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 CODELL-NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 180300184
TYPE: SPACING
ORDER NO. 407-2760
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REPORT OF THE COMMISSION
The Commission heard this matter on January 28, 2019, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to establish an approximate 1,280-acre drilling and spacing unit for Sections 24 and 25, Township 5 North, Range 63 West, 6th P.M., and to approve up to 20 horizontal wells 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. Bonanza Creek Energy Operating Co., LLC, Operator No. 8960 (“Bonanza Creek” or “Applicant”), is an interested party in the subject matter of the above referenced hearing.
2. Noble Energy, Inc., Operator No. 100322 (“Noble” or “Protestant”), 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, 1988, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule, which was amended on August 8, 2011 to, among other things, address the drilling of horizontal wells and require that a horizontal wellbore spacing unit include any governmental quarter-quarter section that is located less than 460 feet from the completed interval of the wellbore lateral. The Rule does not, however, prohibit the establishment of drilling and spacing units within the Greater Wattenberg Area.
6. On October 1, 2012, the Commission entered Order No. 407-707, which confirmed an approximate 320-acre horizontal wellbore spacing unit for the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation. Order No. 407-707 further pooled all interests in the above-described unit, and granted cost-recovery pursuant to Section 34-60-116(7), C.R.S., out of the interests of any non-consenting working interest owners within the unit.
PROCEDURAL HISTORY
7. On January 18, 2018, Bonanza Creek filed an application with the Commission in the above-captioned docket (the “Application”) for an order to, among other things, (1) establish an approximate 1,280-acre drilling and spacing unit for the below-described lands and approve up to 20 horizontal wells in the proposed unit for production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation, (2) require the productive interval of the wellbore of any permitted wells in the unit 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, (3) provide that the wells shall be drilled on a maximum of 4 well pads within the unit subject to Rule 318A or on adjacent lands, unless an exception is granted by the Director, and (4) maintain allocation of proceeds from any existing wells located within the proposed unit and producing from the Codell and/or Niobrara Formations, on the following lands (“Application Lands”):
Township 5 North, Range 63 West, 6th P.M.
Section 24: All
Section 25: All
Weld County, Colorado, containing approximately 1,280 acres.
The W½ of Section 24 is already spaced for a 320-acre unit by Order No. 407-707.
8. On March 5, 2018, Noble filed a Protest to Bonanza Creek’s Application asserting it is the 100% “Owner” (as defined by the Oil and Gas Conservation Act (the “Act”)) of Section 25 of the Application Lands and the majority owner in the E/2 of Section 24 of the Application Lands, and is the Operator of multiple existing producing wells from the Codell and Niobrara Formations within the Application Lands.
9. Bonanza Creek’s Application was continued for various reasons over multiple hearing cycles by request of Bonanza Creek and was eventually scheduled for hearing at the January 28-29, 2019 Commission hearing.
10. On November 29, 2018, the Parties participated in an Initial Prehearing Conference in this matter.
11. On November 29, 2018, the Hearing Officer entered a Case Management Order in this matter.
12. On January 8, 2019, the Parties participated in a second Prehearing Conference in this matter.
13. On January 11, 2019, the Parties filed Prehearing Statements, proposed Exhibits and designations of Witnesses in this matter.
14. On January 15, 2019, the Parties filed Responses to Prehearing Statements, Rebuttal Exhibits, and designation of Rebuttal Witnesses.
15. On January 15, 2019, Noble filed a Motion in Limine seeking to exclude Bonanza Creek’s witnesses in this matter due to improper disclosure. Noble subsequently withdrew its Motion in Limine before any ruling was entered.
16. On January 17, 2019, the Hearing Officer issued a Final Prehearing Order containing stipulated facts, disputed issues, identifying witnesses and exhibits, and setting forth the time and order of case presentation to the Commission.
HEARING
17. On January 28, 2019, the Commission heard this matter as Docket No. 180300184. At hearing the Commission heard testimony and accepted exhibits from Bonanza Creek and Noble.
18. At hearing, land testimony and exhibits submitted in support of the Application by Max Faith, Manager of the Land Department for Bonanza Creek, showed that Bonanza Creek holds oil and gas leasehold interests and has a right to drill in the Application Lands. Mr. Faith also testified that Bonanza Creek has a surface use agreement in place, that the Application Lands are part of Bonanza Creek’s core development area, and that Bonanza Creek would use existing infrastructure to develop the Application Lands. Mr. Faith also testified that landowners in the Application Lands filed 510 Statements in support of Bonanza Creek.
19. At hearing, geology testimony and exhibits submitted by Jeffrey Schroeder, Development Geologist for Bonanza Creek, showed that the Niobrara and Codell Formations are present throughout the Applications Lands and are a common source of supply for hydrocarbons. Mr. Schroeder also testified that Bonzana Creek’s proposed wells would be offset 150 feet from Noble’s existing wells and would have a negligible impact on Noble’s existing wells. Mr. Schroeder further testified that Bonanza Creek has experience with the development of oil and gas resources in the area surrounding the proposed unit.
