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 IN THE NIOBRARA FORMATION, WATTENBERG FIELD, WELD County, Colorado.

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CAUSE NO. 407

 

DOCKET NO. 170500237

 

TYPE: POOLING

 

ORDER NO. 407-1976

           

REPORT OF THE COMMISSION

 

The Commission heard this matter on May 1, 2017, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to vacate Order No.  407-1773 and pool all interests in two approximate 800-acre wellbore spacing units established for the W½E½, E½W½ of Sections 1 and 12, Township 5 North, Range 66 West, 6th P.M. and the W½NE¼, E½NW¼ of Section 13, Township 5 North, Range 66 West, 6th P.M., the development and production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.            Extraction Oil & Gas, Inc. (“Extraction” or “Applicant”), Operator No. 10459, 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, 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.  The Application Lands are subject to this Rule.

 

5.            On August 29, 2016, the Commission entered Order No. 407-1773, which, among other things, pooled all interests in two approximate 720-acre horizontal wellbore spacing units for the Niobrara Formation and subjected all nonconsenting interests to the cost recovery provisions of Section 34-60-116(7), C.R.S., for the CS-Sherwood 2-1-13 well (API No. 05-123-42909) and the CS-Sherwood 1-1-13 well (API No. 05-123-42911).   

 

6.            The CS-Sherwood 2-1-13 and CS-Sherwood 1-1-13 wells were initially proposed and permitted as 2-mile horizontal wells within two approximate 720-acre Rule 318A horizontal wellbore spacing units.  Applicant re-proposed these wells to interested parties as 2.5-mile horizontal wells within two approximate 800-acre Rule 318A horizontal wellbore spacing units, which are the subject of this Application.  No objections were received.  Commission staff approved Applicant’s Form 4 Sundry Notices to update the Form 2 Applications to Drill to reflect the longer lateral length consistent with the new well proposals.

 

7.            On March 2, 2017, Extraction filed with the Commission pursuant to Section 34-60-116, C.R.S., a verified application (“Application”), for an order to pool all interests in two approximate 800-acre WSUs established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara Formation, 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 Section 34-60-116(7)(b)(II), C.R.S., were first incurred for the drilling of the CS-Sherwood 2-1-13 well (API No. 05-123-42909) and the CS-Sherwood 1-1-13 well (API No. 05-123-42911) (“Wells”):

 

Township 5 North, Range 66 West, 6th P.M.

Section   1:  W½E½, E½W½

Section 12:  W½E½, E½W½

Section 13:  W½NE¼, E½NW¼ 

 

Wellbore Spacing Unit (“WSU”) Nos. 1 and 2

CS-Sherwood 2-1-13 well (Niobrara Formation)

CS-Sherwood 1-1-13 well (Niobrara Formation)

 

8.            On April 10, 2017 (Supplemented April 20, 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. 

 

9.            On April 6, 2017, Daniel Daly filed a Rule 510 statement to the Application on the grounds that he refused any oil and gas exploration on the Application Lands and did not wish any possible damage on his property. 

 

10.          Testimony and exhibits submitted in support of the Application by Drew Stout, Landman for Applicant, showed that all nonconsenting interest owners were notified of the Application and received Authorities for Expenditure ("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 operation and were received at least 35 days prior to the May 1, 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 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.          Extraction agreed to be bound by oral order of the Commission. 

 

14.          Based on the facts stated in the verified Application and on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to vacate Order No.  407-1773 and pool all interests in two approximate 800-acre wellbore spacing units established for the W½E½, E½W½ of Sections 1 and 12, Township 5 North, Range 66 West, 6th P.M. and the W½NE¼, E½NW¼ of Section 13, Township 5 North, Range 66 West, 6th P.M., for the development and production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that:

 

1.            Order No. 407-1773, which pooled all interests in two approximate 720-acre horizontal wellbore spacing units for the Niobrara Formation and subjected all nonconsenting interests to the cost recovery provisions of Section 34-60-116(7), C.R.S., for the CS-Sherwood 2-1-13 well (API No. 05-123-42909) and the CS-Sherwood 1-1-13 well (API No. 05-123-42911), is hereby vacated;

 

2.            Pursuant to the provisions of Section 34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in two approximate 800-acre wellbore spacing units (“WSU”) established for the below-described lands, are hereby pooled, for the development and operation of the Niobrara Formation, 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 the costs specified in Section 34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the CS-Sherwood 2-1-13 well (API No. 05-123-42909) and the CS-Sherwood 1-1-13 well (API No. 05-123-42911) (“Wells”):

 

Township 5 North, Range 66 West, 6th P.M.

Section   1:  W½E½, E½W½

Section 12:  W½E½, E½W½

Section 13:  W½NE¼, E½NW¼

 

Wellbore Spacing Unit (“WSU”) Nos. 1 and 2

CS-Sherwood 2-1-13 well (Niobrara Formation)

CS-Sherwood 1-1-13 well (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 the wellbore spacing units; each owner of an interest in the wellbore spacing units shall be entitled to receive its share of the production of the Wells located on the wellbore spacing units applicable to its interest in the wellbore spacing units.

 

3.         The nonconsenting 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 wellbore spacing units 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.

 

5.         Each nonconsenting unleased owner within the wellbore spacing units 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 owner shall then own its proportionate 8/8ths share of the Wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Wells as if it had originally agreed to the drilling.

 

6.         The operator of the Wells drilled on the above-described wellbore spacing units 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 units described above shall be considered drilling and spacing units 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 12th day of May, 2017, as of May 1, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By ________________________________

Peter Gowen, Acting Secretary