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, BOULDER AND WELD COUNTIES, COLORADO |
) ) ) ) ) ) ) |
CAUSE NO. 407
DOCKET NO. 171000695
TYPE: SPACING
ORDER NO. 407-2518
|
REPORT OF THE COMMISSION
The Commission heard this matter on July 31, 2018, at the Colorado Oil and Gas Conservation Commission (“COGCC” or “Commission”), 1120 Lincoln Street, Suite 801, Denver, Colorado upon application for an order to establish an approximate 2,720-acre drilling and spacing unit for Sections 13, 14, 23, and 24, Township 2 North, Range 69 West, 6th P.M., and Section 18, Township 2 North, Range 68 West, 6th P.M., and approve one horizontal well within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
FINDINGS
The Commission finds as follows:
1. 8 North LLC, Operator No. 10575 (“8 North” or “Applicant”), as Applicant, is an interested party in the subject matter of the above-referenced hearing.
2. The Board of County Commissioners of the County of Boulder (“Boulder” or “Protestant”), as Protestant, is an interested party in the subject matter of the above-referenced hearing.
3. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.
4. 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.
FACTUAL AND PROCEDURAL BACKGROUND
5. 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 Niobrara and Codell Formations underlying certain lands, with the permitted well locations in accordance with the provisions of Order No. 407-1. Sections 13, 14, 23, and 24, Township 2 North, Range 69 West, 6th P.M. and Section 18, Township 2 North, Range 68 West, 6th P.M. are subject to this Order for the production of the oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
5. On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing, and Unit Designation Rule. Sections 13, 14, 23, and 24, Township 2 North, Range 69 West, 6th P.M., and Section 18, Township 2 North, Range 68 West, 6th P.M., are subject to this Rule for the Niobrara and Codell Formations.
6. On May 16, 2017, the Commission entered Order No. 407-405, which, among other things, established an approximate 320-acre wellbore spacing unit for the S½ of Section 18, Township 2 North, Range 68 West, 6th P.M., and authorized the drilling of one horizontal well within the unit (to accommodate the planned Williams #3A-18H Well (API No. 05-123-33423)), for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore to be located no closer than 460 feet from the boundary of the unit, without exception being granted by the Director of the Commission. Portions of the Application Lands are subject to Order No. 407-405.
7. On August 31, 2017, amended September 19, 2017, 8 North, 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 2,720-acre drilling and spacing unit for the below-described lands (“Application Lands”) and to approve one horizontal well within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell 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 2 North, Range 69 West, 6th P.M.
Section 13: All
Section 14: All
Section 23: All
Section 24: All
Township 2 North, Range 68 West, 6th P.M.
Section 18: SW¼
8. On October 6, 2017, 8 North, 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, the Board of County Commissioners of the County of Boulder (“Boulder”) filed a protest (“Boulder Protest”) alleging that (1) public issues raised by the Application reasonably relate to significant adverse impacts to the public health, safety, and welfare of Boulder’s citizens; (2) the Applicant has not specified the proposed location of the well; (3) the requirements of Rule 508 have not been satisfied; (4) the Application fails to allege facts that satisfy the standard set by the Colorado Court of Appeals in Martinez v. Colorado Oil and Gas Conserv. Comm’n, 2017 COA 37 (March 23, 2017), cert. granted (January 29, 2018) (No. 2017-97); (5) granting the Application will result in overlapping spacing; and (6) current market conditions are not favorable and therefore not economically beneficial to move forward with development.
10. On October 16, 2017, amended November 27, 2017, Crestone Peak Resources Operating LLC (“Crestone”) filed a protest (“Crestone Protest”) against the Application.
11. On January 4, 2018, the Hearing Officer dismissed the Boulder Protest finding that the protest failed to contain any factual allegations of what harm plausibly might be caused by the granting of the Application, nor factual allegations of any type showing harm to public health, safety, or welfare.
