BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

IN THE MATTER OF AN APPLICATION BY PETROSHARE CORP. FOR AN ORDER TO, AMONG OTHER THINGS, ESTABLISH AN APPROXIMATE 1,280.00-ACRE DRILLING AND SPACING UNIT COMPRISED OF ALL OF SECTIONS 16 AND 21, TOWNSHIP 1 SOUTH, RANGE 65 WEST, 6TH P.M., FOR THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, ADAMS COUNTY, COLORADO

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CAUSE NO. 407 DOCKET NO. 171200821 TYPE: SPACING ORDER NO. 407-2426

REPORT OF THE COMMISSION

            The Commission heard this matter on May 1, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado upon application for an order to establish an approximate 1280-acre drilling and spacing unit for Sections 16 and 21, Township 1 South, Range 65 West, 6^th P.M., and approve up to sixteen horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.         PetroShare Corporation, Operator No. 10454 (“PetroShare” or “Applicant”) 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 (amended August 20, 1993), the Commission issued Order 407-87, which, among other things, established 80-acre drilling and spacing units for production of oil, gas and assorted hydrocarbons from the Codell and Niobrara Formations, with the permitted well locations to be in accordance with Order No 407-1.  Sections 16 and 21, Township 1 South, Range 65 West, 6th P.M., are subject to this Order for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

5.         On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule.  Sections 16 and 21, Township 1 South, Range 65 West, 6^th P.M., are subject to this Rule for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

6.         On October 12, 2017, PetroShare, by its attorneys, filed with the Commission a verified application (“Application”), pursuant to § 34-60-116, C.R.S., for an order to: establish an approximate 1280-acre drilling and spacing unit for the below-described lands (“Application Lands”) and to approve up to 16 horizontal wells within the unit, for production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, with the productive interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 1 South, Range 65 West, 6^th P.M.

Section 16: All

Section 21: All

7.         Applicant states that any horizontal wells to be drilled under this Application will be drilled from no more than one multi-well pad, subject to Rule 318A, without exception being granted by the Director.

8.         On November 20, 2017, PetroShare, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the Application and the sworn testimony and exhibits filed in support of the Application.

9.         On August 31, 2017, Verdad Resources LLC, Operator No. 10651, (“Verdad”), by its attorneys, filed with the Commission a verified application (“Verdad Application”), pursuant to § 34-60-116, C.R.S., for an order to: establish an approximate 1,600-acre drilling and spacing unit for the below-described lands (“Verdad Application Lands”) and to approve up to 16 horizontal wells within the unit, for production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, with the productive interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 1 South, Range 65 West, 6^th P.M.

Section 4: All

Section 9: All

Section 16: N1/2

10.       The Verdad Application Lands overlap with the Application Lands in the N1/2 of Section 16, Township 1 South, Range 65 West, 6^th P.M.

11.       The Verdad Application was assigned Docket No. 171000666.

12.       On October 16, 2017, PetroShare protested the Verdad Application.

13.       The Hearing Officer consolidated Docket Nos. 171200821 and 171000666.

14.       Docket Nos. 171200821 and 171000666 were scheduled to be heard by the Commission at the April 30-May 1, 2018 meeting.

15.       On May 1, 2018, before the Commission held the hearing on Docket Nos. 171200821 and 171000666, Verdad withdrew the Verdad Application. As a result of Verdad’s withdrawal, there was no longer any protest to the Application or proposed unit that overlapped with the Application Lands.

16.       On May 1, 2018, PetroShare presented the merits of its uncontested Application to the Commission.

17.       Land testimony and exhibits filed in support of the Application, and provided at the hearing, by Brian H. Wert, Senior Landman for PetroShare, showed that PetroShare holds oil and gas leasehold interests and has the right to drill in the Application Lands.

18.       Geology testimony and exhibits filed in support of the Application, and provided at the Hearing, by Frederick J. Witsell, President of PetroShare, showed that the Niobrara Formation is present throughout the Application Lands, is approximately 18-34 feet thick, and is generally of uniform thickness throughout the Application Lands. Further testimony showed that the Niobrara Formation is a sequence of chalks, marls and limestones and is a common source of supply.  Geologic testimony also showed that the Codell Formation is present throughout the Application Lands, is approximately 12-20 feet thick, and is generally of uniform thickness throughout the Application Lands. Further testimony showed that the Codell Formation is made up of sandstone is a common source of supply.

19.       Testimony and exhibits filed in support of the Application, and provided at the Hearing, by Barry Voigt, Contract Reservoir Engineer for PetroShare, showed that the drainage area for analog horizontal Niobrara Formation wells are estimated at 106 acres, and an approximate 1280-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by a horizontal well producing oil, gas and associated hydrocarbons from the Niobrara Formation. Engineering testimony also showed that the drainage area for analog horizontal Codell Formation wells are estimated at 260 acres, and an approximate 1280-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by a horizontal well producing oil, gas and associated hydrocarbons from the Codell Formation.

20.       This drilling and spacing unit contains Colorado State Board of Land Commissioners (State Land Board) leased and/or unleased minerals.  A Communitization Agreement with the State Land Board will be required for all wells drilled under the terms of this order.  A Communitization Agreement must be obtained prior to drilling operations that access any State Land Board minerals.

21.       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.

22.       PetroShare agreed to be bound by oral order of the Commission.

23.       Based on the facts stated in the Application, the competing Verdad Applications having been withdrawn, and the testimony and exhibits offered at the Hearing, the Commission should enter an order to: establish an approximate 1280-acre drilling and spacing unit for Sections 16 and 21, Township 1 South, Range 65 West, 6^th P.M., and approve up to 16 horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

ORDER

IT IS HEREBY ORDERED:

1.         An approximate 1280-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to 16 horizontal wells within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations:

Township 1 South, Range 65 West, 6^th P.M.

Section 16: All

Section 21: All

2.         The productive interval of the wellbore will be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore producing from the same source of supply within the unit, unless the Director grants an exception.

3.         Order No. 407-87 is maintained as to the Application Lands.

4.         All wells permitted under this Order shall be drilled from no more than one multi-well pad within the Application Lands or on adjacent lands, subject to Rule 318A, unless the Director grants an exception. 

5.         PetroShare shall submit a Communitization Agreement to the Colorado State Land Board prior to drilling operations that access any State Land Board minerals. 

            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 24 day of May, 2018, as of May 1, 2018.

                                                            OIL AND GAS CONSERVATION COMMISSION

                                                            OF THE STATE OF COLORADO

                                                            By____________________________________         

                                                                Julie Spence Prine, Secretary