BEFORE
THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE APPLICATION OF NICKEL ROAD OPERATING LLC FOR AN ORDER TO VACATE TWO DRILLING AND SPACING UNITS ESTABLISHED BY ORDER NOS. 407-1000 AND 407-1781 AND TO ESTABLISH AN APPROXIMATE 1,280-ACRE DRILLING AND SPACING UNIT FOR SECTIONS 7 AND 8, TOWNSHIP 7 NORTH, RANGE 65 WEST, 6TH P.M., AND TO AUTHORIZE THE DRILLING OF UP TO 24 HORIZONTAL WELLS IN THE UNIT FOR THE DEVELOPMENT AND OPERATION OF THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO. |
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CAUSE NO. 407
DOCKET NO. 180400308
TYPE: SPACING
ORDER NO. 407-2579 |
REPORT OF THE COMMISSION
The Commission heard this matter on September 18, 2018, at the Garfield County Sheriff's Annex – Rifle, 106 County Road 333-A, Rifle, Colorado 81650 upon application for an order to establish an approximate 1280-acre drilling and spacing unit for Sections 7 and 8, Township 7 North, Range 65 West, 6th P.M., and approve up to twenty four horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.
The Commission finds as follows:
1. Nickel Road Operating LLC (Operator No. 10669) (“Nickel Road”) is an interested party in the subject matter of the above-referenced hearing.
2. Extraction Oil & Gas, Inc. (Operator No. 10459) (“Extraction”) is an interested party in the subject matter of the above-referenced hearing.
3. Due notice of 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 the parties interested therein, and has authority to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act.
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, 6th P.M., are subject to this Rule for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.
6. On April 28, 2014, the Commission entered Order No. 407-1000 which, among other things, established an approximate 320-acre drilling and spacing unit for the N½ of Section 8, Township 7 North, Range 65 West, 6th P.M. for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations, and approved up to six horizontal wells within the unit, 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.
7. On August 29, 2016, the Commission entered Order No. 407-1781 which, among other things, established an approximate 1,280-acre drilling and spacing unit for Section 12, Township 7 North, Range 66 West, 6th P.M., and Section 7, Township 7 North, Range 65 West, 6th P.M., and approved up to 16 horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation, with the productive interval of any wellbore shall be located no closer than 150 feet from any other wellbore producing from the Codell and Niobrara Formations, and no closer than 460 feet from the unit boundaries, unless an exception is granted by the Director.
PROCEDURAL HISTORY
8. On February 2, 2018, Extraction filed an application in Docket No. 180400279 for an order to, among other things, establish an approximate 1,920-acre drilling and spacing unit for the below-described lands, and to authorize the drilling of up to 20 approximate three-mile horizontal wells within the proposed unit for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation, with the treated intervals of the wellbore of any permitted wells to be located not less than 460 feet from the unit boundaries, and not less than 150 feet from the treated interval of any well being drilled or producing from the Codell-Niobrara Formation, and authorizing up to six multi-well pads within the proposed unit or adjacent thereto, unless an exception is granted by the Director on the below-described lands:
Township 7 North, Range 65 West, 6th P.M.
Section 8: E½
Section 9: All
Section 10: All
Section 11: W½
1,920-acres, more or less, Weld County, Colorado
9. On or around February 16, 2018, Extraction submitted 9 “Dime” Form 2, , Applications for Permits to Drill (“APD”), and an associated Form 2A, Oil and Gas Location Assessment, within its proposed Unit pending in Docket No. 180400279. Extraction’s Form 2A was filed within an invalid surface location.
10. On February 19, 2018, Nickel Road filed 24 Form 2 Applications for Permits to Drill the “Elder West” APDs within the unit pending in Docket No. 180400309, with surface locations in the NW¼SW¼ of Section 11, Township 7 North, Range 65 West, 6th P.M., and bottomhole locations in the W½W/\½ of Section 9, Township 7 North, Range 65 West, 6th P.M. On February 20, 2018, Nickel Road filed a Form 2A Oil and Gas Location Assessment for a multi-well pad located in the NW¼SW¼ of Section 11, Township 7 North, Range 65 West, 6th P.M., Document No. 401548407 (the “Elder Pad”).
