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 AND ADAMS COUNTIES, COLORADO

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CAUSE NO. 407

 

DOCKET NO. 180100070

 

TYPE: POOLING

 

ORDER NO. 407-2474

REPORT OF THE COMMISSION

 

The Commission heard this matter on June 11, 2018, at the Lindou Auditorium - Michener Library, University of Northern Colorado, 501 20th Street, Greeley, Colorado, upon application for an order to vacate Order No. 407-1911 and pool all interests in an approximate 1,241-acre drilling and spacing unit established by Order No. 407-2363, for portions of Sections 3 and 10, Township 1 South, Range 66 West, 6th P.M., and portions of Section 34, Township 1 North, Range 66 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provision of §34-60-116(7), C.R.S., for the drilling of the Homestead 1 Well, the Homestead 2 Well, the Homestead 3 Well, the Homestead 4 Well, the Homestead 5 Well, the Homestead 6 Well, the Homestead 7 Well, the Homestead 8 Well, the Homestead 9 Well, the Homestead 10 Well, the Homestead 11 Well, the Homestead 12 Well, the Homestead 13 Well, the Homestead 14 Well, the Homestead 15 Well, the Homestead 16 Well, the Homestead 17 Well, the Homestead 18 Well, the Homestead 19 Well, the Homestead 20 Well, the Homestead 21 Well, the Homestead 22 Well, the Homestead 23 Well, and the Homestead 24 Well, for the development and operation of the Niobrara and Codell Formations.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Petro Operating Company LLC (Operator No. 10583) (“Petro” 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 3 and 10, Township 1 South, Range 66 West, 6th P.M., and Section 34, Township 1 North, Range 66 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.

 

5.         On August 8, 2011 the Commission further amended Rule 318A to, among other things, address the drilling of horizontal wells and require that a horizontal wellbore spacing unit must include any governmental quarter-quarter section located less than 460 feet from the completed interval of the wellbore lateral. 

 

6.         On March 20, 2017, the Commission entered Order No. 407-1908, which established an approximate 960-acre drilling and spacing unit covering Section 3, Township 1 South, Range 66 West, 6th, P.M., and the S˝ of Section 34, Township 1 North Range 66 West, 6th P.M., and approved a total of 24 horizontal wells for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations. 

 

7.         On March 20, 2017, the Commission entered Order No. 407-1911, which pooled all interests in the approximate 960-acre drilling and spacing unit established by Order No. 407-1908 for the development and operation of the Niobrara and Codell Formations, and subjected all nonconsenting owners to the cost recovery provisions of Section 34-60-116(7), C.R.S., for the Homestead Wells, Nos. 1-24. 

 

8.         On February 12, 2018, the Commission entered Order No. 407-2363 which, among other things, vacated Order No. 407-1908 and established an approximate 1,241-acre drilling and spacing unit established for portions of Sections 3 and 10, Township 1 South, Range 66 West, 6th P.M., and Section 34, Township 1 North, Range 66 West, 6th P.M., and approved up to 24 horizontal wells within the unit for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.   

 

9.         In May, 2017, Petro’s development partner, Verdad Resources, LLC, drilled, but has not completed, eight horizontal wells in the E˝ of the 960-acre unit approved by Order No. 407-1908:  the Homestead 15 Well (API No. 05-123-44638); the Homestead 16 Well (API No. 05-123-44636); the Homestead 17 Well (API No. 05-123-44643); the Homestead 18 Well (API No. 05-123-44627); the Homestead 19 Well (API No. 05-123-44631); the Homestead 20 Well (API No. 05-123-44624); the Homestead 21 Well (API No. 05-123-44646); and the Homestead 22 Well (API No. 05-123-44644).  Applicant has conferred with Verdad and the parties agree that when production is established from these wells, production will be allocated based on the 1,241-acre drilling and spacing unit subject to Order No. 407-2363.

 

10.       Applicant and/or its development partner, Verdad Resources, LLC, has drilled or intends to drill the following wells in the Application Lands:

 

Well Name

API No.