12. On March 30, 2018, Boulder filed a second Protest and Intervention (“Second Protest”) against the Application alleging that (1) public issues raised by the Application reasonably relate to significant adverse impacts to the public health, safety, and welfare of Boulder’s citizens; (2) these public issues are not adequately addressed by the Application or the Rules and Regulations of the Commission and may adversely affect public health, safety and welfare, damage private and public mineral and surface rights, allow the drilling of unnecessary and uneconomic wells, damage important environmental and agricultural resources, create waste and damage correlative rights; (3) the Application fails to allege facts that satisfy the standard set by the Colorado Court of Appeals in Martinez v. Colorado Oil and Gas Conserv. Comm’n, 2017 COA 37 (March 23, 2017), cert. granted (January 29, 2018) (No. 2017-97); and (5) current market conditions are not favorable and therefore not economically beneficial to move forward with development.
13. On April 11, 2018, the Hearing Officer entered an order striking Boulder’s Second Protest.
14. On April 5, 2018, Crestone withdrew the Crestone Protest.
15. On April 24, 2018, Boulder filed an Exception to the Hearing Officer Order of Dismissal and Request for Re-Consideration by the Commission or, Alternatively, Permission to File an Amended Protest (“Exception”).
16. On June 6, 2018, 8 North, 8 North, by counsel, communicated to the Hearing Officer that 8 North would withdraw its opposition to the Exception and would not object to Boulder’s refiling of its Second Protest (originally filed on March 30, 2018), so long as it was refiled on or before June 13, 2018.
17. On June 7, 2018, Boulder re-filed its Second Protest.
18. On June 21, 2018, Boulder and 8 North each filed a Prehearing Statement with electronic exhibits, proposed exhibits, and witnesses in this matter.
19. On June 26, 2018, Boulder moved to exclude summary oral and demonstrative evidence of mineral and lease ownership as inadmissible.
20. On June 26, 2018, 8 North moved to strike Boulder’s claim and defense based on Martinez v. Colorado Oil and Gas Conserv. Comm’n, 2017 COA 37.
21. On June 26, 2018, 8 North moved to exclude testimony and evidence regarding pooling clauses in Boulder’s oil and gas leases.
22. On July 5, 2018, Boulder and 8 North each filed a responsive brief to the evidentiary motions.
23. On July 17, 2018, the parties convened for a final prehearing conference (“Final PHC”) in Docket Nos. 171000695 and 171200774 at the office of the Commission. Counsel for 8 North and Boulder appeared at the Final PHC. No representative of the City of Longmont was present. At the Final PHC, the Hearing Officer made the following rulings pertaining to the parties’ evidentiary motions:
A. The Hearing Officer Denied Boulder’s motion to exclude summary oral and demonstrative evidence of mineral and lease ownership.
B. The Hearing Officer granted 8 North’s motion to strike; however, the Hearing Officer granted Boulder the ability to introduce evidence related to public health, safety, and welfare.
C. The Hearing Officer granted 8 North’s motion to exclude testimony and evidence regarding pooling clauses in Boulder’s oil and gas leases.
24. On July 19, 2018, Boulder filed an Exception to the Hearing Officer’s denial of their motion to exclude summary oral and demonstrative evidence of mineral and lease ownership.
25. On July 24, 2018, the Hearing Officer issued a Final Prehearing Order which, among other things, deemed certain exhibits as admitted and authentic, identified witnesses, and set forth the time and order of hearing presentation, including time for any argument of exceptions to the Hearing Officer’s evidentiary rulings. The Final Prehearing Order also consolidated Docket Nos. 171000695, 171200773, and 171200774 for purposes of argument and presentation of evidence at hearing.
HEARING
26. The Commission held an adjudicatory hearing on this matter on July 31, 2018.
27. No Commissioners were determined to have a conflict of interest.
Argument and ruling on Boulder’s exception
28. The Commission first heard argument on Boulder’s exception to the Hearing Officer’s denial of their motion to exclude summary oral and demonstrative evidence of mineral and lease ownership.
29. Boulder’s argument was based on an application of the Colorado Rules of Civil Procedure. Commission Rule 519.b. provides “[i]n general, the rules of evidence applicable to a trial court without a jury shall be applicable, providing that such rules may be relaxed, where, by doing so, the ends of justice will be better served.”
30. The Commission is required to have a “timely and efficient procedure for the review of applications for an order establishing or amending a drilling and spacing unit.” §34-60-106(11)(a)(I)(A), C.R.S.
