BEFORE THE OIL & 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, LARIMER AND WELD COUNTIES, COLORADO |
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CAUSE NO. 407
DOCKET NOS. 180600426; 180600429; 180600431; 180600441; 180600449; 180600454; 181000743 TYPE: POOLING ORDER NO. 407-2762 |
COMMISSION ORDER ON EXTRACTION’S POOLING APPLICATIONS
The Commission heard this matter on January 28, 2019, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln St., Suite 801, Denver, Colorado 80203, upon applications requesting orders pooling all interests for in certain wells for portions of Township 4 North, Ranges 68 and 69, 6th P.M., for production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
The Commission finds as follows:
1. The applicant for the above-referenced docketed matters, Extraction Oil & Gas, Inc. (Operator No. 10459) (“Extraction”) is an interested party in the subject matter of the above-referenced hearing.
2. Ivar W. Larson, personally and as member of Larson Front Range Farms LLC (“LFRF”), and Donna M. Larson, personally and as member of LFRF (Mr. and Ms. Larson and LFRF (collectively referred to herein as “Larson”) are interested parties in the subject matter of the above-referenced hearing.
3. Due notice of time, place, and purpose of hearing has been given in all respects as required by law.
4. The Commission has jurisdiction over the subject matter embraced in said matter and the parties interested therein, and has authority to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act (“Act”).
PROCEDURAL HISTORY
5. Extraction filed verified applications and amended applications for certain portions of Sections 7, 8, 17, and 18, Township 4 North, Range 68 West, 6th P.M. and certain portions of Sections 12 and 13, Township 4 North, Range 69 West, 6th P.M., (“Application Lands”), to pool all interests in established horizontal wellbore spacing units (“WSU”) for the development and operation of the Niobrara and Codell Formations, as follows:
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Docket No. |
Well(s) |
Application Date |
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180600426 |
Enright 2N |
April 12, 2018 |
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180600429 |
Enright 6N |
April 12, 2018 |
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180600431 |
Enright 8C, 10N |
April 12, 2018 |
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180600435 |
Trott 7W-10-2C, 4N |
April 12, 2018; Amended May 2, 2018 |
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180600438 |
Trott 7W-10-8N, 10C, 12N |
April 12, 2018; Amended May 2, 2018 |
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180600441 |
Trott 7W-20-16N |
April 12, 2018 |
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180600449 |
Kennedy 1C, 3N |
April 12, 2018; Amended May 2, 2018 |
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180600454 |
Kennedy 7N, 9C, 11N |
April 12, 2018; Amended May 2, 2018 |
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181000743 |
Kennedy 13N |
August 29, 2018 |
Individually, each of these applications is referred to herein as a “Pooling Application,” and collectively as the “Pooling Applications.”
6. Before filing the Pooling Applications, Extraction obtained approval from the Director of the Commission for the WSUs. Larson objected to the WSUs.
7. On April 19, 2018, Larson filed a Complaint for Judicial Review of Final Agency Action in District Court for the City and County of Denver, Case No. 2018CV031404 (the “Lawsuit”). Larson seeks judicial review of the Commission’s and Commission Staff’s dismissal of Larson’s objections to the WSUs. This action is still pending.
8. On May 24, 2018, Larson filed protests against the Pooling Applications, with the exception of Docket No. 181000743, which was filed on October 11, 2018. Collectively, all of Larson’s protests to the Pooling Applications are referred to herein as the “Protests.”
9. On July 6, 2018, Larson and Extraction each filed a prehearing statement with electronic exhibits, proposed exhibits, and witnesses in preparation for the Commission’s July 30 – August 1, 2018 hearing.
10. On July 12, 2018, Larson moved to continue the hearing.
11. On July 20, 2018, the parties convened for a final prehearing conference in the subject matters at the office of the Commission in preparation for the Commission’s July hearing. At the final prehearing conference, the Hearing Officer granted Larson’s motion for a continuance.
12. On July 23, 2018, the Hearing Officer issued a written order setting out grounds for continuing the Pooling Applications to the September 17-18, 2018 Commission meeting.
13. On July 23, 2018, Extraction filed a Motion for Reconsideration of Hearing Officer’s Continuance (“Motion for Reconsideration”). Larson responded in opposition on July 24, 2018.
14. On July 30, 2018, the Commission entered Order No. 1-212 denying Extraction’s Motion for Reconsideration and set the Pooling Applications for hearing at the September 17-18, 2018 Commission hearing.