20. At hearing, engineering testimony and exhibits submitted in support of the Application by Christina Bernet, Senior Reservoir Development Engineer for Bonanza Creek, showed that the estimated drainage areas for a 2-mile horizontal Niobrara Formation well and a 2-mile horizontal Codell Formation well are 74 acres and 230 acres, respectively, and an approximate 1,280-acre drilling and spacing unit is therefore not less than the maximum area that can be efficiently, economically and effectively drained by 20 horizontal wells producing oil, gas, and associated hydrocarbons from the benches of the Niobrara and Codell Formations. Bonanza Creek’s data further supported the requested inter-well and unit boundary setbacks. Further testimony demonstrated that the project economics are sound, that additional development in the west half of Section 24 would not be economic, and that there is no definitive evidence that Bonanza Creek’s wells would negatively impact Noble’s existing wells.
21. At hearing, engineering testimony and exhibits submitted in support of the Application by Dawn Lima, Director of Subsurface and Development at Bonanza Creek, showed that development will use surface locations previously agreed to by the surface landowner, that existing pipeline infrastructure will be used, and that Bonanza Creek’s development plan would minimize surface impacts. Further testimony demonstrated that Bonanza Creek would use conventional drilling practices and has experience to avoid the wellbores of Noble’s wells.
22. At hearing, land testimony and exhibits submitted by Brian Bolton, Staff Landman for Noble, showed that Noble has 100 percent leasehold in Section 25, and 75 percent leasehold in the east half of Section 24. Mr. Bolton further testified that the 150-foot setback proposed by Bonanza Creek would result in unproductive areas, that Noble’s existing wells in Section 24 were productive, that Bonanza Creek’s development plan would block further development, and that Noble also has existing infrastructure in the area. Upon questioning from the Commission, Mr. Bolton testified that Noble’s leasehold in Section 25 was due to a single lease that was held by production.
23. In response to a Commission question, Commission staff stated that the 150-foot setback would be measured in three dimensions.
24. At hearing, Mike Marini, Prospect Development Engineer for Noble, submitted testimony and exhibits that the mineral interests in Section 25 would be diluted by combination with Section 24, that Noble would be required to contribute the majority of costs for Bonanza Creek’s development in the proposed unit, that Noble would lose an estimated 1.4 million dollars of value for its acreage in the Application lands, that Noble’s three existing wells in Section 25 would likely be destroyed, and that wells drilled by Noble are more productive and more profitable than wells drilled by Bonanza Creek.
25. Following testimony, presentation of exhibits and closing statements by the parties, the Commission closed the record.
26. Following deliberations, the Commission voted 5-2 to approve Bonanza Creek’s application.
COMMISSION CONCLUSIONS
27. 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.
28. Section 34-60-116(2), C.R.S., authorizes the Commission, when necessary for any of the purposes mentioned in Section 34-60-116(1), C.R.S., to divide a pool into zones, and establish drilling units for each zone, so that the pool as a whole will be efficiently and economically developed.
29. 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.
30. Based on the facts stated in the Application and testimony and exhibits received at hearing, which the Commission determined were credible, Bonanza Creek’s Application satisfies the requirements of the Section 116 in that it will prevent waste, protect correlative rights, and prevent the drilling of unnecessary wells.
31. Chairman Benton determined that Noble did not present sufficient evidence as to its acreage value calculation or to the destruction of Noble’s existing wells and concluded that the Application does not violate correlative rights.
32. Commissioner Ager determined that Bonanza Creek’s Application would prevent waste when compared with Noble’s existing development.
33. Commissioner Boigon determined that the Application Lands are not primary for Noble, but is a core area for Bonanza Creek who will pursue further development. Mr. Boigon further expressed that no minimum acreage requirement exists and that other issues raised were more appropriately addressed at the permitting and pooling stages.
34. Commissioner Jolley agreed with Commissioner Boigon that no minimum acreage requirement exists and further development should be encouraged with the approval of the Application.
35. Commissioner Gibbs expressed his appreciation for the parties’ effective presentation and Bonanza Creek’s use of existing infrastructure as better for the environment.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 1,280-acre drilling and spacing unit is hereby established for the below-described lands with an approved total of up to 20 horizontal wells within the unit for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations:
Township 5 North, Range 63 West, 6th P.M.
Section 24: All
Section 25: All
2. The productive interval of wellbores in the unit shall be no closer than 150 feet from the productive interval of any other wellbore located in the unit, and no closer than 460 feet from the unit boundaries, unless an exception is granted by the Director.
3. Order No. 407-707 is maintained as to the Application Lands. That allocation of proceeds for any existing wells located within the proposed unit area and producing from the Codell and/or Niobrara Formations is hereby maintained, with any existing horizontal wells not counted in the 20 horizontal wells authorized by this approved Application.
4. The wells will be drilled from no more than four surface location within the unit or at a legal location(s) on adjacent lands, subject to Rule 318A, unless an exception is 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 26th day of February, 2019, as of January 28, 2019.
OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
By Mimi C. Larsen, Secretary
CERTIFICATE OF SERVICE
On March 7, 2019 a true and correct copy of the foregoing Report of the Commission was sent by electronic mail to the following:
Jamie L. Jost
Kelsey Wasylenky
Attorneys for Noble
Rob Willis
Poulson, Odell & Peterson LLC
Attorney for Bonanza Creek
rwillis@popllc.com
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