11. On February 19, 2018, Nickel Road filed 24 Form 2 Applications for Permits to Drill the “Elder East Wells” within the unit pending in Docket No. 180400343, with surface locations in the NW¼SW¼ of Section 11, Township 7 North, Range 65 West, 6th P.M. The Form 2 Applications were amended on May 9, 2018 to reflect bottomhole locations in the E½E½ of Section 11, Township 7 North, Range 65 West, 6th P.M. On February 20, 2018, Nickel Road filed a Form 2A Oil and Gas Location Assessment for the proposed NRO 11 Unit for a multi-well pad located in the NW¼SW¼ of Section 11, Township 7 North, Range 65 West, 6th P.M., Document No. 401548407 (the “Elder Pad”) pursuant to a validly executed Surface Use Agreement.
12. On February 27, 2018, Nickel Road filed an application in Docket No. 180400308 for an order to, among other things: 1) vacate the 320-acre drilling and spacing unit established by Order No. 407-1000 for the N½ of Section 8, Township 7 North, Range 65 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; 2) vacate the 1,280-acre drilling and spacing unit established by Order No. 407-1781 for Section 12, Township 7 North, Range 66 West, 6th P.M., and Section 7, Township 7 North, Range 65 West, 6th P.M.; 3) establish an approximate 1,280-acre drilling and spacing unit for the below-described lands for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; 4) approve up to 24 new horizontal wells in the proposed approximate 1,280-acre drilling and spacing unit for the efficient and economic development of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations; 5) providing that the treated interval of each proposed horizontal well shall be no closer than 460 feet from the boundaries of the proposed unit, and all horizontal wells shall be no closer than 150 feet from the treated interval of another well producing from the same supply within the unit, unless a waiver or consent is obtained from the operator of such well; and 6) providing that no more than two new well pads be authorized in the unit, or adjacent thereto, unless an exception is granted by the Director, on the below-described lands:
Township 7 North, Range 65 West, 6th P.M.
Section 7: All
Section 8: All
1,280-acres, more or less, Weld County, Colorado
13. On February 27, 2018, Nickel Road filed an application in Docket No. 180400309 for an order to, among other things: 1) establish an approximate 1,280-acre drilling and spacing unit for the below-described lands for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; 2) approve up to 24 new horizontal wells in the proposed approximate 1,280-acre drilling and spacing unit for the efficient and economic development of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations; 3) providing that the treated interval of each proposed horizontal well shall be no closer than 460 feet from the boundaries of the proposed unit, and all horizontal wells shall be no closer than 150 feet from the treated interval of another well producing from the same supply within the unit, unless a waiver or consent is obtained from the operator of such well; and 4) providing that no more than two new well pads be authorized in the unit, or adjacent thereto, unless an exception is granted by the Director, on the below-described lands:
Township 7 North, Range 65 West, 6th P.M.
Section 9: All
Section 10: All
1,280-acres, more or less, Weld County, Colorado
14. On March 1, 2018, Nickel Road filed 24 Form 2 Applications for Permits to Drill the “Fabrizius Wells” within the unit pending in Docket No. 180400308, with surface locations in the NE¼ SE¼of Section 8, Township 7 North, Range 65 West, 6th P.M., and bottomhole locations in the W½W½ of Section 7, Township 7 North, Range 65 West, 6th P.M. On March 1, 2018, Nickel Road filed a Form 2A Oil and Gas Location Assessment for the NRO 7-8 Unit for a multi-well pad located in the NE¼ SE¼ of Section 8, Township 7 North, Range 65 West, 6th P.M.
15. On March 1, 2018, amended May 11, 2018, Nickel Road filed an application in Docket No. 180400343 for an order to, among other things: 1) establish an approximate 640-acre drilling and spacing unit for the below-described lands for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; 2) approve up to 24 new horizontal wells in the proposed approximate 640-acre drilling and spacing unit for the efficient and economic development of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations; 3) providing that the treated interval of each proposed horizontal well shall be no closer than 460 feet from the boundaries of the proposed unit, and all horizontal wells shall be no closer than 150 feet from the treated interval of another well producing from the same supply within the unit, unless a waiver or consent is obtained from the operator of such well; and 4) providing that no more than two new well pads be authorized in the unit, or adjacent thereto, unless an exception is granted by the Director, on the below-described lands:
Township 7 North, Range 65 West, 6th P.M.