15. On August 14, 2018, Extraction requested a continuance of the Pooling Applications to the Commission’s October 29-30, 2018 hearing.
16. On September 27, 2018, Larson filed a motion to continue the Pooling Applications to the December 17-18, 2018 Hearing.
17. On September 28, 2018, Extraction filed a motion to dismiss (“Motion to Dismiss”) Larson’s protests in Docket Nos. 180600435 and 180600438 on the grounds that Larson did not own an interest in the Application Lands for these Pooling Applications, and therefore lacks standing to protest those Pooling Applications.
18. The Hearing Offer granted Larson’s motion to continue based on Mr. and Mrs. Larson’s health issues.
19. On November 1, 2018, the Hearing Offer granted Extraction’s Motion to Dismiss Larson’s protests in Docket Nos. 180600435 and 180600438, on the arguments set forth by Extraction regarding standing.
20. On November 7, 2018, the Hearing Offer entered a Second Case Management Order for the Pooling Applications.
21. On November 13, 2018, Larson and Extraction each filed a prehearing statement with electronic exhibits, proposed exhibits, and witnesses in preparation for the Commission’s December hearing.
22. On November 15, 2018, Larson filed a Motion for Stay of Pooling Proceedings and Continuance of December Hearing (“Motion for Stay”). Larson requested the stay of the Commission proceedings last until the resolution of the Lawsuit in Denver District Court. Extraction responded in opposition on November 15, 2018.
23. On December 4, 2018, all of the parties convened for the Final Prehearing Conference at which the Hearing Officer confirmed with the parties the matters to be heard at the Commission’s December hearing. Additionally, the Hearing Officer heard argument on Larson’s Motion for Stay at the Prehearing Conference.
24. On December 12, 2018, the Hearing Officer issued a recommendation that the Commission deny Larson’s Motion for Stay.
25. Also on December 12, 2018, the Hearing Officer issued the Final Prehearing Order for Docket Nos. 180600426; 180600429; 180600431; 180600441; 180600449; 180600454; and 181000743. The Final Prehearing Order stated that Docket Nos. 180600435 and 180600438 were on the commission’s consent agenda for approval based on the Hearing Officer’s dismissal of same. The Prehearing Order also provided that the Commission would hear argument on Larson’s Motion for Stay before hearing the merits of the Pooling Applications.
26. At the December 17-18, 2018 Commission hearing, and before reaching the merits of the Pooling Applications, the Commission heard argument on Larson’s Motion for Stay.
27. Through its pleadings and oral argument at hearing, Larson argued:
a. A stay is warranted because the District Court is currently reviewing the legality of the prerequisite WSU approvals for all Enright, Kennedy and Trott Wells where Extraction seeks a forced pooling order. If Larson prevails in the Lawsuit, the Commission’s potential forced pooling order would be based upon invalid WSUs that were a required precursor to pooling.
b. Larson will suffer irreparable harm to its property rights. If the Commission issues an order for statutory forced pooling of Larson's minerals, which Larson alleges Extraction has already physically penetrated without private or governmental approval, Larson cannot be made whole again.
c. A continuance of the December 17-18, 2018 hearing date is warranted because Mrs. Larson is a vital and indispensable witness who is unable to participate fully due to health concerns. A continuance would allow Mrs. Larson time to recover from her serious injuries and be in a better position to testify in the future.
28. Through its pleadings and through oral argument at hearing, Extraction argued:
a. The circumstances here are not exceptional circumstances such that warrant further delay. Larson is represented by qualified counsel and will have ample opportunity to present at the hearing arguments set forth in its prehearing statement supportive of its position.
b. It is highly likely that the testimony of Mrs. and Mr. Larson would be duplicative and unnecessary. Mrs. Larson’s physical presence at the hearing adds no greater weight to evidence regarding the reasonableness of the lease to Larson. Further, Mr. Larson is fully capable of testifying.
c. The sole issue for the hearing is whether Extraction has complied with Commission Rule 530 and presented Larson with a reasonable offer to lease under §34-60-116(7)(d), C.R.S. Ample time has existed for the parties to prepare for this hearing and the pertinent issues related thereto, and an additional continuance is not warranted.
d. Extraction will continue to suffer prejudice if yet another continuance is granted because it has invested significant capital into the drilling of these wells and has complied with the Act and all Commission Rules requisite of pooling. Delay of these proceedings creates substantial uncertainty and undue delay to Extraction’s operations as Larson has requested an indefinite continuance in this matter pending the outcome of pending litigation in Colorado District Court which could take years, and such a request is unreasonable.
