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 |
) ) ) ) ) ) ) |
CAUSE NO. 407
DOCKET NO. 171000726
TYPE: POOLING
ORDER NO. 407-2268 |
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 1,280-acre drilling and spacing unit established for Sections 11 and 12, Township 7 North, Range 67 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 Drake 1X-HNB-11-07-67 Well, the Drake 2X-HNB-11-07-67 Well, the Drake 3X-HNB-11-07-67 Well, the Drake 4X-HNB-11-07-67 Well, the Drake 5X-HNB-11-07-67 Well, the Drake 6X-HNB-11-07-67 Well, the Drake 7X-HNB-11-07-67 Well, the Drake 8X-HNB-11-07-67 Well, the Drake 1X-HNC-11-07-67 Well, the Drake 2X-HNC-11-07-67 Well, the Drake 3X-HNC-11-07-67 Well, the Drake 4X-HNC-11-07-67 Well, the Drake 5X-HNC-11-07-67 Well, the Drake 6X-HNC-11-07-67 Well, the Drake 7X-HNC-11-07-67 Well, the Drake 8X-HNC-11-07-67 Well, the Drake 1X-HC-11-07-67 Well, the Drake 2X-HC-11-07-67 Well, the Drake 3X-HC-11-07-67 Well, the Drake 4X-HC-11-07-67 Well, the Drake 5X-HC-11-07-67 Well, the Drake 6X-HC-11-07-67 Well, the Drake 7X-HC-11-07-67 Well, and the Drake 8X-HC-11-07-67 Well, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Nickel Road Operating, LLC (Operator No. 10669), together with Cobalt Oil & Gas, LLC and Prelude Petroleum, LLC, both of which are affiliates of Nickel Road Operating, LLC under common ownership and control (together, “Nickel Road” 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 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, with permitted well locations in accordance with the provisions of Order No. 407-1. Sections 11 and 12, Township 7 North, Range 67 West, 6th P.M., are subject to this Order for the Codell and Niobrara Formations.
5. On April 27, 1998, the Commission adopted Rule 318A, which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface. On December 5, 2005, Rule 318A was amended to allow interior infill and boundary wells to be drilled and wellbore spacing units to be established. On August 8, 2011, Rule 318A was amended to, among other things, address drilling of horizontal wells but did not prohibit the establishment of drilling and spacing units within the Greater Wattenberg Area. Sections 11 and 12, Township 7 North, Range 67 West, 6th P.M., are subject to Rule 318A for wells drilled and producing in the Codell and Niobrara Formations and are also subject to 460 foot subsurface setback.
6. On August 31, 2017, Nickel Road filed a verified application in Docket No. 171000725 pursuant to §34-60-116, C.R.S. for an order to, among other things, establish an approximate 1,280-acre drilling and spacing unit for Sections 11 and 12, Township 7 North, Range 67 West, 6th P.M., and to approve up to 24 horizontal wells in the unit for the production of oil, gas, and associated hydrocarbons from of the Codell and Niobrara Formations in the unit. Nickel Road’s Application in Docket No. 171000725 was approved at the Commission’s December 11, 2017 hearing (Order No. 407-2267).
7. On August 31, 2017, Nickel Road, by its attorneys, filed a verified Application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 1,280-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 nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Drake 1X-HNB-11-07-67 Well, the Drake 2X-HNB-11-07-67 Well, the Drake 3X-HNB-11-07-67 Well, the Drake 4X-HNB-11-07-67 Well, the Drake 5X-HNB-11-07-67 Well, the Drake 6X-HNB-11-07-67 Well, the Drake 7X-HNB-11-07-67 Well, the Drake 8X-HNB-11-07-67 Well, the Drake 1X-HNC-11-07-67 Well, the Drake 2X-HNC-11-07-67 Well, the Drake 3X-HNC-11-07-67 Well, the Drake 4X-HNC-11-07-67 Well, the Drake 5X-HNC-11-07-67 Well, the Drake 6X-HNC-11-07-67 Well, the Drake 7X-HNC-11-07-67 Well, the Drake 8X-HNC-11-07-67 Well, the Drake 1X-HC-11-07-67 Well, the Drake 2X-HC-11-07-67 Well, the Drake 3X-HC-11-07-67 Well, the Drake 4X-HC-11-07-67 Well, the Drake 5X-HC-11-07-67 Well, the Drake 6X-HC-11-07-67 Well, the Drake 7X-HC-11-07-67 Well, and the Drake 8X-HC-11-07-67 Well (“Wells”):
Township 7 North, Range 67 West, 6th P.M.
Section 11: All
Section 12: All
8. On October 6, 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 October 16, 2017, a Protest to the Application was filed by Extraction Oil & Gas, Inc. (“Protestant”). The Protestant is an owner in the Application Lands. On November 30, 2017, Extraction withdrew their Protest.
