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, NIOBRARA AND GREENHORN FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 407

 

DOCKET NO. 171200888

 

TYPE: POOLING

 

ORDER NO. 407-2302

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 make Order No. 407-1915, which pooled all interests within an approximate 1,120-acre drilling and spacing unit established for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, and subjected all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the following 20 horizontal wells:  the Kodak North FD 25-040HC, Kodak North FD 25-080HN, Kodak North FD 25-080HNX, Kodak North FD 25-120HC, Kodak North FD 25-161HN, Kodak North FD 25-161HNX, Kodak North FD 25-121HN, Kodak South FD 25-201HC, Kodak South FD 25-240HNX, Kodak South FD 25-240HN, Kodak South FD 25-241HN, Kodak South FD 25-241HC, Kodak South FD 25-280HNX, Kodak South FD 25-280HN, Kodak South FD 25-320HN, Kodak South FD 25-320HC, Kodak South FD 25-321HNX, Kodak South FD 25-321HN, Kodak South FD 25-360HC, and the Kodak South FD 25-360HN, for the development and operation of the Codell and Niobrara Formations, also applicable to the Greenhorn Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Great Western Operating Company, LLC (Operator No. 10110) (“Great Western” 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 25 and 26, Township 6 North, Range 67 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.

 

5.         On February 19, 1992 (amended August 20, 1993), the Commission entered Order No. 407-87 which established 80-acre drilling and spacing units for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, within the permitted well locations in accordance with Order No. 407-1.  Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.

 

6.         On October 24, 2016, the Commission entered Order No. 407-1824 which, among other things, established an approximate 1,120-acre drilling and spacing unit for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., and approved up to 21 horizontal wells for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, providing that the productive interval of the wellbore of each well 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, unless an exception is granted by the Director, and providing that the wells shall be drilled from no more than two well pads, unless an exception is granted by the Director.

 

7.         On January 30, 2017, the Commission entered Order No. 407-1880 which, among other things, modified the setbacks for the approximate 1,120-acre drilling and spacing unit established by Order No. 407-1824 for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations, such that the productive interval of any permitted well within the unit be no less than 460 feet from the northern, southern and western boundaries of the unit, and no less than 150 feet from the eastern boundary of the unit, without exception being granted by the Director.

 

8.         On March 20, 2017, the Commission entered Order No. 407-1915 which, among other things, pooled all interests within the approximate 1,120-acre drilling and spacing unit established for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations, and subjected 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 certain defined “Kodak North” and “Kodak South” wells. 

 

9.         On December 11, 2017, the Commission entered Order No. 407-2301, which modified Order Nos. 407-1824 and 407-1880 to add the Greenhorn Formation to an approximate 1,120-acre drilling and spacing unit established for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., and add the Greenhorn Formation to the reduced subsurface setbacks approved for the drilling and spacing unit established for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M.    

 

10.       On October 12, 2017, Great Western, by its attorneys, filed a verified Application (“Application”) pursuant to §34-60-116, C.R.S., for an order to make Order No. 407-1915, which pooled all interests within an approximate 1,120-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 subjected any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the following twenty (20) horizontal wells:  Kodak North FD 25-040HC (API No. 05-123-39388), Kodak North FD 25-080HN (API No. 05-123-39342), Kodak North FD 25-080HNX (API No. 05-123-44570), Kodak North FD 25-120HC (API No. 05-123-39387), Kodak North FD 25-161HN (API No. 05-123-39343), Kodak North FD 25-161HNX (API No. 05-123-44569), Kodak North FD 25-121HN (API No. 05-123-39346), Kodak South FD 25-201HC (API No. 05-123-40798), Kodak South FD 25-240HNX (API No. 05-123-44118), Kodak South FD 25-240HN (API No. 05-123-40796), Kodak South FD 25-241HN (API No. 05-123-44115), Kodak South FD 25-241HC (API No. 05-123-44116), Kodak South FD 25-280HNX (API No. 05-123-40804), Kodak South FD 25-280HN (API No. 05-123-40802), Kodak South FD 25-320HN (API No. 05-123-44117), Kodak South FD 25-320HC (API No. 05-123-40799), Kodak South FD 25-321HNX (API No. Pending), Kodak South FD 25-321HN (API No. Pending), Kodak South FD 25-360HC (API No. Pending), and the Kodak South FD 25-360HN (API No. Pending) (“Wells”), also applicable to the Greenhorn Formation:

 

Township 6 North, Range 67 West, 6th P.M.