29. At the December 17, 2018 hearing, the Commission asked Larson if they were requesting an indefinite continuance. In response to a question from the Commission, Larson clarified that they requested a continuance to the March 11-12, 2019 Commission hearing.
30. In response to questions from the Commission, Larson repeatedly stated that the basis for its request for the stay of the instant Pooling Applications is due to the pending litigation of the WSUs in Denver District Court.
31. The Commission asked Larson why they did not pursue remedies provided by the Administrative Procedures Act, specifically, a stay of the Commission’s approval of the Extraction WSUs in state court. Counsel for Larson responded that they chose a different strategy. The Commission’s ultimate basis for the denial of the indefinite stay was Larson’s failure to pursue the correct procedural remedies available under the law.
32. Despite the denial of the indefinite stay, the Commission was sympathetic to the health concerns raised by Larson, and after deliberating, the Commission agreed to allow a brief continuance, not to exceed one hearing cycle.
33. The Commission voted unanimously to adopt the Hearing Officer’s recommendation to deny Larson’s request for an indefinite stay until the Lawsuit is resolved. The Commission voted 6-2 in favor of continuing the hearing on the merits of the Pooling Applications to the January 28-29, 2019 Commission hearing.
34. Following the December hearing, on January 10, 2019, Larson filed a C.R.C.P. 60 Motion, which requested that the Commission reconsider its limited continuance based on an argument that Extraction committed fraud on the Commission by misrepresenting information about the completeness of certain wells.
35. On January 14, 2019, all of the parties convened for another Final Prehearing Conference, at which the Hearing Officer confirmed with the parties the matters to be considered by the Commission at the upcoming January hearing. At this same Final Prehearing Conference, the Hearing Officer informed the parties that they would receive ten minutes per side to argue the C.R.C.P. 60 Motion, and in the event the same was denied by the Commission, the merits of the Pooling Applications would be heard. Prior to this second Final Prehearing Conference, Larson submitted a revised prehearing statement (“PHS”), with attached exhibits, without leave of the Hearing Officer. Consequently, the Hearing Officer allowed Extraction to supplement the record with its own revised PHS and exhibits. The parties consented to this finding, and Extraction issued its supplemental PHS and Exhibits on January 17, 2019.
36. On January 23, 2019, the Hearing Officer received a direct phone call from Mr. Larson, without his counsel or counsel for Extraction present. In order to comply with Commission Rule 515, Ex Parte Communications, the Hearing Officer memorialized the contents of the call in an email communication to the parties on the same day. A copy of this email was attached to the Hearing Officer’s recommendation that was submitted to the Commission as part of the portfolio for these matters.
37. In addition to the email detailing the contents of the ex parte communication with Mr. Larson, the Hearing Officer, as well as the Hearings and Regulatory Affairs Manager, conducted a telephone conference with the parties on January 24, 2019. During this telephone conference, which took place four days before the January hearing, counsel for Larson informed the Hearing Officer that Larson conveyed its mineral interests in the Application Lands to an entity called L&L, Inc., and that Larson was resting on its filings and did not plan on presenting argument at the January hearing. When pressed, Larson also stated that it was withdrawing its pending C.R.C.P. 60 Motion, and counsel for Larson would be present for the hearing.
38. The instant matters were set to be heard by the Commission on January 28, 2019, at 1:15 p.m. At approximately 9:50 a.m., on that same day, the Hearing Officer received an entry of appearance for an attorney representing L&L, Inc.
HEARING
39. At the January 28-29, 2019 Commission hearing, the following parties were present: counsel and representatives of Extraction, and counsel for L&L, Inc., along with Mr. Larson, who appeared as president and representative of L&L, Inc. Before considering the merits of the Pooling Applications, the Commission heard argument on the issue of L&L, Inc.’s standing to participate at the hearing.
40. At the outset of the hearing, the Commission asked L&L, Inc. if it was a party to the contested Pooling Applications, to which it replied no, that it was attempting to intervene and request a stay or continuance of the proceedings.