31. Co-Vice Chair Boigon and Commissioner Hawkins both stated that it was the historical practice of the Commission to accept summary evidence of ownership.
32. Co-Vice Chair Boigon also stated that Boulder has not raised any reason to doubt that the summary evidence to be presented by 8 North on ownership.
33. Rule 503.b.(1) provides that only owners with in a proposed drilling unit, or within an established drilling unit, may file an application to establish or modify a unit. “Owner” is defined in the Commission’s Rules as “the person who has the right to drill into and produce from a pool…” The definition of Owner in the Act is nearly identical. §34-60-103(7), C.R.S. Further the Act provides that any “interested party” may file an application for a spacing unit. §34-60-116(1), C.R.S. Commission Rules and the Act set a minimal standard to show standing to file an application to create a spacing unit, or to apply for additional wells.
34. Based on its authority to relax the rules of evidence under Rule 519.b., requirement to have a timely and efficient review of spacing applications, and Boulder’s failure to raise any reason to doubt 8 North’s summary evidence of ownership, the Commission voted unanimously to deny Boulder’s exception.
Hearing on the merits
35. Prior to the hearing on the merits, the Commission accepted public comment on 8 North’s Application.
36. Land testimony and exhibits submitted in support of the Application by Jason Rayburn, Staff Landman for Extraction Oil & Gas Inc., of which 8 North is a wholly owned subsidiary; showed that 8 North owns leasehold interests with the right to drill in the Application Lands. 8 North’s working interest in the Applications Lands was 54%. Mr. Rayburn also identified the proposed surface location for the well pad, which is outside Boulder County, and for which 8 North has an executed surface use agreement. Mr. Rayburn testified that 8 North would use pipelines to transfer fluids from the well pad, and all pipelines will be located outside of Boulder County. Mr. Rayburn identified the planned access route to the proposed well pad, which is also entirely outside Boulder County. Finally, Mr. Rayburn described the distances from the proposed surface location to the areas of concern identified by Boulder in its Second Protest, none of which was less than 4,000 feet.
37. Geoscience testimony and exhibits submitted in support of the Application by James Folcik, Geosciences Manager for Extraction Oil & Gas Inc., of which 8 North is a wholly owned subsidiary, showed the Niobrara Formation is present throughout the Application Lands and ranges from approximately 230-253 feet thick. Further testimony showed the Codell Formation is present throughout the Application Lands and is approximately 19-23 feet thick.
38. Engineering testimony and exhibits submitted in support of the Application by Neel L. Duncan, Vice President of Operations for Integrated Petroleum Technologies demonstrated that each well in the Niobrara Formation would have a drainage area of 50 acres and each well in the Codell Formation would have a drainage area of 52 acres. Based on each drilling and spacing unit area of 2,720 acres, the drainage calculations are consistent with the development of up to 32 Niobrara and Codell horizontal wells within the proposed drilling and spacing unit and will increase total recovery, allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights. Mr. Duncan also submitted evidence that the proposed wells would be economic and yield 40-50% rate of return.
39. Kimberly Sanchez, Chief Planner for Boulder County, testified as to Boulder’s mineral ownership and surface ownership, that the surface of the Application Lands were almost entirely Boulder open space or conservation easements, the location of agricultural lands of importance, the location of water resources and riparian areas, the location of homes, and the location of geologic hazard and constraint areas.
40. Patrick Murphy, Environmental Health Specialist for Boulder County, testified regarding leaks identified during his inspections of oil and gas facilities in eastern Boulder County from 2014 through 2016. Upon cross-examination, Mr. Murphy testified that he did not inspect any horizontal wells in Boulder County, and that he was only inspecting wells that are older than 5 years.
41. On rebuttal, Blane Thingelstad, Regulatory Manager for Extraction Oil & Gas Inc., of which 8 North is a wholly owned subsidiary, testified that the incidence of leaks is much less with new production facilities.
42. Following closing arguments, the Commission closed the record.
43. 8 North agreed to be bound by oral order of the Commission.
COMMISSION DELIBERATIONS
44. The Commissioners agreed that all comments made during deliberations in Docket No. 171200773 would apply to deliberations in this matter.
