BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS FOR THE NIOBRARA AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 407 DOCKET NO. 181000734 TYPE: POOLING ORDER NO. 407-2767

REPORT OF THE COMMISSION

The Commission heard this matter on March 11, 2019, at the Ralph L. Carr Colorado Judicial Center, 1300 Broadway, First Floor, Denver, Colorado, upon application for an order to pool all interests in three approximate 880-acre designated horizontal wellbore spacing units established for portions of Sections 8, 17, 20 and 29, Township 1 North, Range 65 West, 6^th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the English Farms 8-10HZ Well, English Farms 8-11HZ Well, and the English Farms 8-12HZ Well, for the development and operation of the Niobrara and Codell Formations.

FINDINGS

The Commission finds as follows:

1.         Kerr-McGee Oil & Gas Onshore LP (Operator No. 47120) (“Kerr-McGee” or “Applicant”), as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2.         Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3.         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.

4.         On April 27, 1998, the Commission adopted Rule 318A, the Greater Wattenberg Area Special Well Location, Spacing and Unit Designation Rule.  Sections 8, 17, 20 and 29, Township 1 North, Range 65 West, 6^th P.M., are subject to this Rule for the Niobrara and Codell Formations.

5.         On August 22, 2018, Kerr-McGee, by its attorneys, filed a verified Application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in three approximate 880-acre designated horizontal wellbore spacing units established for the below-described lands (“Application Lands”), for the development and operation of the Niobrara and Codell Formations, and subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the English Farms 8-10HZ Well (05-123-46590), the English Farms 8-11HZ Well (05-123-46592), and the English Farms 8-12HZ Well (05-123-46588) (“Wells”):

Township 1 North, Range 65 West, 6^th P.M.

Section 8:        SE¼SW¼, SW¼SE¼

Section 17:      E½W½, W½E½

Section 20:      E½W½, W½E½

Section 29:      E½NW¼, W½NE¼

Wellbore Spacing Unit (“WSU”) No. 1

English Farms 8-10HZ Well – Niobrara Formation

WSU No. 2

English Farms 8-11HZ Well – Niobrara Formation

WSU No. 3

English Farms 8-12HZ Well – Codell Formation

6.         On October 3, 2018, Applicant, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified Application and the supporting exhibits.  Sworn written testimony and exhibits were submitted in support of the Application.

7.         On October 9, 2018, Marcia Carden and Kellie K. Neumann filed a protest.  On January 31, 2019, the Hearing Officer approved the request of Marcia Carden and Kellie K. Neumann to withdraw their protest, and converted the protest to a Rule 510 statement. Marcia Carden and Kellie K. Neumann also filed a separate Rule 510 Statement dated January 29, 2019.

8.         Land testimony and exhibits submitted in support of the Application by Steve Miller, Landman for Kerr-McGee, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells.  Further testimony concluded that the AFEs sent by the Applicant to the interest owners were fair and reasonable estimates of the costs of the proposed drilling operations and were received at least 60 days prior to the March 11, 2019 hearing date. The testimony also showed that the Commission’s pooling brochure required by §34-60-116(7)(d), C.R.S., was also provided.  

9.         Land testimony showed the Applicant complied with the requirements of Rule 530., and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the English Farms 8-10HZ Well, English Farms 8-11HZ Well, and the English Farms 8-12HZ Well, but did not provide testimony for any subsequent wells.

10.       The above-referenced testimony and exhibits show that granting the Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.

11.       Kerr-McGee agreed to be bound by oral order of the Commission.

12.       Based on the facts stated in the verified Application, the protest having been withdrawn, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all interests in three approximate 880-acre designated horizontal wellbore spacing units established for portions of Sections 8, 17, 20 and 29, Township 1 North, Range 65 West, 6^th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of English Farms 8-10HZ Well, English Farms 8-11HZ Well, and the English Farms 8-12HZ Well, for the development and operation of the Niobrara and Codell Formations.

ORDER

IT IS HEREBY ORDERED:

1.         Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in three approximate 880-acre designated horizontal wellbore spacing units established for the below-described lands are hereby pooled, for the development and operation of the Niobrara and Codell Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the English Farms 8-10HZ Well (05-123-46590), the English Farms 8-11HZ Well (05-123-46592), and the English Farms 8-12HZ Well (05-123-46588) (“Wells”):

Township 1 North, Range 65 West, 6^th P.M.

Section 8:        SE¼SW¼, SW¼SE¼

Section 17:      E½W½, W½E½

Section 20:      E½W½, W½E½

Section 29:      E½NW¼, W½NE¼

Wellbore Spacing Unit (“WSU”) No. 1

English Farms 8-10HZ Well – Niobrara Formation

WSU No. 2

English Farms 8-11HZ Well – Niobrara Formation

WSU No. 3

English Farms 8-12HZ Well – Codell Formation

2.         The production obtained from the designated horizontal wellbore spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within the designated horizontal wellbore spacing unit; each owner of an interest in the designated horizontal wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the designated horizontal wellbore spacing unit applicable to its interest in the designated horizontal wellbore spacing unit.

3.         Any working interest owner who does not elect to participate in the Well or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §34-60-116(7), C.R.S. The nonconsenting working interest owner must reimburse the consenting owner for the owner’s proportionate share of the costs and risks of drilling and operating the Well from the owner’s  proportionate share of production, subject to royalties or other non-cost bearing interests, if and to the extent that the royalty is consistent with the lease terms prevailing in the area and is not designed to avoid the recovery of costs provided for in §34-60-116(7)(b), C.R.S., until costs and penalties are recovered as set forth in §34-60-116(7), C.R.S.

4.         Any unleased owner who does not elect to participate in the Well(s) or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §34-60-116(7), C.R.S.   Any party seeking the cost recovery provisions of §34-60-116(7), C.R.S., shall first comply with subsection (d) for any subsequent well(s).

5.         Each nonconsenting unleased owner within the designated horizontal wellbore spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S. After recovery of such costs, each unleased nonconsenting mineral owner shall then own the owner’s proportionate 8/8ths share of the well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the well as if it had originally agreed to the drilling.

6.         The operator of the Wells drilled on the above-described designated horizontal wellbore spacing unit shall furnish the nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7.         In accordance with §34-60-116(7)(a)(III), C.R.S., a nonconsenting owner is immune from liability for costs arising from spills, releases, damage, or injury resulting from oil and gas operations on the designated horizontal wellbore spacing unit.

8.         Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

9.         The designated horizontal wellbore spacing unit described above shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.

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 25th day of March, 2019, as of March 11, 2019.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Mimi C. Larsen, Secretary