41. As grounds for L&L, Inc.’s oral motion to intervene and continue the hearing, it argued:
a. L&L, Inc. entered into a lease with Larson to lease Larson’s mineral interests, which paid Larson a 25% royalty. Therefore, L&L, Inc. is a 75% non-consenting working interest owner.
b. Commission Rule 509 allows for L&L, Inc.’s intervention.
c. Mr. Larson attempted to participate in the January 24, 2019 telephone conference, but was not permitted to by the Hearing Officer.
d. The C.R.C.P. 60 Motion was not withdrawn by Larson, so it should still be considered by the Commission.
e. The underlying WSUs are currently in litigation in District Court, and therefore the Pooling Applications should be stayed until that litigation is resolved.
f. Extraction has completed Wells that have penetrated Larson’s minerals, therefore a trespass has occurred.
g. Even if L&L, Inc. is not allowed to intervene, it should be allowed to make a Rule 510 statement.
42. As grounds to deny L&L, Inc.’s oral motion to intervene and continue the hearing, Extraction argued:
a. L&L, Inc. failed to comply with Rule 509, because the intervention is not timely, and none of the other requirements of Rule 509 were specified by way of L&L, Inc.’s oral motion.
b. L&L, Inc.’s president, Mr. Larson, has had notice of these matters for months, and the party collectively known as Larson timely protested, whereas L&L, Inc. did not.
c. The leases between L&L, Inc. and Larson were executed in June of 2018, but they were not recorded until the day after the Commission’s December 2018 hearing. Extraction only became aware of the leases the week before the instant hearing.
d. L&L, Inc.’s argument that it is a 75% non-consenting working interest owner is incorrect, as Extraction is seeking cost recovery against Larson, not L&L, Inc.
e. Any alleged trespass action asserted by L&L, Inc., or Larson, belongs in District Court, not before the Commission.
43. Following argument, the Commission inquired of its counsel whether or not it must consider the C.R.C.P. 60 Motion. The Commission’s counsel stated that there was no “party” present that could appropriately present argument on that issue.
44. The Commission asked L&L, Inc. why it was raising these issues now, at the hearing. L&L, Inc. responded that while the leases were executed in June of 2018, it was hopeful that a deal could still be reached with Extraction.
45. The Commission inquired of Extraction if it would be prejudiced if L&L, Inc. were allowed to intervene. Extraction responded that it already has been prejudiced because it did not have the opportunity to hear any of L&L, Inc.’s arguments prior to the hearing, so it was not prepared to argue these issues, but rather the merits of the contested Pooling Applications. Also, the late hour that Extraction learned of the leases is another form of prejudice, along with the idea of another continuance in these matters, as they have already been continued five times prior.
46. The Commission deliberated following argument. The Commission voted unanimously to deny L&L, Inc.’s oral motion to intervene.
47. Following this denial, the Commission allowed Mr. Larson, as president of L&L, Inc., to make a Rule 510 statement. Several exhibits were attached to the 510 statement, after Extraction withdrew its objection to same.
48. Next, the Commission considered the merits of the Pooling Applications. After questioning Extraction, the Commission voted 5-1 to adopt the Hearing Officer’s recommendation to dismiss the Larson’s protests and approve Extraction’s Pooling Applications in Docket Nos. 180600426, 180600429, 180600431, 180600441, 180600449, 180600454, and 181000743.
COMMISSION FINDINGS AND CONCLUSIONS
49. Commission Rule 509. addresses protests, interventions, and participation in adjudicatory proceedings, and states, in part:
a. The applicant and persons who have filed with the Commission a timely and proper protest or intervention pursuant to this rule will have the right to participate formally in any adjudicatory proceeding.
(1) Description of affected interest:
A. Those who have demonstrated that they would be directly and adversely affected or aggrieved by a Commission ruling, and that any injury or threat of injury sustained would be entitled to legal protection under the Act will be considered protestants. A protest will include information to demonstrate that the person is a protestant under these rules for the protest to be accepted by the Commission. If determined by the Hearing Officer that a person is not a protestant, any statement provided will be considered a written comment submitted pursuant to Rule 510.
B. Intervention may be granted by right or by permission.
ii. Those who have demonstrated to the satisfaction of the Commission that an intervention would serve the public interest may be recognized as a permissive intervenor. The Commission or Hearing Officer, at their discretion, may limit the scope of the permissive intervenor’s participation at the hearing.
(2) The protest or intervention will be filed with the Secretary, and served on the applicant’s counsel if the applicant is represented by counsel, at least thirty (30) days prior to the noticed hearing date[.]
