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. 171000702

 

TYPE:  POOLING

 

ORDER NO. 407-2258

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on December 11, 2017, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests in an approximate 1,923.32-acre drilling and spacing unit established for Section 12, Township 1 South, Range 67 West, 6th P.M., and Sections 7 and 8, Township 1 South, Range 66 West, 6th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Brant LE 08-039HC Well, the Brant LE 08-082HC Well, the Brant LE 08-159HC Well, the Brant LE 08-199HC Well, the Brant LE 08-242HC Well, the Brant LE 08-319HC Well, the Brant LE 08-362HC Well, the Brant LE 08-039HN Well, the Brant LE 08-082HN Well, the Brant LE 08-159HN Well, the Brant LE 08-199HN Well, the Brant LE 08-242HN Well, the Brant LE 08-319HN Well, the Brant LE 08-362HN Well, the Brant LE 08-042HN Well, the Brant LE 08-119HN Well, the Brant LE 08-162HN Well, the Brant LE 08-239HN Well, the Brant LE 08-282HN Well, the Brant LE 08-359HN Well, the Brant LE 08-042HNX Well, the Brant LE 08-119HNX Well, the Brant LE 08-162HNX Well, the Brant LE 08-239HNX Well, the Brant LE 08-282HNX Well, and the Brant LE 08-359HNX Well, for the development and operation of the Codell and Niobrara Formations.

 

The Commission finds as follows:

 

1.            Great Western Operating Company, LLC (“Great Western” or “Applicant”) is an interested party in the subject matter of the above-referenced hearing.

 

2.            Protestant, Acoma Energy, LLC (“Acoma”) is an interested party in the subject matter of the above referenced hearing.

 

3.            Due notice of time, place, and purpose of the hearing has been given in all respects are required by law.

 

4.            The Commission has jurisdiction over the subject matter embraced in said matter and the parties interested therein, and has authority to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act (“Act”).

 

5.             On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule.  Section 12, Township 1 South, Range 67 West, 6th P.M., and Sections 7 and 8, Township 1 South, Range 66 West, 6th P.M., are subject to this Rule for the Codell and Niobrara Formations.

 

 

 

PROCEDURAL HISTORY

 

1.            On February 19, 1992, the Commission entered Order No. 407-87 (amended August 20, 1993) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations underlying certain lands, with permitted well locations in accordance with the provisions of Order No. 407-1. Section 12, Township 1 South, Range 67 West, 6th P.M., and Sections 7 and 8, Township 1 South, Range 66 West, 6th P.M., are subject to this Order for the Codell and Niobrara Formations.

 

2.         On July 11, 2017, Great Western filed an application in Docket No. 170900528 for an order to establish an approximate 1,923.32-acre drilling and spacing unit for Section 12, Township 1 South, Range 67 West, 6th P.M., and Sections 7 and 8, Township 1 South, Range 66 West, 6th P.M., and approve up to 26 horizontal wells in the unit for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, providing that the productive interval of each wellbore shall be no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located within the unit, and providing that the wells shall be drilled from no more than three multi-well pads in the unit subject to Rule 318A or adjacent thereto, unless the Director grants an exception.  Docket No. 170900528 was approved at the Commission’s Special Hearing on November 28, 2017 (Order No. 407-2246).

 

3.         On August 31, 2017, Great Western, by its attorneys, filed a verified Application (“Application”), in the above-captioned docket, pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 1,923.32-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 subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Brant LE 08-039HC Well, the Brant LE 08-082HC Well, the Brant LE 08-159HC Well, the Brant LE 08-199HC Well, the Brant LE 08-242HC Well, the Brant LE 08-319HC Well, the Brant LE 08-362HC Well, the Brant LE 08-039HN Well, the Brant LE 08-082HN Well, the Brant LE 08-159HN Well, the Brant LE 08-199HN Well, the Brant LE 08-242HN Well, the Brant LE 08-319HN Well, the Brant LE 08-362HN Well, the Brant LE 08-042HN Well, the Brant LE 08-119HN Well, the Brant LE 08-162HN Well, the Brant LE 08-239HN Well, the Brant LE 08-282HN Well, the Brant LE 08-359HN Well, the Brant LE 08-042HNX Well, the Brant LE 08-119HNX Well, the Brant LE 08-162HNX Well, the Brant LE 08-239HNX Well, the Brant LE 08-282HNX Well, and the Brant LE 08-359HNX Well (“Wells”):

 

Township 1 South, Range 67 West, 6th P.M.

Section 12:      All

 

Township 1 South, Range 66 West, 6th P.M.

