BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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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 |
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CAUSE NO. 407
DOCKET NO. 171200774
TYPE: ADDITIONAL WELLS
ORDER NO. 407-2524 |
REPORT OF THE COMMISSION
The Commission heard this matter on July 30, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to approve 31 additional horizontal wells, for a total of 32 horizontal wells, in an approximate 2,720-acre drilling and spacing unit proposed in Docket No. 171000695 for the Application Lands 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 herein, 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 herein, 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.
6. 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 Order for the production of the oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
7. 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.
8. On August 31, 2017, amended September 19, 2017, Applicant submitted an application in Docket No. 171000695 requesting an approximate 2,720-acre drilling and spacing unit for the Application Lands be established, and the drilling of one horizontal well within the proposed drilling and spacing unit be authorized, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations, from no more than one well pad, with the treated intervals of the wellbores to be not less than 460 feet from the unit boundaries, and not less than 150 feet from the treated interval of a well producing from the Niobrara and Codell Formations, unless an exception is granted by the Director.
9. On September 19, 2017, 8 North, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application in Docket No. 171200774 (“Application”) for an order to approve 31 additional horizontal wells, for a total of up to 32 horizontal wells, within an approximate 2,720-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations, from no more than three well pads, with the treated intervals of the wellbores to be not less than 460 feet from the unit boundaries, and not less than 150 feet from the treated interval of a well producing from the Niobrara and Codell Formations, unless an exception is 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
10. On November 15, 2017, the Board of County Commissioners of the County of Boulder (“Boulder”) filed a protest (“Initial Boulder 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 and Longmont’s citizens; (2) the requirements of Rule 508 have not been satisfied; (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); (4) the Application is premature because the proposed unit for which the additional wells are being requested has not yet been established; and (5) current market conditions are not favorable and therefore not economically beneficial to move forward with development.
11. On November 27, 2017, the City of Longmont (“Longmont”) filed a protest (“Longmont Protest”) against the Application joining Boulder’s Initial Protest and separately alleging that any surface operations contemplated in connection with the Application be located as far as possible from planned school and park locations.
12. On November 27, 2017, Crestone Peak Resources Operating LLC (“Crestone”) filed a protest (“Crestone Protest”) against the Application.
13. On January 4, 2018, the Hearing Officer issued an Order RE: Motions to Dismiss (“Hearing Officer Order”) dismissing Boulder’s Initial 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. Specific to the Longmont Protest, the Hearing Officer Order provided that the Longmont Protest was similarly dismissed “in so far as the Longmont Protest adopts the arguments and request for relief contained in the Boulder [Initial] Protest”; however, the Hearing Officer further ordered that Longmont be able to “present its case to the Commission concerning the location of the proposed wells in relation to the planned school and park.”
14. On January 16, 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”).
15. On March 13, 2018, 8 North, by counsel, communicated to the Hearing Officer that 8 North and Boulder had entered into an agreement, whereby Boulder would withdraw its Exception and would subsequently file an amended protest on or before March 22, 2018, without objection from 8 North. Additionally, 8 North agreed not to contest the sufficiency of the amended protest per the terms of the agreement between 8 North and Boulder.
16. Subsequent thereto Boulder withdrew its Exception, and on March 22, 2018, Boulder filed an Amended Protest and Intervention (“Amended Protest”).
17. On April 5, 2018, Crestone withdrew the Crestone Protest.
18. On June 7, 2018, Boulder re-filed its Amended Protest.
19. On June 21, 2018, Boulder and 8 North each filed a Prehearing Statement with electronic exhibits, proposed exhibits, and witnesses in this matter.
20. On June 26, 2018, Boulder moved to exclude summary oral and demonstrative evidence of mineral and lease ownership as inadmissible.
21. 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.
22. On June 26, 2018, 8 North moved to exclude testimony and evidence regarding pooling clauses in Boulder’s oil and gas leases.
23. On July 5, 2018, Boulder and 8 North each filed a responsive brief to the evidentiary motions.
24. 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.
25. 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.
26. 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.