(3) All protest or intervention pleadings will include:
A. The application docket number;
B. A general statement of the factual or legal basis for the protest or intervention based on the application;
C. A statement of the relief requested, which must be within Commission’s jurisdiction;
D. A description of the intended presentation including a list of proposed witnesses;
E. A time estimate to hear the protest or intervention; and
F. A certificate of service attesting that the pleading has been served on the applicant and any other party which has filed a protest or intervention in the proceeding.
50. Rule 501.b. allows the Commission to deny an intervention due to “the use of the Commission’s procedures for reasons of obstruction and delay.”
51. As grounds for denying L&L, Inc.’s oral motion to intervene, the Commission cited three factors: 1) the request was not timely in accordance with the Commission’s rules; 2) L&L, Inc. failed to satisfy the substantive requirements for petition for intervention; and 3) Larson engaged in an abuse of process pursuant to Rule 501.b., by way of using the Commission’s procedures for obstruction or delay.
52. Pursuant to Rule 530.c., in determining whether a reasonable offer to lease has been tendered under C.R.S. 34-60-116(7)(d), the Commission will consider the lease terms listed below for the drilling and spacing unit in the application and for all cornering and contiguous units that are under the proposed lease:
(a) Date of lease and primary term or offer with acreage in lease;
(b) Annual rental per acre;
(c) Bonus payment or evidence of its non-availability;
(d) Mineral interest royalty; and
(e) Such other lease terms as may be relevant.
53. C.R.S. § 34-60-116(7)(d) states: “No order pooling an unleased nonconsenting mineral owner shall be entered by the commission under the provisions of subsection (6) of this section over protest of such owner until the commission shall have received evidence that such unleased mineral owner shall have been tendered a reasonable offer to lease upon terms no less favorable than those currently prevailing in the area at the time application for such order is made and that such unleased mineral owner shall have been furnished in writing such owner’s share of the estimated drilling and completion cost of the well[.]”. Docket Nos. 180600426, 180600429, 180600431, 180600441, 180600449, and 180600454 were submitted to the Commission prior to the General Assembly’s passage of Senate Bill 18-230, which made changes in the Oil and Gas Act. Therefore, the older version of the Oil and Gas Act apply to these six dockets.
54. C.R.S. 34-60-116(7)(d)(I) states: “An order pooling an unleased nonconsenting mineral owner shall not be entered by the commission under subsection (6) of this section over protest of the owner unless the commission has received evidence that the unleased mineral owner has been tendered, no less than sixty days before the hearing, a reasonable offer to lease upon terms no less favorable than those currently prevailing in the area at the time application for the order is made and that such unleased mineral owner has been furnished in writing the owner's share of the estimated drilling and completion cost of the wells[.]” Docket No. 181000743 was submitted to the Commission after the passage of Senate Bill 18-230, and as such, the revised language of the statute applies to this single docket.
55. The evidence in the record, and the statements made at hearing demonstrated that Extraction tendered Larson a reasonable offer to lease upon terms no less favorable than those currently prevailing in the area at the time of the Applications.
56. After considering the evidence contained within the record, and posing several questions to Extraction’s witness regarding the reasonableness of the lease offer to Larson, the Commission voted 5-1 to adopt the Hearing Officer’s recommendation for approval of Extraction’s Pooling Applications.
ORDER
IT IS HEREBY ORDERED:
1. The Hearing Officer’s recommendation regarding Extraction’s lease offer pursuant to Commission Rule 530.c., C.R.S. § 34-60-116(7)(d), and 34-60-116(7)(d)(I) is ADOPTED.
2. Larson’s protests in Docket Nos. 180600426, 180600429, 180600431, 180600441, 180600449, 180600454, and 181000743 are DISMISSED.
3. Docket Nos. 180600426, 180600429, 180600431, 180600441, 180600449, 180600454, and 181000743 are APPROVED.
IT IS FURTHER ORDERED:
1. The provisions contained in the above order shall become effective immediately.
ENTERED this 27th 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
I hereby certify that, on February 27, 2019, the Colorado Oil and Gas Conservation Commission caused this Commission Order on Extraction’s Pooling Applications to be served to the following as noted below:
VIA EMAIL:
Jillian Fulcher
Bill Sparks
Jobediah Rittenhouse
Attorneys for Extraction Oil & Gas Inc.
Russell Sprague
Beau Bump
Attorneys for Ivar W. Larson, Donna M. Larson, and Larson Front Range Farms, LLC
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Jonathan Peskin, Hearing Officer