Section 7:        All

Section 8:        All  

 

 4.        On October 6, 2017, Great Western filed Rule 511 testimony in support of its Pooling Application in the above-captioned docket certifying that all owners of an oil and gas interest in the tracts to be pooled (who could be located by Applicant) received timely notice of the Application, all unleased owners of a mineral interest in the Application Lands received an offer to lease that was reasonable based on terms customary in the area on or near the Application Lands in compliance with Commission Rule 530.c., and at least 35 days will have elapsed prior to the hearing on this matter since all information required by Commission Rule 530. was provided to those interested parties entitled to such offers to lease and/or to participate in the Wells.

 

5.         Great Western’s Rule 511 testimony contains the representative election letters and offers to lease sent to all interested parties in the Application Lands in compliance with Commission Rule 530. As provided on Exhibit 3 to Great Western’s Rule 511 testimony in the above-captioned docket, on or around June 30, 2017, Great Western sent lease offer letters to all unleased owners in the tracts to be pooled, which letters contained a reasonable offer to lease, an explanation of the Spacing and Pooling Applications, and a well location and spacing unit plat containing the locations of all 26 proposed Wells.

 

6.         Specifically, on June 30, 2017, Great Western sent reasonable offers to lease to the following record title owners of unleased mineral interest in the Application Lands in compliance with Commission Rule 530.:

  

Beech Investment Co., LLC

James Lee Dunton & Marilyn R. Dunton

Dennise V. Luby & Nettie Frances Johnson

Charles McKinivan & Dolores McKinivan

 

(collectively, the “Unleased Owners”).

 

7.         On or around July 30, 2017, Great Western mailed offers to participate and horizontal well proposals to the record title owners of an unleased mineral interest who refused the offer to lease, including the above-described Unleased Owners. The offers to participate and well proposals contained the well location and spacing unit plats for the Wells, an election form for all the Wells, and Authority for Expenditures (“AFEs”) for the Wells as required by Commission Rule 530.

 

8.         Between August 14, 2017 and August 30, 2017, after Great Western mailed the lease offers and well elections described above, Acoma Energy LLC (“Acoma
 or “Protestant”) executed and recorded certain mineral deeds whereby Acoma and/or its affiliate Carbon Peak Energy, LLC acquired the mineral interests of the Unleased Owners.

 

9.         Acoma’s acquisition of the Unleased Owners’ mineral interest was after Great Western had mailed the lease offers, well proposals and elections to participate to the Unleased Owners, and within the 35-day election period that Great Western remitted to the Unleased Owners on July 30, 2017.

 

10.       Acoma acquired the mineral interest of the Unleased Owners subject to both the lease offer that Great Western remitted to the Unleased Owners and the election to participate in the 26 proposed wells that Great Western remitted to the Unleased Owners.

 

11.       On October 19, 2017, Acoma filed a letter with the Commission alleging that Great Western has not conformed with Commission Rule 530., and requesting that the force pooling date be voided and reissued. On October 19, 2017, Acoma had constructive notice of the Pooling Application.

 

12.       On October 26, 2017, the Hearing Officer continued the subject Application to the December 11-13, 2017 hearing and provided Acoma ten days to file a Rule 509 compliant Protest.

 

13.       On October 26, 2017, in an attempt to resolve the allegations outlined in Acoma’s October 19, 2017 letter, Great Western remitted to Acoma an offer to extend Acoma’s election period for the interests acquired from the Unleased Owners, and offered to lease Acoma’s interest for a defined proposed bonus, royalty, and lease term.

 

14.       On October 27, 2017, representatives of Acoma and Great Western met to discuss the lease offer and election that Great Western offered Acoma’s predecessors-in-title, in addition to the lease offer and extended election that Great Western offered Acoma on October 26, 2017. Acoma’s Amended Protest contains allegations regarding the October 27, 2017 meeting that are outside of the Commission’s jurisdiction and not supported by any evidence presented by Acoma.

 

15.       On November 3, 2017, Acoma filed a formal Protest to the subject Application. Acoma amended its Protest on November 6, 2017.

 

16.       On November 8, 2017, Great Western filed a Response and Motion to Dismiss Acoma’s Amended Protest on the basis that Acoma states no plausible claim for relief.

 

17.       On November 29, 2017, Acoma filed a Response to Great Western’s Motion to Dismiss.

 

18.       On November 29, 2017, the Parties filed Prehearing Statements, designation of witnesses, and Great Western filed electronic exhibits.

 

19.       On December 1, 2017, Great Western filed a Reply to Acoma’s Response to Great Western’s Motion to Dismiss.

 

20.       On December 4, 2017, Great Western filed a Response to Acoma’s Prehearing Statements and an electronic rebuttal exhibit.

