleased 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 nonconsenting unleased 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 drilling and 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.
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 29th day of March, 2017, as of March 20, 2017.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Peter Gowen, Acting Secretary