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. 170600346

 

TYPE: POOLING

 

ORDER NO. 407-2063

REPORT OF THE COMMISSION

 

The Commission heard this matter on June 12, 2017, at the Rio Blanco County Courthouse, 555 Main Street, Meeker, Colorado, upon application for an order to pool all interests within an approximate 640-acre drilling and spacing unit established by Order No. 407-1869 for Sections 32 and 33, Township 5 North, Range 63 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and to subject any non-consenting 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., are first incurred for the drilling of the CVR 5-63-32-4841B2 Well, the CVR 5-63-32-4956B2 Well, the CVR 5-63-32-6457D2 Well, or the CVR 5-63-32-4841C2 Well.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Bill Barrett Corporation (“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.  The Application Lands are subject to this Rule for the Niobrara Formation.

 

5.         On June 17, 2014, the Commission entered Order No. 407-1069 which, among other things, pooled all interests within three approximate 320-acre wellbore spacing units established for portions of Section 32, Township 5 North, Range 63 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 CVR 5-63-32-3225CDH, CVR 5-63-32-3340BH, and CVR 5-63-32-3225CH Wells, for the development and operation of the Codell-Niobrara Formation. Order No. 407-1069 includes portions of the Application Lands but does not affect this Application. 

 

6.         On January 30, 2017, the Commission entered Order No. 407-1869 which, among other things, 1) established an approximate 640-acre drilling and spacing unit for the S½ of Sections 32 and 33, Township 5 North, Range 63 West, 6th P.M., and approved four horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation; and 2) established an approximate 640-acre drilling and spacing unit for the S½ of Sections 32 and 33, Township 5 North, Range 63 West, 6th P.M. and approved one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Codell Formation. 

 

7.         On April 13, 2017, BBC, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests underlying an approximate 640-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, and to subject any non-consenting 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., are first incurred for the drilling of the CVR 5-63-32-4841B2 (API No. 05-123-44255), the CVR 5-63-32-4956B2 (API No. 05-123-44256), the CVR 5-63-32-6457D2 (API No. 05-123-44253), and the CVR 5-63-32-4841C2 (API No. 05-123-44257) (“Wells”):

 

Township 5 North, Range 63 West, 6th P.M.

Section 32:      S½

Section 33:      S½

 

8.         On May 22, 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.         Land testimony and exhibits submitted in support of the Application by Gabriel Findlay, Senior Landman BBC, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offers to participate in the Wells. Further testimony concluded that the AFEs sent by the Applicant to the interest owners are a fair and reasonable estimate of the costs of the proposed drilling operations and were received at least 35 days prior to the June 12, 2017 hearing date.

                                                 

10.       Land testimony also 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 CVR 5-63-32-4841B2 Well, the CVR 5-63-32-4956B2 Well, the CVR 5-63-32-6457D2 Well, or the CVR 5-63-32-4841C2 Well, but did not provide testimony for any subsequent wells.

 

11.       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.

 

12.       BBC agreed to be bound by oral order of the Commission.

 

13.       Based on the facts stated in the verified Application, and based on the Hearing Officer review of the Application under Rule 511, the Commission should enter an order to pool all interests within an approximate 640-acre drilling and spacing unit established by Order No. 407-1869 for Sections 32 and 33, Township 5 North, Range 63 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and to subject any non-consenting 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., are first incurred for the drilling of the CVR 5-63-32-4841B2 Well, the CVR 5-63-32-4956B2 Well, the CVR 5-63-32-6457D2 Well, or the CVR 5-63-32-4841C2 Well.

 

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 the approximate 640-acre drilling and spacing unit established by Order No. 407-1869 for the below-described lands are hereby pooled, for the development and operation of the Codell and Niobrara Formations, and any non-consenting 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 that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the CVR 5-63-32-4841B2 (API No. 05-123-44255), the CVR 5-63-32-4956B2 (API No. 05-123-44256), the CVR 5-63-32-6457D2 (API No. 05-123-44253), or the CVR 5-63-32-4841C2 (API No. 05-123-44257) (“Wells”):

 

Township 5 North, Range 63 West, 6th P.M.

Section 32:      S½

Section 33:      S½

 

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 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 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 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.

 

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 23rd day of June, 2017, as of June 12, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Peter Gowen, Acting Secretary