 

21.       On December 5, 2017, the Parties participated in a Final Prehearing Conference on this matter at which the Parties discussed the time allocations for hearing, witnesses and exhibits, and at which Great Western made a motion to reconsider the Hearing Officer’s denial of Great Western’s Motion to Dismiss, and Great Western made a motion to strike any evidence introduced by Acoma at hearing regarding Great Western’s alleged failure to properly notice Acoma of the Pooling Application. Acoma made a motion to continue the hearing on the grounds that it did not have sufficient notice of Great Western’s Application.

 

22.       On December 8, 2017, the Hearing Officer issued a Final Prehearing Order addressing disputed issues, and ruling on the Parties prehearing motions. The Hearing Officer denied Acoma’s motion for continuance, but allowed Acoma to raise and argue its motion for continuance at hearing. The Hearing Officer also denied Great Western’s motion to dismiss Acoma’s protest.          

 

23.       The Final Prehearing Order included stipulated facts, which were discussed at hearing.

 

HEARING

 

            24.       This matter was heard by the Commission at its December 11, 2017 meeting.

 

25.       Following the acting Hearing Officer’s summary of the case, the Commissioners asked preliminary questions of Great Western and Acoma.

 

26.       In response to the Commissioners’ questions, Acoma admitted that the sole issue presented at hearing was whether Great Western’s Application should be continued to the next regularly scheduled Commission meeting in order to provide Acoma with time to consider Rule 530. election materials. Acoma did not claim that the Commission lacked jurisdiction.

 

27.       Great Western also stated in response to the preliminary Commissioner questions that it was willing to provide Acoma with the Rule 530. election materials immediately, and provide Acoma with an additional 35-day election period to elect to participate in the Wells.

 

28.       Great Western and Acoma were each allowed 5 minutes to present their cases through oral argument. Neither party objected to the length of time allowed for argument. A representative of Acoma was sworn in and briefly testified that Acoma never received Rule 530. election materials from Great Western. 

 

29.       Great Western did not offer oral testimony at hearing in support of its Application. Great Western did not specifically argue its motion to dismiss; it only argued that its Application should be approved over Acoma’s protest because Great Western would offer Rule 530. election materials to Acoma. Great Western offered to include language in the final approved Commission order providing Acoma with additional time to consider the Rule 530. election materials. Finally, Great Western argued there was no good cause to continue this matter.

 

            30.       Acoma argued that the Oil and Gas Conservation Act and Rule 530. required Great Western submit Rule 530. election materials to Acoma and that Acoma was entitled to a full 35-day time period in advance of the Commission entering a pooling order.

 

            31.       Following oral argument, the Commissioners asked questions of the parties. In the course of those questions, and the responses of the Parties, the Commission confirmed that Great Western had offered Rule 530. election materials to Acoma on October 26, 2017. Great Western again stated that it was willing to offer Rule 530. election materials to Acoma, and extend a new 35-day election period to Acoma. Great Western also confirmed it would provide Acoma with the same Rule 530. election materials that were provided to Acoma’s predecessors-in-interest, the Unleased Owners. The Commission also confirmed that no other unleased owners in the Application Lands had protested Great Western’s Application.

 

            32.       The Commission also discussed the language proposed by Great Western to offer Rule 530. election materials to Acoma. Over the course of those discussions, Great Western agreed that, if the Commission were to approve Great Western’s Application, Great Western would provide Rule 530. election materials to Acoma by the close of business on December 12, 2017, and Acoma would have up to and including January 17, 2017 to elect or otherwise participate in the Wells.

 

            33.       The Commission then closed the record and deliberated.

 

COMMISSION CONCLUSIONS

 

            1.         Pursuant to Section 34-60-116(6), C.R.S., in the absence of voluntary pooling, the Commission may enter an order pooling all interests in a drilling unit upon the application of any interested person.

 

2.         Section 34-60-116(7)(d), C.R.S., provides that no order pooling interests may be entered over the protest of a nonconsenting owner, unless the Commission received evidence that the unleased mineral owner received a “reasonable offer to lease” as well as other information regarding the well.

 

3.         Commission Rule 530. provides that an owner is deemed to be a nonconsenting owner, if, after at least 35 days’ written notice of the information or offer to lease required by the Rule, the owner does not consent in writing to participate in the cost of the well or the owner does not enter into a lease. 

 

4.         The Stipulated Facts in the Final Prehearing Order, as well as statements and admissions made by the Parties at hearing show that there is no dispute that Acoma had actual notice of Great Western’s Application by no later than October 19, 2017 and that there is no dispute Great Western offered to provide Acoma with Rule 530. election materials on October 26, 2017.

 

5.         The sole issue presented to the Commission is whether to continue this matter to the next regularly scheduled Commission meeting so that Acoma may consider the Rule 530. election materials before the Commission enters a pooling order.