27. On July 24, 2018, 8 North and Longmont reached an agreement regarding stipulated language to be put into any order approving the Application in exchange for Longmont’s agreement to withdraw its Protest. The language appears in the following paragraph.
28. In connection with this drilling and spacing unit (“DSU”), 8 North fully intends to request and develop only the surface location indicated in Exhibit 1 attached to its prehearing statement, which lies in the S1/2 SW1/4 of Section 18, Township 2 North, Range 68 West. The City of Longmont withdrew its protest to the Application as a result of 8 North’s representations regarding its planned location for surface operations. Should the Commission decide not to approve this location, 8 North agrees to propose to locate all surface operations in connection with this DSU as far as possible from the school and park sites within the City of Longmont, for the purpose of mitigating any adverse impacts to health, safety, and welfare.
HEARING
29. The Commission held an adjudicatory hearing on this matter on July 31, 2018.
30. No Commissioners were determined to have a conflict of interest.
Argument and ruling on Boulder’s exception
31. 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.
32. 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.”
33. 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.
34. Co-Vice Chair Boigon and Commissioner Hawkins both stated that it was the historical practice of the Commission to accept summary evidence of ownership.
35. 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.
36. 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.
37. 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
38. Prior to the hearing on the merits, the Commission accepted public comment on 8 North’s Application.
39. Land testimony and exhibits submitted in support of the Spacing and Well Density Applications 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, all of which pipeline 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 Protest, none of which was less than 4,000 feet.
40. 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, Crestone showed the Niobrara Formation is present throughout the Application Lands and ranges from approximately 230 to 253 feet thick. Further testimony showed the Codell Formation is present throughout the Application Lands and is approximately 19 to 23 feet thick.
41. 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.
42. 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, geologic hazard and constraint areas.
43. 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 five years.
44. 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.
45. Following closing arguments, the Commission closed the record.
46. 8 North agreed to be bound by oral order of the Commission.
COMMISSION DELIBERATIONS
47. The Commissioners agreed that all comments made during deliberations in Docket Nos. 171200773 and 171000695 would apply to deliberations in this matter.
48. At the conclusion of deliberations, the Commission approved 8 North’s Application by an 8-1 vote.
COMMISSION FINDINGS AND CONCLUSIONS
49. 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.
50. 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.
51. 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.
52. Section 116 does not contain any requirement that an operator address impacts to public health, safety, and welfare.
53. The Commission concludes that testimony and documents presented by 8 North show that the Application meets the requirements of Sections 116(1) and (4), and that the drilling of 31 additional horizontal wells in the Application Lands 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.
54. 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.
55. 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 increase in approved wells in the Application Lands.
56. Sections 116(3) and (4) do not require that the Commission wait until a well is producing in a drilling spacing unit before it approves additional wells. Section 116(3) only requires that the Commission order approving a spacing unit allow for only one well to be drilled and produced in the unit. Section 116(4) only requires that the Commission ensure that additional wells in a spacing unit are necessary to prevent waste and protect correlative rights, and that the number of proposed wells is not unnecessarily high. Section 116(4) does not contain a timing element that would require the Commission to wait until a single well in a unit is actually producing before authorizing additional wells. The only precondition for entry of an order approving additional wells is a preexisting spacing unit.
57. The Commission has the discretion to read Section 116 to allow it to approve a spacing application and additional wells application in consecutive pleadings. Colorado State Personnel Bd. v. Department of Corr., 988 P.2d 1147, 1151 (Colo.1999) (deference is given to an agency's reasonable interpretation of its statute when it “lighten[s] the agency's workload and mak[es] its decision-making process more efficient” as long as it is consistent with the intent and purpose of the statute).
ORDER
IT IS HEREBY ORDERED:
1. 8 North’s Application is APPROVED. An additional 31 horizontal wells, for a total of up to 32 horizontal wells, within an approximate 2,720-acre drilling and spacing unit proposed in Docket No. 171000695 for the below-described lands, are 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 shall 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.
3. A maximum of one surface location will be allowed for development of minerals from the Niobrara and Codell 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 29th 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