Before the Oil and Gas Conservation Commission
of the State of Colorado

In the matter of the amended Application of Kerr-McGee Oil & Gas Onshore LP for an order to establish a drilling and spacing unit and authorize up to Thirty (30) horizontal wells total in the unit, for lands in Sections 26 and 35, Township 1 North, Range 66 West, 6th P.M., for production from the Niobrara, codell and greenriver Formations, Weld county, Colorado

Cause No. 407

Docket No. 180700536

TYPE: SPACING

ORDER NO. 407-2596

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 the application for an order to establish an approximate 960-acre drilling and spacing unit for Sections 26 and 35, Township 1 North, Range 66 West, 6^th P.M., and approve up to 30 horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara, Codell, and Greenriver Formations.

The Commission finds as follows:

1. Raisa II Operating, LLC (Operator No. 10636) (“Raisa”) is an interested party in the subject matter of the above-referenced docket.

2. Kerr-McGee Oil & Gas Onshore LP (Operator No. 47120) (“KMG”) is an interested party in the subject matter of the above-referenced docket.

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 (“Act”).

5. On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule. Sections 35 and 36, Township 1 North, Range 66 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 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 35 and 36, Township 1 North, Range 66 West, 6^th P.M., are subject to this Order for the production of oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.

PROCEDURAL HISTORY

7. On March 1, 2018 (amended April 18, 2018), Raisa filed an Application (“Raisa Application”) in Docket No. 180400360 requesting that the Commission establish an approximate 1280-acre drilling and spacing unit and authorize up to 22 wells for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations underlying the below-described lands (“Raisa DSU”):

Township 1 North, Range 66 West, 6^th P.M.
Section 35: All
Section 36: All

(1,280 acres, more or less, Weld County, Colorado)

8. On May 25, 2018, Kerr-McGee filed a protest of the Raisa Application (“KMG Protest”) claiming approval of the Raisa Application will increase surface impacts, decrease efficiency and economics, lead to drilling unnecessary wells and result in waste and harm to correlative rights.

9. On May 25, 2018 (amended August 23, 2018), Kerr-McGee filed an application (“KMG Application”) in Docket No. 180700536 to establish a drilling and spacing unit and authorize up to 30 wells for the Codell, Niobrara and Greenhorn Formations underlying the below-described lands (“KMG DSU”):

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

Section 26: E½

Section 35: All

(960 acres, more or less, Weld County, Colorado)

10. On July 12, 2018, Raisa filed a protest of the KMG Application (“Raisa Protest”) claiming approval of the KMG Application will result in waste and inefficient and uneconomic development, as well cause harm to Raisa’s correlative rights. Raisa also protested on the grounds that both the Raisa Application and the Raisa Applications for Permit to Drill were filed first in time before the KMG Application.

11. The Hearing Officer consolidated Docket Nos. 180400360 and 180700536 for purposes of hearing.

STIPULATED FACTS

The parties stipulated to the following facts:

12. Raisa owns 100% of the leasehold interest in all of Section 36 of the Raisa DSU. Kerr-McGee owns 100% of the leasehold interest in the E½ Section 26 of the KMG DSU, and owns 100% of the mineral interest (currently unleased) in all of Section 35 in the KMG DSU.

13. The Codell and Niobrara Formations underlie the entirety of both the KMG DSU and the Raisa DSU (“Subject Lands”), and constitute a common source of supply of oil and gas under the Oil and Gas Conservation Act. The series of sandstones, shales, chalks, and marls comprising the Niobrara, Fort Hays, and Codell Formations were deposited by the Western Interior Seaway during the Cretaceous time period by changes in sea level. The Western Interior Seaway covered a large portion of present day North America stretching from the Gulf of Mexico to the Arctic Ocean. These formations are present and underlie most of northeastern Colorado and southeastern Wyoming. Formation lithology varies throughout the section due to changes in water depth (transgressions, regressions), temperature, sedimentation supply, sedimentation rates, and benthic activity.