45. Commissioner Hawkins stated that he did not believe the size and shape of the proposed unit was arbitrary, that 2 to 2.5 mile lateral wells were the most efficient way to develop oil and gas resources, and that he had heard sufficient information to approve 8 North’s Application. Further Commissioner Hawkins stated that 8 North had presented sufficient information regarding its mineral ownership in the proposed unit.
46. At the conclusion of deliberations, the Commission approved 8 North’s Application by a 8-1 vote.
COMMISSION FINDINGS AND CONCLUSIONS
47. The Commission has the authority to establish drilling units “[T]o prevent or assist in preventing waste, to avoid the drilling of unnecessary wells, or to protect correlative rights.” §34-60-116(1), C.R.S.
48. Prior to its amendment, made effective July 1, 2018, the Oil and Gas Conservation Act (“Act”) provided that “[t]he order establishing drilling units shall permit only one well to be drilled and produced…” § 34-60-116(3), C.R.S.
49. The Oil and Gas Conservation Act provides that: “The commission, upon application, notice, and hearing, may decrease or increase the size of the drilling units or permit additional wells to be drilled within the established units in order to prevent or assist in preventing waste or to avoid the drilling of unnecessary wells, or to protect correlative rights, . . . .” § 34-60-116(4), C.R.S.
50. Section 116 does not contain any requirement that an operator address impacts to public health, safety, and welfare.
51. The Commission concludes that testimony and documents presented by 8 North show that the Application meets the requirements of Sections 116, and that the proposed unit would prevent waste, avoid the drilling of unnecessary wells, and protect correlative rights. In reaching this conclusion, the Commission notes that Boulder did not present any evidence to contradict the geologic or technical evidence presented by 8 North.
52. The Commission historically does not closely examine surface issues during the spacing and additional well stage of oil and gas development. The establishment of drilling and spacing units and authorization of additional wells under §34-60-116 entail a technical evaluation of downhole reservoir characteristics. Applications to establish a drilling and spacing unit and/or seeking increased well density implicate waste, protection of correlative rights, and avoiding the drilling of unnecessary wells, not concerns related to the impacts of surface facilities on public health, safety, and welfare. Boulder conflates the requirements necessary for establishment of units and authorization of unnecessary wells under Section 116, with the requirements to obtain permits from the Commission.
53. Further, 8 North submitted testimony and documentation that showed impacts to Boulder County are being taken into account. Measures taken to mitigate impacts to Boulder County include placing the well pad outside of Boulder County, using pipelines to transport produced fluids, and locating the well pad over 4,000 feet from the nearest area of concern identified by Boulder. The testimony and documentation submitted by Boulder showed the location of sensitive or environmentally important areas; Boulder failed to offer any evidence that the Commission’s permitting rules and processes were inadequate to protect public health, safety, and welfare, including the environment, from any significant adverse impact that may result from the authorization of the proposed unit.
ORDER
IT IS HEREBY ORDERED:
1. 8 North’s Application is APPROVED. An approximate 2,720-acre drilling and spacing unit for the below-described lands is hereby established, and a total of one horizontal well within the unit, is hereby approved, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations:
Township 2 North, Range 69 West, 6th P.M.
Section 13: All
Section 14: All
Section 23: All
Section 24: All
Township 2 North, Range 68 West, 6th P.M.
Section 18: SW¼
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, without exception being granted by the Director.
3. A maximum of one surface location will be allowed for development of minerals from the Codell and Niobrara Formations within the drilling and spacing unit, without exception being granted by the Director.
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 28th day of August, 2018, as of July 31, 2018.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By___________________________________
Julie Spence Prine, Secretary
CERTIFICATE OF SERVICE
On August ____, 2018, a true and correct copy of the foregoing was sent by electronic mail to the following:
Jillian Fulcher
James Parrot
Jobediah Rittenhouse
Attorneys for 8 North LLC
jfulcher@bwenergylaw.com
jparrot@bwenergylaw.com
jrittenhouse@bwenergylaw.com
David Hughes
Katherine A. Burke
Attorneys for Boulder County
dhughes@bouldercounty.org
kaburke@bouldercounty.org
Jeffrey Robbins
Attorney for City of Lafayette
robbins@grn-law.com
Margaret Humecki, Hearings Assistant