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. 170700503

 

TYPE: POOLING

 

ORDER NO. 407-2157

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: 1) make Order No. 407-1758, which established an approximate 640-acre drilling and spacing unit for portions of Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, applicable to a previously unnoticed party;  and 2) make  Order No. 407-1786, which pooled all interests in an approximate 640-acre drilling and spacing unit established for Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., for the drilling of the Lehl 30-1 Well, the Lehl 30-2 Well, the Lehl 30-3 Well, the Lehl 30-4 Well, the Lehl 30-5 Well, and the Lehl 30-6 Well, for the development and operation of the Codell and Niobrara Formations, applicable to a previously unnoticed party and subject that party and additional non-consenting parties to the cost recovery provisions of §34-60-116(7), C.R.S.

 

FINDINGS

 

The Commission finds as follows:

 

1.         HRM Resources II, LLC, (Operator No. 10548) (“HRM” 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.  Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., are subject to this Rule for the Codell and Niobrara Formations.

 

5.         On or about July 19, 2016, the Commission entered Order No. 407-1758, which, among other things, established an approximate 640-acre drilling and spacing unit for portions of Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., and approved the drilling of up to six horizontal wells in the unit, for production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

 

6.         On or about August 29, 2016, the Commission entered Order No. 407-1786, which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit for portions of Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and subjected any owners with whom the Applicant had been unable to secure a lease or other agreement to participate in the drilling of the Lehl 30-1 Well, the Lehl 30-2 Well, the Lehl 30-3 Well, the Lehl 30-4 Well, the Lehl 30-5 Well, and the Lehl 30-6 Well 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 the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of these Wells.

 

7.         On May 23, 2017, HRM, by its attorneys, filed a verified Application (“Application”) pursuant to §34-60-116, C.R.S., for an order to make Order Nos. 407-1758 and 407-1786 applicable to a previously unnoticed party for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, and subject that party and additional non-consenting parties to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Lehl 30-1 Well (API No. 05-123-39471), the Lehl 30-2 Well (API No. 05-123-39472), the Lehl 30-3 Well (API No. 05-123-39469), the Lehl 30-4 Well (API No. 05-123-39470), the Lehl 30-5 Well (API No. 05-123-39473), and the Lehl 30-6 Well (API No. 05-123-39468) (“Wells”):

 

Township 1 North, Range 65 West, 6th P.M.

Section 30:      E˝

Section 31:      E˝

 

8.         On June 29, 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 Vince Bernal, Landman for HRM, showed that Kerr-McGee Oil & Gas Onshore LP was not previously provided Notice for spacing Order No. 407-1758 or pooling Order No. 407-1786.

 

10.       Land testimony further showed that Kerr-McGee Oil & Gas Onshore LP, the previously unnoticed interest owner, as well as two additional non-consenting parties (who were originally provided Notice of both Order Nos. 407-1758 and 407-1786), Edward G. Lutz and BNSF Railway Company, were notified of this Application, received Authority for Expenditures ("AFEs"), and received an offer to participate in the Wells.  Land testimony showed that the AFEs sent by the Applicant to the previously unnoticed interest owner and the additional non-consenting owners were fair and reasonable estimates of the costs of the proposed wells and were received at least 35 days prior to the July 24, 2017 hearing date.  Additionally, the land testimony confirmed that there are no unleased mineral interest owners in the Application Lands.

           

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 Lehl 30-1 Well, the Lehl 30-2 Well, the Lehl 30-3 Well, the Lehl 30-4 Well, the Lehl 30-5 Well, and the Lehl 30-6 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.       HRM 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:  1) make Order No. 407-1758, which established an approximate 640-acre drilling and spacing unit for portions of Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Codell and  Niobrara Formations, applicable to a previously unnoticed party;  and 2) make  Order No. 407-1786, which pooled all interests in an approximate 640-acre drilling and spacing unit established for Sections 30 and 31, Township 1 North, Range 65 West, 6th P.M., for the drilling of the Lehl 30-1 Well, the Lehl 30-2 Well, the Lehl 30-3 Well, the Lehl 30-4 Well, the Lehl 30-5 Well, and the Lehl 30-6 Well, for the development and operation of the Codell and Niobrara Formations, applicable to a previously unnoticed party and subject that party and additional non-consenting parties to the cost recovery provisions of §34-60-116(7), C.R.S.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         Order No. 407-1758, which erstablished an approximate 640-acre drilling and spacing unit for the below described lands, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara formations, is hereby made applicable to Kerr McGee Oil & Gas Onshore LP (the previously unnoticed interest owner):

 

Township 1 North, Range 65 West, 6th P.M.

Section 30:      E˝

Section 31:      E˝

 

2.         Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, Order No. 407-1786, including the cost recovery provisions of §34-60-116(7), C.R.S., is hereby made applicable to Kerr-McGee Oil & Gas Onshore LP (the previously unnoticed interest owner), and Edward G. Lutz and BNSF Railway Company (the additional non-consenting parties), and their interests in an approximate 640-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 Lehl 30-1 Well (API No. 05-123-39471), the Lehl 30-2 Well (API No. 05-123-39472), the Lehl 30-3 Well (API No. 05-123-39469), the Lehl 30-4 Well (API No. 05-123-39470), the Lehl 30-5 Well (API No. 05-123-39473), and the Lehl 30-6 Well (API No. 05-123-39468):

 

Township 1 North, Range 65 West, 6th P.M.

Section 30:      E˝

Section 31:      E˝

 

3.         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 well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

 

4.         Any working interest owner who does not elect to participate in the Well(s) or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §34-60-116(7), C.R.S. The nonconsenting working interest owner must reimburse the consenting owners for his proportionate share of the costs and risks of drilling and operating the Well(s) from his proportionate share of production, subject to non-cost bearing interests, until costs and penalties are recovered as set forth in §34-60-116(7), C.R.S.

5.         Any unleased owner who does not elect to participate in the Well(s) or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §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).

 

6.         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. 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.

 

7.         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.

 

8.         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.

 

9.         The drilling and spacing unit 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 10th day of August, 2017, as of July 24, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

James P. Rouse, Acting Secretary