Section 11: All
640-acres, more or less, Weld County, Colorado
16. On March 16, 2018, Nickel Road filed a Protest to Extraction’s Application in Docket No. 180400279 on the basis, among other things, that Extraction’s proposed development will create waste, will harm Nickel Road’s correlative rights, and will not result in the efficient and economic development of the subject lands in violation of the Act.
17. On March 16, 2018, Nickel Road filed a Rule 303.j Complaint and associated Exhibits requesting that the Director withhold approval of Extraction’s Dime APDs and Dime Pad.
18. On April 13, 2018, Extraction submitted nine “Falcon” APDs for development of Extraction’s proposed unit in Docket No. 180700527.
19. On April 16, 2018, Extraction filed Protests to Nickel Road’s Applications in Docket Nos. 180400308, 180400309 and 180400343.
20. On May 11, 2018, Nickel Road, filed a Rule 303.j Complaint and associated Exhibits requesting that the Director withhold approval of Extraction’s Falcon APDs because the Falcon APDs violate the Act based on information supplied in the Complaint.
21. On May 22, 2018, Extraction filed an Application in Docket No. 180700527 for an order to, among other things, establish an approximate 1,600-acre drilling and spacing unit for the below-described lands and to approve up to 20 new 2.5-mile horizontal wells in the proposed approximate 1,600-acre drilling and spacing unit for development of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation, Wattenberg Field. The Application also requests setbacks of 460 feet from the unit boundaries and 150 feet from any other well producing or drilling from the Codell-Niobrara Formation, without exception being granted by the Director. In addition, the Application requests limiting the drilling of any permitted wells under the Application to no more than six multi-well pads either (1) on lands overlaying the drilling and spacing unit from either inside a Rule 318A GWA drilling window or lands outside GWA windows with landowner consent, absent an exception granted by the Director, or (2) on lands outside the drilling and spacing unit with landowner consent, absent an exception by the Director, on the below-described lands:
Township 7 North, Range 65 West, 6th P.M.
Section 7: All
Section 8: W½
Township 7 North, Range 66 West, 6th P.M.
Section 12: All
1,600-acres, more or less, Weld County, Colorado
22. On July 16, 2018, Nickel Road filed a Protest to Extraction’s Application in Docket No. 180700527 on the basis, among other things, that Extraction’s proposed development of will create waste, will harm Nickel Road’s correlative rights, and will not result in the efficient and economic development of the subject lands in violation of the Act.
23. On August 20, 2018, Nickel Road filed a Motion in Limine to exclude Extraction’s untimely exhibits from evidence in these matters.
24. On September 6, 2017, counsel for the Parties participated in a Final Prehearing Conference. Oral arguments regarding Nickel Road’s Motion in Limine were heard. Following oral arguments, the Hearing Officer denied Nickel Road’s motion for the reason that the prejudice to Extraction from the exclusion of its exhibits would far outweigh any prejudice to Nickel Road from the late filing of same. The Hearing Officer allowed an opportunity to Nickel Road to file rebuttal exhibits due to Extraction’s failure to comply with the applicable deadlines.
STIPULATED FACTS
Prior to hearing, the parties stipulated to the following facts regarding geology:
25. The Codell and Niobrara Formations were deposited in the Western Interior Seaway during Cretaceous time. This seaway was vast in extent and covered much of present day North America from the Gulf of Mexico north to the Arctic.
26. These rocks were deposited as shallow water sediments and underlie most of the DJ Basin in parts of northeastern Colorado, southeastern Wyoming and southwestern Nebraska. The Codell and Niobrara Formations exist under the entirety of the lands at issue under Docket Nos. 180400279, 180400308, 180400309, 180400343 and 180700527 and are a common source of hydrocarbon production.
27. The Codell Formation is a shallow marine tight-sandstone reservoir under the lands at issue under Docket Nos. 180400279, 180400308, 180400309, 180400343 and 180700527.
28. The Niobrara formation is both a hydrocarbon source rock and a reservoir under the lands at issue under Docket Nos. 180400279, 180400308, 180400309, 180400343 and 180700527.
HEARING
29. This matter was heard by the Commission at its September 17-18, 2018 meeting. For purposes of hearing, Docket Nos. 180400308, 180400309, 180400279, 180400343 and 180700527 were consolidated.