 

6.         Rule 506.c. provides the Commission, or a Hearing Officer, may continue any hearing for “good cause.” “Good cause exists when there are unforeseen and exceptional circumstances requiring a continuance,” Miller v. Brannon, 207 P.3d 923, 932 (Colo. App. 2009) (discussing good cause for continuance of trial).  

 

7.         The Commission concludes there is no good cause to continue this matter for two reasons. First, Acoma has not demonstrated good cause for a continuance. As the proponent for the motion for continuance, Acoma has the burden of showing that good cause exists. By the date of hearing, Acoma had actual notice of Great Western’s Application for 52 days, substantially more time than the notice required by the Commission’s Rules and the Act. Acoma did not allege that it did not have adequate time to prepare for hearing. Further, Acoma has had since October 19th to request a continuance, and delayed until the Final Prehearing Conference to make its request. It would be overly disruptive to Commission proceedings to continue this matter at this late date.  

 

8.         Second, there is no reason to continue this matter when Great Western has offered to provide Acoma with Rule 530. election materials and an additional 35-day election period. Great Western also proposed language that would delay the effect of the pooling order on Acoma until Acoma has had a full 35 days to consider the Rule 530. election materials. This proposed language, which is reflected in the below Order, effectively provides Acoma with the continuance it requests.

 

9.         In regard to all other mineral owners in the Application Lands, land testimony submitted in advance of the hearing by Great Western showed that Great Western 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 Brant LE 08-039HC Well, the Brant LE 08-082HC Well, the Brant LE 08-159HC Well, the Brant LE 08-199HC Well, the Brant LE 08-242HC Well, the Brant LE 08-319HC Well, the Brant LE 08-362HC Well, the Brant LE 08-039HN Well, the Brant LE 08-082HN Well, the Brant LE 08-159HN Well, the Brant LE 08-199HN Well, the Brant LE 08-242HN Well, the Brant LE 08-319HN Well, the Brant LE 08-362HN Well, the Brant LE 08-042HN Well, the Brant LE 08-119HN Well, the Brant LE 08-162HN Well, the Brant LE 08-239HN Well, the Brant LE 08-282HN Well, the Brant LE 08-359HN Well, the Brant LE 08-042HNX Well, the Brant LE 08-119HNX Well, the Brant LE 08-162HNX Well, the Brant LE 08-239HNX Well, the Brant LE 08-282HNX Well, and the Brant LE 08-359HNX Well, but did not provide testimony for any subsequent wells.

 

            10.       Based on the above conclusions, the Commission enters the Order set forth below.

 

ORDER

 

IT IS HEREBY ORDERED:

 

            1.         Acoma’s Protest is hereby DENIED.

 

2.         Great Western’s Application is hereby APPROVED.

 

3.         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 1,923.32-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 the Brant LE 08-039HC Well, the Brant LE 08-082HC Well, the Brant LE 08-159HC Well, the Brant LE 08-199HC Well, the Brant LE 08-242HC Well, the Brant LE 08-319HC Well, the Brant LE 08-362HC Well, the Brant LE 08-039HN Well, the Brant LE 08-082HN Well, the Brant LE 08-159HN Well, the Brant LE 08-199HN Well, the Brant LE 08-242HN Well, the Brant LE 08-319HN Well, the Brant LE 08-362HN Well, the Brant LE 08-042HN Well, the Brant LE 08-119HN Well, the Brant LE 08-162HN Well, the Brant LE 08-239HN Well, the Brant LE 08-282HN Well, the Brant LE 08-359HN Well, the Brant LE 08-042HNX Well, the Brant LE 08-119HNX Well, the Brant LE 08-162HNX Well, the Brant LE 08-239HNX Well, the Brant LE 08-282HNX Well, and the Brant LE 08-359HNX Well (“Wells”):

 

Township 1 South, Range 67 West, 6th P.M.

Section 12:      All

 

Township 1 South, Range 66 West, 6th P.M.

Section 7:        All

Section 8:        All  

 

4.         Great Western shall offer information, leases, and whatever other material is required by Rule 530. to Acoma by no later than the close of business on December 12, 2017. Acoma will have up to and including January 17, 2018 within which to notify Great Western in writing if it intends to lease or participate in the Wells. Should Acoma fail to notify Great Western in writing of its intention to lease or participate in the Wells by the stated date, or elects not to lease or participate in the Wells in writing before or on the stated date, Acoma will be deemed to be nonconsenting as to the Wells and be subject to the penalties as provided by C.R.S. 34-60-116(7) and this Order.

 

5.         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.

6.            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.

 

7.            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).

 

8.            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.

 

9.            The operator of the Well(s) 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.

 

10.          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 10th day of January, 2018, as of December 11, 2017.       

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By_______________________________________ 

                                                                                          Julie Spence Prine, Secretary