Formation

Estimated Spud Date

Homestead 1

05-123-44641

Niobrara

2nd Quarter 2018

Homestead 2

05-123-44642

Codell

2nd Quarter 2018

Homestead 3

05-123-44645

Niobrara

2nd Quarter 2018

Homestead 4

05-123-44633

Niobrara

2nd Quarter 2018

Homestead 5

05-123-44628

Codell

2nd Quarter 2018

Homestead 6

05-123-44626

Niobrara

2nd Quarter 2018

Homestead 7

05-123-44642

Niobrara

2nd Quarter 2018

Homestead 8

05-123-44647

Codell

2nd Quarter 2018

Homestead 9

05-123-44630

Niobrara

2nd Quarter 2018

Homestead 10

05-123-44625

Niobrara

2nd Quarter 2018

Homestead 11

05-123-44632

Codell

2nd Quarter 2018

Homestead 12

05-123-44629

Niobrara

2nd Quarter 2018

Homestead 13

05-123-44640

Niobrara

2nd Quarter 2018

Homestead 14

05-123-44634

Codell

2nd Quarter 2018

Homestead 15

05-123-44638

Niobrara

May 21, 2017

Homestead 16

05-123-44636

Niobrara

May 17, 2017

Homestead 17

05-123-44643

Codell

May 18, 2017

Homestead 18

05-123-44627

Niobrara

May 19, 2017

Homestead 19

05-123-44631

Niobrara

May 13, 2017

Homestead 20

05-123-44624

Codell

May 17, 2017

Homestead 21

05-123-44646

Niobrara

May 17, 2017

Homestead 22

05-123-44644

Niobrara

May 14, 2017

Homestead 23

05-123-44637

Codell

3rd Quarter 2018

Homestead 24

05-123-44635

Niobrara

3rd Quarter 2018

 

(collectively, the “Homestead Wells” or “Wells”).

 

11.       On November 30, 2017, Petro, by its attorneys, filed a verified application (“Application”) pursuant to § 34-60-116, C.R.S., for an order to vacate Order No. 407-1911 and pool all interests in an approximate 1,241-acre drilling and spacing unit established by Order No. 407-2363, 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., 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., were first incurred for the drilling of the Homestead Wells, Nos. 1-24:

 

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

Section 3:        All

Section 10:      W˝

 

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

Section 34:      S˝

 

12.       On February 26, 2018, 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.

 

13.       On January 11, 2018, a Protest was filed by Protestants Larry P. Bobo and Betty A. Bobo (hereinafter, the “Bobos”), alleging that as the “owners” of part of the Application Lands, that they would not consent to Petro’s pooling application at Docket No. 18010070, and that they would not be a willing party to the cost recovery provision of §34-60-116(7), C.R.S.  On February 16, 2018, Petro filed a response and motion to dismiss the Protest alleging that, under §34-60-116(7), C.R.S., a protest to an application for pooling must support a plausible claim that the application was filed without notice, or requests a pooling order on terms that are not just and reasonable or that would deny the owner the opportunity to obtain their just and equitable share of production from the unit.  Further, Petro alleged that the Protestants failed to state a claim upon which relief can be granted, pursuant to Commission Rule 519, incorporating C.R.C.P. 12(b)(5).  Petro also asserted that the Protestants failed to satisfy Commission Rule 509, as they did not demonstrate a right to relief, or demonstrate a recognized basis for protest.  On May 7, 2018, the Hearing Officer entered an Order dismissing the Bobos’ Protest for failure to timely file a response to Petro’s motion to dismiss.  On May 15, 2018, the Bobos filed an email response to the May 7, 2018, Order, and attached a copy of an April 5, 2018, response to Petro’s motion to dismiss that was timely filed.  At the time that the May 7, 2018, Order was entered, the Bobos’ April 5, 2018, response, did not appear in the Commission's files.  Therefore, treating the Bobos’ May 15, 2018, email as a motion to reconsider the May 7, 2018 Order, pursuant to C.R.C.P. 60(b)(1), the Hearing Officer entered an Order dated June 4, 2018 which vacated the May 7, 2018, Order.  Nonetheless, in the June 4, 2018 Order, Petro’s motion to dismiss the Bobos’ Protest was still granted because the Protest did not comply with Commission Rule 509, as no proper grounds were alleged for opposing a pooling application.  The Protest did not claim a failure to provide a reasonable lease offer, nor did it contend that the proposed costs for the wells were unreasonable.  Further, the Protest did not contain a list of proposed witnesses, or a time estimate to hear the protest as required by Rule 509(a)(3). 