30. At the September 17-18, 2018 meeting, the Commission heard testimony and accepted exhibits from Nickel Road and Extraction, including Stipulations of Fact with respect to geology underlying the lands at issue including the undisputed facts that the Codell and Niobrara Formations are present underlying the lands at issue in Docket Nos. 180400308, 180400309, 180400279, 180400343 and 180700527.
31. Land testimony and exhibits submitted by Nickel Road showed Nickel Road holds oil and gas leasehold interests and has a right to drill in the Application Lands in Docket Nos. 180400308, 180400309, and 180400343.
32. Land testimony and exhibits submitted by Extraction showed it holds oil and gas leasehold interests and has a right to drill in the Application Lands in Docket Nos. 180400279 and 180700527.
33. At hearing, regulatory and land testimony and exhibits submitted by Nickel Road showed that Nickel Road filed valid Form 2 and Form 2As to develop the Application Lands subject to Docket No. 180400308, that Nickel Road’s development plan will comply with the mandates of the Act.
34. At hearing, engineering testimony and exhibits submitted in support of the Application in Docket No. 180400308 by Nickel Road, showed that two-mile horizontal Niobrara and Codell wells within the proposed unit are economic, the drainage area of a two-mile horizontal Niobrara and Codell wells on the Application Lands is estimated to be less than the requested 1,280-acre drilling and spacing unit size.
35. At hearing, engineering testimony and exhibits submitted in support of the Application in Docket No. 180400309 by Nickel Road, showed that two-mile horizontal Niobrara and Codell wells within the proposed unit are economic, the drainage area of a two-mile horizontal Niobrara and Codell wells on the Application Lands is estimated to be less than the requested 1,280-acre drilling and spacing unit size.
36. At hearing, engineering testimony and exhibits submitted in support of the Application in Docket No. 180400343 by Nickel Road, showed that one-mile horizontal Niobrara and Codell wells within the proposed unit are economic, the drainage area of one-mile horizontal Niobrara and Codell wells on the Application Lands is estimated to be less than the requested 640-acre drilling and spacing unit size.
37. At hearing, engineering testimony and exhibits submitted in support of the Application in Docket No. 180400279 by Extraction, the drainage area of a three-mile horizontal Niobrara and Codell wells on the Application Lands is estimated to be less than the requested 1,920-acre drilling and spacing unit size. Extraction also submitted testimony and exhibits that three-mile horizontal Niobrara and Codell wells within the proposed unit would be economic.
38. At hearing, engineering testimony and exhibits submitted in support of the Application in Docket No. 180700527 by Extraction, showed that the drainage area of a 2.5-mile horizontal Niobrara and Codell wells on the Application Lands is estimated to be less than the requested 1,600-acre drilling and spacing unit size. Extraction also submitted testimony and exhibits that 2.5-mile horizontal Niobrara and Codell wells within the proposed unit would be economic.
39. The Commission accepted written Rule 510 Statements from Mr. Casey Elder into the record in Docket Nos. 180400309, 180400343, and 180400279. Through his 510 Statements, Mr. Elder expressed support for Nickel Road’s development plan, stating that Nickel Road’s development plan provided for efficient and economic development while minimizing surface impacts. Mr. Elder executed a surface use agreement with Nickel Road, and stated that he believed Nickel Road would develop within a “reasonable timeframe.” Mr. Elder expressed concern with Extraction’s proposed three-mile wellbore lengths, stated that Extraction’s proposed spacing units would strand minerals in the E½ of Section 11, and stated that Extraction’s proposed surface location in Docket No. 180400279 was not allowed under the applicable lease.
40. Nickel Road and Extraction agreed to be bound by oral order of the Commission.
41. Following testimony, presentation of exhibits and closing statements by the parties, the Commission closed the record in Docket Nos. 180400308, 180400309, 180400279, 180400343 and 180700527.
42. Following deliberations, the Commission voted 6-1 to approve Nickel Road’s Applications in Docket Nos. 180400308, 180400309, and 180400343. The Commission also voted 6-1 to deny Extraction’s Applications in Docket Nos. 180400279 and 180700527 and to direct Extraction to withdraw their permit applications in the Application Lands in Docket Nos. 180400279 and 180700527.