14. The Niobrara Formation is both a hydrocarbon source rock and reservoir target within the greater DJ Basin. It is comprised of a series of chalks and marls, rich in organic matter. The Niobrara formation is present throughout the Application Lands, with a minimum vertical thickness of 360 feet. The Codell Formation is a reservoir target within the greater DJ Basin comprised of bioturbated sandstones. The Codell Formation is present throughout the Application Lands and is often combined with the Fort Hays Formation due to proximity (directly adjacent) and may be encountered while drilling. This combined vertical thickness exceeds 40 feet in the Application Lands.

15. The results from analog analysis calculate an average drainage area of 16.7 acres and 90.4 acres and an average drainage radius along stimulated lateral length of 77.9 ft and 381.7 ft for the Niobrara and Codell Formations, respectively.

HEARING

16. Docket Nos. 180400360 and 180700536 were heard by the Commission at its September 17-18, 2018 meeting.

17. At the September 17-18, 2018 meeting, the Commission heard testimony and accepted exhibits from Raisa and KMG.

18. Raisa and KMG submitted testimony regarding the economics of each proposed development, plans for surface location, the potential for collision with existing vertical wells and the potential for stranding Section 36, Township 1 North, Range 66 West, 6^th P.M. (“Section 36”).

19. Upon request the by Commission, the Hearing Officer provided a recommendation that the Commission approve Raisa’s Application. The Hearing Officer found that, based on the stipulated facts, both Raisa and KMG have shown that the target formations underlie the proposed units and both Applications protect correlative rights. The Hearing Officer stated that there was a possibility that Section 36 would be stranded if KMG’s Application were approved, and that one-mile lateral wellbores would likely be required to develop Section 36.

20. Upon questioning by the Commission, Commission Staff responded that two wells in Section 36 were not abandoned appropriately and would require remediation before new wells could be drilled.

21. Upon questioning by the Commission, KMG stated that it would not choose to develop its leasehold in Section 36 due to the danger posed by the existing wells. Raisa stated that Section 36 would be stranded and would not be economic to develop if KMG’s Application were approved.

22. Following testimony, presentation of exhibits and closing statements by the parties, the Commission closed the record in Docket Nos. 180400360 and 180700536.

23. Following deliberations, the Commission voted 4-3 to approve Raisa’s Application, and to only allow one surface location. The Commission also requested that Director inform the Commission of Raisa’s progress on development within one year.

24. Following approval of Raisa’s Application, the Commission unanimously denied KMG’s Application.

COMMISSION CONCLUSIONS

25. Pursuant to Section 34-60-116(1), C.R.S., 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.

26. Section 34-60-116(2), C.R.S., 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.

27. The Commission has broad authority under Section 34-60-105(1), C.R.S. to regulate the spacing of wells and to do whatever is reasonably necessary to carry out the provisions of Section 116.

28. Both Raisa and KMG’s Applications likely protect correlative rights.

29. If development occurs in accordance with the plan presented by Raisa the two improperly abandoned wells in Section 36 will be remediated, thereby making these two wells safer.

30. Through the permitting process, Commission staff will ensure that the wells proposed by Raisa are engineered properly and do not pose an unnecessary risk to the existing wells.

31. Raisa’s Application will develop Section 36, while it could be stranded by KMG’s Application. Raisa’s Application is therefore more likely to prevent waste.

32. Raisa’s Application will likely cause fewer surface impacts, with only one proposed surface location, than KMG’s Application, which proposes two surface locations.

33. The Commission finds that Raisa’s Application meets the requirements of the act in that it prevents waste, protects correlative rights and avoids the drilling of unnecessary wells. Raisa’s Application is preferable to KMG’s Application as it will ensure that Section 36 is developed, it will cause fewer surface impacts, and will result in the remediation of two existing wells that were improperly abandoned. Raisa’s Application was also filed first, though the Commission did not consider the timing of applications to be the primary factor in its decision.

ORDER

IT IS HEREBY ORDERED:

1. KMG’s Application in Docket No. 180700536 is DENIED.

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 Raisa II Operating, LLC

Jamie L. Jost

Jill D. Dorancy

Jost Energy Law, P.C.

1401 17th Street, Suite 370

Denver, Colorado 80203

(720) 446-5620

jjost@jostenergylaw.com

jdorancy@jostenergylaw.com

Attorneys for Kerr-McGee Oil & Gas Onshore LP

Jill Fulcher

James Parrot