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

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CAUSE NO.  407

 

DOCKET NO.  171200881

 

TYPE:  POOLING

 

ORDER NO. 407-2381

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on March 19, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon an application for an order to pool all interests in an approximate 1,440-acre drilling and spacing unit established for portions of Section 6, Township 2 North, Range 68 West, 6th P.M., and Sections 30 and 31, Township 3 North, Range 68 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 Knight 3 Well, the Knight 4 Well, the Knight 5 Well, the Knight 6 Well, the Knight 7 Well, the Knight 8 Well, the Knight 9 Well, the Knight 10 Well, the Knight 11 Well, the Knight 12 Well, the Knight 13 Well, the Knight 14 Well, the Knight 15 Well, the Knight 16 Well, the Knight 17 Well, the Knight 18 Well, the Knight 19 Well, the Knight 20 Well, the Knight 21 Well, and the Knight 22 Well, for the development and operation of the Niobrara and Codell Formations.

 

FINDINGS

 

            The Commission finds as follows:

 

1.            Cub Creek Energy, LLC (Operator No. 10542) (“Cub Creek” 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 herein, 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.  Section 6, Township 2 North, Range 68 West, 6th P.M., and Sections 30 and 31, Township 3 North, Range 68 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.

 

5.            On May 1, 2017, the Commission issued Order No. 407-1958 which, among other things, established an approximate 1,280-acre drilling and spacing unit for portions of Section 6, Township 2 North, Range 68 West, 6th P.M., and Sections 30 and 31, Township 3 North, Range 68 West, 6th P.M., and approved up to 20 horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.

 

6.            On March 19, 2018, the Commission issued Order No. 407-2380 which, among other things, amended Order No. 407-1958 to include additional lands to a previously established drilling and spacing unit creating an approximate 1,440-acre drilling and spacing unit, and approved up to 20 horizontal wells within the unit, for production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.

7.            On October 12, 2017, Cub Creek, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order pool all interests in an approximate 1,440-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara and Codell 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 Knight 3 Well (API No. Pending), the Knight 4 Well (API No. Pending), the Knight 5 Well (API No. Pending), the Knight 6 Well (API No. Pending), the Knight 7 Well (API No. Pending), the Knight 8 Well (API No. Pending), the Knight 9 Well (API No. Pending), the Knight 10 Well (API No. Pending), the Knight 11 Well (API No. Pending), the Knight 12 Well (API No. Pending), the Knight 13 Well (API No. Pending), the Knight 14 Well (API No. Pending), the Knight 15 Well (API No. Pending), the Knight 16 Well (API No. Pending), the Knight 17 Well (API No. Pending), the Knight 18 Well (API No. Pending), the Knight 19 Well (API No. Pending), the Knight 20 Well (API No. Pending), the Knight 21 Well (API No. Pending), and the Knight 22 Well (API No. Pending) (“Wells”):

 

Township 2 North, Range 68 West, 6th P.M.

Section 6:        N½

 

Township 3 North, Range 68 West, 6th P.M.

Section 30:      S½ and S½ N½

Section 31:      All

 

8.            On November 22, 2017, the City of Longmont (“Protestant”) filed its Protest and Intervention letter (“Protest”) wherein the City described various concerns with the prayer that the Commission deny the Application.  On February 20, 2018, the City of Longmont withdrew its Protest and Intervention.

 

9.            On February 26, 2018, Cub Creek, 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.

 

10.          Land testimony and exhibits submitted in support of the Application by Scott B. Baily, Vice President of Land and Business Development for Applicant, showed that Cub Creek has been unable to effect the voluntary pooling of interests within an approximate 1,440-acre drilling and spacing unit established for the Application Lands. Further, based upon examination of relevant contracts and records, all owners of an oil and gas interest in the tracts to be pooled (who could be located by Cub Creek) received timely notice of the Application.

 

11.          Applicant confirmed that Commission Rule 530. does not apply as there are no nonparticipating working interest owners or unleased mineral interest owners subject to the Application, and Applicant is not seeking cost recovery pursuant to §34-60-116(7), C.R.S, for the Well.

 

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.          Cub Creek agreed to be bound by the oral order of the Commission.

 

14.          Based on the facts stated in the verified Application, all protests having been withdrawn, 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 1,440-acre drilling and spacing unit established for portions of Section 6, Township 2 North, Range 68 West, 6th P.M., and Sections 30 and 31, Township 3 North, Range 68 West, 6th P.M., for the drilling of the Knight 3 Well, the Knight 4 Well, the Knight 5 Well, the Knight 6 Well, the Knight 7 Well, the Knight 8 Well, the Knight 9 Well, the Knight 10 Well, the Knight 11 Well, the Knight 12 Well, the Knight 13 Well, the Knight 14 Well, the Knight 15 Well, the Knight 16 Well, the Knight 17 Well, the Knight 18 Well, the Knight 19 Well, the Knight 20 Well, the Knight 21 Well, and the Knight 22 Well, for the development and operation of the Niobrara and Codell 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 1,440-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Niobrara and Codell 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 Knight 3 Well (API No. Pending), the Knight 4 Well (API No. Pending), the Knight 5 Well (API No. Pending), the Knight 6 Well (API No. Pending), the Knight 7 Well (API No. Pending), the Knight 8 Well (API No. Pending), the Knight 9 Well (API No. Pending), the Knight 10 Well (API No. Pending), the Knight 11 Well (API No. Pending), the Knight 12 Well (API No. Pending), the Knight 13 Well (API No. Pending), the Knight 14 Well (API No. Pending), the Knight 15 Well (API No. Pending), the Knight 16 Well (API No. Pending), the Knight 17 Well (API No. Pending), the Knight 18 Well (API No. Pending), the Knight 19 Well (API No. Pending), the Knight 20 Well (API No. Pending), the Knight 21 Well (API No. Pending), and the Knight 22 Well (API No. Pending) (“Wells”):

 

Township 2 North, Range 68 West, 6th P.M.

Section 6:        N½

 

Township 3 North, Range 68 West, 6th P.M.

Section 30:      S½ and S½ N½

Section 31:      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 designated horizontal wellbore 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 designated horizontal wellbore spacing units 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 18th day of April, 2018, as of March 19, 2018.

 

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By_______________________________________

                  Julie Spence Prine, Secretary