COMMISSION CONCLUSIONS
43. Pursuant to Section 34-60-116(1), CRS, any spacing unit approved by the Commission must prevent waste, avoid the drilling of unnecessary wells, and protect correlative rights. These are broad discretionary considerations.
44. Section 34-60-116(2), CRS, authorizes the Commission to divide a pool in to zones, and establish drilling units for each zone, so that the pool as a whole will be efficiently and economically developed.
45. The Commission has broad authority under Section 34-60-105(1), CRS to regulate the spacing of wells and to do whatever is reasonably necessary to carry out the provisions of Section 116.
46. The Commission considered Nickel Road’s development plan in Dockets No. 180400308, 180400309, and 180400343, and Extraction’s development plan in Docket Nos. 180400279 and 180700527 as a whole.
47. Nickel Road’s Applications in Dockets No. 180400308, 180400309, and 180400343 meet the requirements of Section 34-60-116, C.R.S. and Commission Rules, in that the proposed developments would prevent waste, protect correlative rights, and avoid the drilling of unnecessary wells.
48. Testimony and exhibits submitted by Nickel Road at hearing showed that the proposed development plan using one or two-mile lateral wellbore lengths was an established and proven plan that would lead to efficient and economic recovery of oil and gas resources. The Commission found Nickel Road’s testimony regarding its development plan, including pipeline capacity, surface facility plans, and likelihood of development in a reasonable time-frame compelling.
49. The development plan proposed by Extraction required the use of three-mile lateral wellbores, presented a greater potential for waste and less efficient and economic recovery than the plan proposed by Nickel Road. The Commission found Nickel Road’s witnesses credible on potential for waste posed by three-mile lateral wellbores.
50. Extraction’s development plan leaves the E½ in Section 11, Township 7 North, Range 65 West, 6th P.M., undeveloped, while Nickel Road’s development plan does not include Section 12, Township 7 North, Range 66 West, 6th P.M. There is a greater potential to strand the E½ of Section 11, thereby causing waste, than there is a potential to strand Section 12. The Commission found it more likely that Section 12 would be developed than that the E½ of Section 11 would be developed, given the size of the area and development in the region.
51. The dates applications were submitted or the dates that permit applications were submitted were not relevant consideration given the differences between the development plans of Extraction and Nickel Road. Furthermore, Mr. Elder’s 510 statement indicated that Extraction may not have been able to submit its applications when it did had Extraction not accessed Mr. Elder’s property without permission. The Commission also found Mr. Elder’s 510 Statement in favor of Nickel Road’s development plan compelling.
ORDER
IT IS HEREBY ORDERED:
1. Nickel Road’s Application in Docket No. 180400308 is APPROVED.
2. The 320-acre drilling and spacing unit established by Order No. 407-1000 for the N½ of Section 8, Township 7 North, Range 65 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations is hereby VACATED.
3. The 1,280-acre drilling and spacing unit established by Order No. 407-1781 for Section 12, Township 7 North, Range 66 West, 6th P.M., and Section 7, Township 7 North, Range 65 West, 6th P.M., is hereby VACATED.
4. An approximate 1280-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to twenty four horizontal wells within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations:
Township 7 North, Range 65 West, 6th P.M.
Section 7: All
Section 8: All
5. The productive interval of any horizontal well shall be no closer than 460 feet from the boundaries of the unit and not less than 150 feet from the treated interval of another well within the unit, without exception being granted by the Director.
6. The wells shall be drilled on no more than two well pads within the unit, or on adjacent lands, subject to Rule 318A, unless the Director grants an exception.
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 16th day of October, 2018, as of September 18, 2018.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By:___________________________________
Julie Spence Prine, Secretary
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the ___ day of October, 2018, a true and correct copy of this Order was served on the following by email and U.S. Mail, first-class postage prepaid, at the addresses shown below:
Attorneys for Nickel Road Operating LLC
Jamie L. Jost
Kelsey H. Wasylenky
Jost Energy Law, P.C.
1401 17th Street, Suite 370
Denver, Colorado 80203
(720) 446-5620
Attorneys for Extraction Oil & Gas, Inc.
Robert A. Willis
Poulson, Odell & Peterson, LLC
Attorney for Extraction
_______________________________
Margaret Humecki