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

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CAUSE NO. 407 DOCKET NO. 170700432 TYPE: POOLING ORDER NO: 407-2116

REPORT OF THE COMMISSION

            The Commission heard this matter on July 24, 2017, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to amend Order No. 407-871 (“Order”), which pooled all interests within an approximate 640-acre drilling and spacing unit established for Section 20, Township 6 North, Range 61 West, 6^th P.M. (“Application Lands”), to accommodate the Greasewood 10-20H Well (“Well”) by deleting the first sentence in Paragraph 4 of the Order, with an effective date as set forth in the original Order No. 407-871.

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 over the subject matterBBC’s requested relief to amend the Order embraced in said Notice, and of the parties interested therein, and has jurisdiction to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act, C.R.S. 34-60-101 – 130 (“Act”).

4.         BBC is a proper Applicant for purposes of the Application that is subject to YMC Royalty Company, LP’s (“YMC”) Protest pursuant to COGCC Rule 503.b.(2) because BBC obtained the underlying pooling order in the Application Lands described hereinowns leasehold interests or holds the right to operate in the Application Lands.

5.         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 Rule 318A for the Codell and Niobrara Formations.

6.         On October 13, 2013, the Commission entered Order No. 407-871the Order which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 20, Township 6 North, Range 61 West, 6^th P.M., to accommodate the Greasewood 10-20H Well Well for the development and operation of the Niobrara Formation, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S 34-60-116(7)(b)(II) are first incurred for the drilling of the Greasewood 10-20H WellWell, for the development and operation of the Niobrara Formation. 

            7.         Order No. 407-871The Order provides provided in Paragraph 4 that: “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 cost recovery provisions of 34-60-116(7), C.R.S, shall first comply with subsection (d) for any subsequent well(s).” Order No. 407-871The Order further providesprovided in Paragraph 7 that: "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.         On May 24, 2017, BBC, by its attorneys, filed with the Commission an application (“Application”) to amend Order No. 407-871 which pooled all interests in the below-described lands (“Application Lands”), the Order, specifically seeking to eliminate the first sentence of the fourth paragraph which states, “[a]ny unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the [Greasewood 10-20H] Well and to be subject to penalties as provided for by 34-60-116(7), C.R.S.”Paragraph 4, and to issue a revised Order with an effective date as set forth in the original Order.

9.         BBCBBC’s alleged  Application requests that the first sentence of Order No. 407-871, Order Paragraph 4, be stricken as it is an incorrect statement that ignores the possibility that an unleased mineral owner will consent to participation in the Greasewood 10-20H Well as a working interest owner, which was, in fact, the case with respect to the Greasewood 10-20H Well. BBC requested the Commission modify Paragraph 4 as follows:

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 cost recovery provisions of 34-60-116(7), C.R.S, shall first comply with subsection (d) for any subsequent well(s). BBC’s Application further requests that the Commission amend Order No. 407-871 to reflect this deletion and issue a revised Order No. 407-871 with an effective date as set forth in the original Order No. 407-871

Township 6 North, Range 61 West, 6th P.M.

Section 20:      All

910.     On June 30, 2017, ApplicantBBC, 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.

1011.   Land testimony and exhibits submitted in support of the Application by Gabriel Findlay, Land Manager at BBC, showed that all owners of or the interested parties that received copies of the Application as required by Rule 507 and Rule 503.e.

1112.   On July 7, 2017, YMC Royalty Company, LP (“YMC” or “Protestant”), by its attorneys, filed a protest to the Application requesting that the Application be denied (“Protest”). YMC owns the following mineral estate in the N½ SE¼ and NE¼ of Section 20, Township 6 North, Range 61 West, 6^th P.M.

1213.   On July 17, 2017, BBC and YMC (collectively, the “Parties”) participated in a Prehearing Conference on this matter.

1314.   On July 18, 2017, the Parties filed Prehearing Statements, witness lists and proposed exhibits. On July 20, 2017, the Parties filed proposed orders and final admitted exhibits.

1415.   The Parties submitted exhibits in support of their Application and Protest, respectively. The exhibits show that drilling and completion work for the Well began on or about November 7, 2012. On January 30, 2013, BBC sent a letter and Authority for Expenditure (“AFE”) for the Well to YMC. YMC elected to participate in the Wellsigned the letter and AFEs. After the pooling order entered, BBC sent YMC a request for payment which YMC refused to pay. The parties agree they never entered into a joint operating agreement.

1517.   The exhibits and testimony further showed BBC has brought suit against YMC and others alleging that YMC is contractually obligated to pay its proportionate share of costs in the Well (“Lawsuit”). YMC raised a defense related to the language of Paragraph 4 of the Order. That lawsuitThe Lawsuit is in the United States District Court for the District of Colorado. A division of the United States District Court for the District of Colorado ruled that the Court has jurisdiction to determine cost recovery for the Well as between BBC and YMC, among others.

1618.   On July 24, 2017, the Commission heard arguments from counsel for the BBC and YMC regarding whether the Commission should amend Order No. 407-871 Order by deleting the first sentence of paragraph four of said Order, as requested by BBC. The Commission did not hear any testimony regarding this matter.

1719.   The Commission heard the evidence and deliberated on the issues set forth in the Application and presented by argument. and presented by the witnesses.

20.       At the time the Order was issued, the language at issue was the standard language used in pooling orders.

21.       BBC’s original application for the Order requested different language than appeared in Paragraph 4 of the Order. Neither BBC nor YMC objected to the language of the Order at the time it was entered in 2013.

22.       BBC admitted it requested modification of the Order to rebut YMC’s defenses in pending civil litigation between the parties. BBC also admitted that had YMC not raised a defense related to the language of the Order, BBC would not have brought its application to the Commission.

23.       BBC’s counsel acknowledged Paragraph 7 provides any conflicts between the Order and the Act are resolved in favor of the Act.

CONCLUSIONS

            The Commission concludes as follows:

22.       The exhibits and statements submitted by both parties regarding the civil litigation and the parties’ motivations are irrelevant, immaterial, and outside of the scope of the Commission’s review of BBC’s requested relief. Further, the parties rely on materials outside of the record before the Commission. Therefore, arguments based on those materials, such as estoppel, are improper and the Commission declines to rule on those arguments.

23.       The Commission is not a party to the Lawsuit.

24.       It is within the purview of the federal court presiding over the Lawsuit to determine the effect of the Order on the BBC and YMC.

25.       The language of the Order does not preclude an agreement to participate in a well between the BBC and YMC. The Order was not worded in a manner that would cause prejudice to either party in civil litigation or in contractual arrangements between the parties.

26.       The Commission has an interest in preserving the finality of orders to provide certainty to the regulated community and the public.

27.       The language of the Order cannot override the Act.

28.       Paragraph 7 of the Order states that in the event of a conflict with the Act, the Act controls. Therefore, there is no need for the Commission to alter the language of the Order four years after it was entered.

29.       The Commission interprets the Order as consistent with the Act.

30.       There is no error in the Order because it provides the provisions of the Act control over the language in the Order, and a potential agreement between the parties would control their respective rights and obligations.

31.       The Commission does not have jurisdiction to resolve the contractual dispute between the parties.

ORDER

NOW, THEREFORE, IT IS ORDERED, after deliberations by the Commissioners:

1. The request to strike the incorrect language in Order No. 407-871 filed by BBC is hereby denied. BBC’s application is denied.

1. The Commission interprets the wording in Paragraph 4 of Order No. 407-871 in a manner consistent with 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 14^th __23^rd day of August 24, 2017, effective as of July 24, 2017.

OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By:  ________________________________                                                                                     James Rouse, Acting Secretary