 

14.       At the Commission’s June 11, 2018 hearing, the Commission was prepared to hear arguments from the parties regarding whether to uphold or reverse the Hearing Officer’s June 4, 2018 Order dismissing the Protest and converting it to a Rule 510 statement; but the Protestants did not appear at the hearing.  After considering the relevant facts and circumstances, the Commission upheld the Hearing Officer’s June 4, 2018 Order dismissing the Protest and converting it to a Rule 510 statement. Therefore, the Protest was converted to a statement pursuant to Rule 510. Subsequently, the Commission heard testimony from the Applicant regarding their compliance with Rule 530. 

 

15.       Land testimony and exhibits submitted in support of the Application by Peter K. Scott, Landman for Petro Operating, 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 operations and were received at least 35 days prior to the June 11, 2018, hearing date.

                                                 

16.       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 Homestead 1 Well, the Homestead 2 Well, the Homestead 3 Well, the Homestead 4 Well, the Homestead 5 Well, the Homestead 6 Well, the Homestead 7 Well, the Homestead 8 Well, the Homestead 9 Well, the Homestead 10 Well, the Homestead 11 Well, the Homestead 12 Well, the Homestead 13 Well, the Homestead 14 Well, the Homestead 15 Well, the Homestead 16 Well, the Homestead 17 Well, the Homestead 18 Well, the Homestead 19 Well, the Homestead 20 Well, the Homestead 21 Well, the Homestead 22 Well, the Homestead 23 Well, and the Homestead 24 Well, but did not provide testimony for any subsequent wells.

 

17.       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.

 

18.       Petro agreed to be bound by oral order of the Commission. 

 

19.       Based on the facts stated in the verified Application, the Bobos’ Protest having been converted to a Rule 510 Statement, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to vacate Order No. 407-1911 and pool all interests in the approximate 1,241-acre drilling and spacing unit established by Order No. 407-2363, for portions of Sections 3 and 10, Township 1 South, Range 66 West, 6th P.M., and portions of Section 34, Township 1 North, 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 Homestead 1 Well, the Homestead 2 Well, the Homestead 3 Well, the Homestead 4 Well, the Homestead 5 Well, the Homestead 6 Well, the Homestead 7 Well, the Homestead 8 Well, the Homestead 9 Well, the Homestead 10 Well, the Homestead 11 Well, the Homestead 12 Well, the Homestead 13 Well, the Homestead 14 Well, the Homestead 15 Well, the Homestead 16 Well, the Homestead 17 Well, the Homestead 18 Well, the Homestead 19 Well, the Homestead 20 Well, the Homestead 21 Well, the Homestead 22 Well, the Homestead 23 Well, and the Homestead 24 Well, for the development and operation of the Niobrara and Codell Formations.  Further, the Protest filed by Protestants Larry P. Bobo and Betty A. Bobo, should be converted to statement under Commission Rule 510.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         Order No. 407-1191 is hereby vacated.

 

2.         Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in the approximate 1,241-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 Homestead 1 Well (API No. 05-123-44641), the Homestead 2 Well (API No. 05-123-44642), the Homestead 3 Well (API No. 05-123-44645), the Homestead 4 Well (API No. 05-123-44633), the Homestead 5 Well (API No. 05-123-44628), the Homestead 6 Well(API No. 05-123-44626), the Homestead 7 Well(API No. 05-123-44642), the Homestead 8 Well(API No. 05-123-44647), the Homestead 9 Well(API No. 05-123-44630), the Homestead 10 Well (API No. 05-123-44625), the Homestead 11 Well(API No. 05-123-44632), the Homestead 12 Well (API No. 05-123-44629), the Homestead 13 Well (API No. 05-123-44640), the Homestead 14 Well (API No. 05-123-44634), the Homestead 15 Well (API No. 05-123-44638), the Homestead 16 Well (API No. 05-123-44636), the Homestead 17 Well(API No. 05-123-44643), the Homestead 18 Well (API No. 05-123-44627), the Homestead 19 Well(API No. 05-123-44631), the Homestead 20 Well (API No. 05-123-44624), the Homestead 21 Well (API No. 05-123-44646), the Homestead 22 Well (05-123-44644), the Homestead 23 Well (API No. 05-123-44637), and the Homestead 24 Well (API No. 05-123-44635) (“Wells”):

 

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

Section 3:        All

Section 10:      W˝

 

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

Section 34:      S˝

 

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 designated horizontal wellbore 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 Well located on the drilling and spacing unit applicable to its interest in the designated horizontal wellbore 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 unleased owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S., as amended.  After recovery of such costs, each nonconsenting unleased 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 5th day of July, 2018, as of June 11, 2018.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

 Julie Spence Prine, Secretary