Section 25:      All 

Section 26:      E˝; E˝W˝  

 

10.       On November 17, 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.

 

11.       Land testimony and exhibits submitted in support of the Application by Michael Tucker, Senior Landman for Great Western, 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 drilling of the following 20 horizontal wells:  the Kodak North FD 25-040HC, Kodak North FD 25-080HN, Kodak North FD 25-080HNX, Kodak North FD 25-120HC, Kodak North FD 25-161HN, Kodak North FD 25-161HNX, Kodak North FD 25-121HN, Kodak South FD 25-201HC, Kodak South FD 25-240HNX, Kodak South FD 25-240HN, Kodak South FD 25-241HN, Kodak South FD 25-241HC, Kodak South FD 25-280HNX, Kodak South FD 25-280HN, Kodak South FD 25-320HN, Kodak South FD 25-320HC, Kodak South FD 25-321HNX, Kodak South FD 25-321HN, Kodak South FD 25-360HC, and the Kodak South FD 25-360HN, 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.       Great Western agreed to be bound by oral order of the Commission.

 

15.       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 amend Order No. 407-1915, to pool all interests within an approximate 1,120-acre drilling and spacing unit established for portions of Sections 25 and 26, Township 6 North, Range 67 West, 6th P.M., for the drilling of the following 20 horizontal wells:  the Kodak North FD 25-040HC, Kodak North FD 25-080HN, Kodak North FD 25-080HNX, Kodak North FD 25-120HC, Kodak North FD 25-161HN, Kodak North FD 25-161HNX, Kodak North FD 25-121HN, Kodak South FD 25-201HC, Kodak South FD 25-240HNX, Kodak South FD 25-240HN, Kodak South FD 25-241HN, Kodak South FD 25-241HC, Kodak South FD 25-280HNX, Kodak South FD 25-280HN, Kodak South FD 25-320HN, Kodak South FD 25-320HC, Kodak South FD 25-321HNX, Kodak South FD 25-321HN, Kodak South FD 25-360HC, and the Kodak South FD 25-360HN, for the development and operation of the Codell, Niobrara, and Greenhorn 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, Order No. 407-1915 is hereby amended to pool all interests within an approximate 1,120-acre drilling and spacing unit established for the below-described lands, for the development and operation of the Codell, Niobrara and Greenhorn 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 following 20 horizontal wells:  Kodak North FD 25-040HC (API No. 05-123-39388), Kodak North FD 25-080HN (API No. 05-123-39342), Kodak North FD 25-080HNX (API No. 05-123-44570), Kodak North FD 25-120HC (API No. 05-123-39387), Kodak North FD 25-161HN (API No. 05-123-39343), Kodak North FD 25-161HNX (API No. 05-123-44569), Kodak North FD 25-121HN (API No. 05-123-39346), Kodak South FD 25-201HC (API No. 05-123-40798), Kodak South FD 25-240HNX (API No. 05-123-44118), Kodak South FD 25-240HN (API No. 05-123-40796), Kodak South FD 25-241HN (API No. 05-123-44115), Kodak South FD 25-241HC (API No. 05-123-44116), Kodak South FD 25-280HNX (API No. 05-123-40804), Kodak South FD 25-280HN (API No. 05-123-40802), Kodak South FD 25-320HN (API No. 05-123-44117), Kodak South FD 25-320HC (API No. 05-123-40799), Kodak South FD 25-321HNX (API No. Pending), Kodak South FD 25-321HN (API No. Pending), Kodak South FD 25-360HC (API No. Pending), and the Kodak South FD 25-360HN (API No. Pending) (“Wells”):

 

Township 6 North, Range 67 West, 6th P.M.

Section 25:      All 

Section 26:      E˝; E˝W˝  

 

2.         The production obtained from each 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 each 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 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.

 

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 December 11, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By_______________________________________

       Julie Spence Prine, Secretary