10. On October 16, 2017, Bayswater Exploration & Production, LLC (“Protestant”) sent an e-mail to Nickel Road objecting to the 530 letters received for the Application, Commission staff were included as recipients. The Protestant is an owner in the Application Lands. On November 6, 2017, Bayswater confirmed via e-mail that Nickel Road provided them with the requested information and addressed their concerns as of October 17, 2017 and that Bayswater would make an election on or before November 21, 2017, thereby resolving Bayswater’s objections.
11. Land testimony and exhibits submitted in support of the Application by Louis A. Oswald, III, Landman for WYOTEX Drilling Ventures, LLC as a consultant for Nickel Road, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("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 was received at least 35 days prior to the December 11, 2017 hearing date.
12. 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 Drake 1X-HNB-11-07-67 Well, the Drake 2X-HNB-11-07-67 Well, the Drake 3X-HNB-11-07-67 Well, the Drake 4X-HNB-11-07-67 Well, the Drake 5X-HNB-11-07-67 Well, the Drake 6X-HNB-11-07-67 Well, the Drake 7X-HNB-11-07-67 Well, the Drake 8X-HNB-11-07-67 Well, the Drake 1X-HNC-11-07-67 Well, the Drake 2X-HNC-11-07-67 Well, the Drake 3X-HNC-11-07-67 Well, the Drake 4X-HNC-11-07-67 Well, the Drake 5X-HNC-11-07-67 Well, the Drake 6X-HNC-11-07-67 Well, the Drake 7X-HNC-11-07-67 Well, the Drake 8X-HNC-11-07-67 Well, the Drake 1X-HC-11-07-67 Well, the Drake 2X-HC-11-07-67 Well, the Drake 3X-HC-11-07-67 Well, the Drake 4X-HC-11-07-67 Well, the Drake 5X-HC-11-07-67 Well, the Drake 6X-HC-11-07-67 Well, the Drake 7X-HC-11-07-67 Well, and the Drake 8X-HC-11-07-67 Well, but did not provide testimony for any subsequent wells.
13. 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.
14. Nickel Road agreed to be bound by oral order of the Commission.
15. Based on the facts stated in the verified Application, all protests having been withdrawn or resolved, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all interests in an approximate 1,280-acre drilling and spacing unit established for Sections 11 and 12, Township 7 North, Range 67 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 Drake 1X-HNB-11-07-67 Well, the Drake 2X-HNB-11-07-67 Well, the Drake 3X-HNB-11-07-67 Well, the Drake 4X-HNB-11-07-67 Well, the Drake 5X-HNB-11-07-67 Well, the Drake 6X-HNB-11-07-67 Well, the Drake 7X-HNB-11-07-67 Well, the Drake 8X-HNB-11-07-67 Well, the Drake 1X-HNC-11-07-67 Well, the Drake 2X-HNC-11-07-67 Well, the Drake 3X-HNC-11-07-67 Well, the Drake 4X-HNC-11-07-67 Well, the Drake 5X-HNC-11-07-67 Well, the Drake 6X-HNC-11-07-67 Well, the Drake 7X-HNC-11-07-67 Well, the Drake 8X-HNC-11-07-67 Well, the Drake 1X-HC-11-07-67 Well, the Drake 2X-HC-11-07-67 Well, the Drake 3X-HC-11-07-67 Well, the Drake 4X-HC-11-07-67 Well, the Drake 5X-HC-11-07-67 Well, the Drake 6X-HC-11-07-67 Well, the Drake 7X-HC-11-07-67 Well, and the Drake 8X-HC-11-07-67 Well, for the development and operation of the Codell or Niobrara Formations.
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 an approximate 1,280-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 Drake 1X-HNB-11-07-67 Well, the Drake 2X-HNB-11-07-67 Well, the Drake 3X-HNB-11-07-67 Well, the Drake 4X-HNB-11-07-67 Well, the Drake 5X-HNB-11-07-67 Well, the Drake 6X-HNB-11-07-67 Well, the Drake 7X-HNB-11-07-67 Well, the Drake 8X-HNB-11-07-67 Well, the Drake 1X-HNC-11-07-67 Well, the Drake 2X-HNC-11-07-67 Well, the Drake 3X-HNC-11-07-67 Well, the Drake 4X-HNC-11-07-67 Well, the Drake 5X-HNC-11-07-67 Well, the Drake 6X-HNC-11-07-67 Well, the Drake 7X-HNC-11-07-67 Well, the Drake 8X-HNC-11-07-67 Well, the Drake 1X-HC-11-07-67 Well, the Drake 2X-HC-11-07-67 Well, the Drake 3X-HC-11-07-67 Well, the Drake 4X-HC-11-07-67 Well, the Drake 5X-HC-11-07-67 Well, the Drake 6X-HC-11-07-67 Well, the Drake 7X-HC-11-07-67 Well, and the Drake 8X-HC-11-07-67 Well (“Wells”):
Township 7 North, Range 67 West, 6th P.M.
Section 11: All
Section 12: All
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. 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.
4. 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).
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. 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 10th day of January, 2018, as of October 30, 2017.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By_______________________________________
Julie Spence Prine, Secretary