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. 181000826 TYPE: POOLING ORDER NO. 407-2913

REPORT OF THE COMMISSION

The Commission heard this matter on September 25, 2019, at the Margaret Carpenter Recreation Center, 11151 Colorado Blvd, Thornton, Colorado, upon application for an order to pool all interests in two approximate 564.71-acre designated horizontal wellbore spacing units established for the below-described lands (“Application Lands”), and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Hergert North 35W-15-1C Well (API No. 05-123-40830) and the Hergert North 35W-15-2N Well (API No. 05-123-40825) (“Wells”) for the development and operation of the Niobrara and Codell Formations:   

Township 7 North, Range 67 West, 6^th P.M.

Section 26: S½ S½

Section 27: S½ SE¼ and SE¼ SW¼

Section 34: N½ NE¼ and NE¼ NW¼

Section 35: N½ N½

Wellbore Spacing Unit (“WSU”) No. 1

Hergert North 35W-15-1C Well – Codell Formation

WSU No. 2

Hergert North 35W-15-2N Well – Niobrara Formation

FINDINGS

The Commission finds as follows:

1. Extraction Oil & Gas, Inc. (Operator No. 10459) (“Extraction” 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. The Application Lands are subject to this Rule for the Niobrara and Codell Formations.

5. On August 30, 2018, which was at least 90 days before the Commission heard this matter, Extraction filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in certain designated horizontal wellbore spacing units established for the Application Lands, for the development and operation of the Niobrara and Codell Formations and to subject any nonconsenting interests to the cost recovery provisions of § 34-60-116(7), C.R.S., for the drilling of the Wells.

6. The Applicant filed with the Commission a written request to approve the Application based on the merits of the Application and the supporting exhibits. Sworn written testimony and exhibits were submitted in support of the Application.

7. On May 16, 2019, Gilbert Mineral LLP filed a protest to the Application. On August 1, 2019, Gilbert Mineral LLP’s protest was withdrawn.

8. Land testimony and exhibits submitted in support of the Application by Sean Flanagan, Landman for Extraction, show that in the designated horizontal wellbore spacing units the Applicant owns, or has secured the consent of the owners of, more than 45% of the mineral interest to be pooled. In addition, the land testimony and exhibits show that the owners within the designated horizontal wellbore spacing units received a reasonable offer to lease or participate at least 90 days before the hearing date, that the owners to be pooled did not elect in writing to consent to the Wells within 35 days after receiving the offer to participate, and that any unleased owners had at least 35 days to review a reasonable offer to lease but either refused it or have not yet accepted it.

9. The land testimony and exhibits also demonstrate that the offers to lease were made in good faith.

10. In addition, the land testimony and exhibits show that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE"). Further testimony concluded that the AFE sent by the Applicant to the interest owners were fair and reasonable estimates of the costs of the proposed drilling operations.

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

12. Granting the Application is consistent with the protection of public health, safety, welfare, the environment, and wildlife resources.

13. Extraction agreed to be bound by oral order of the Commission.

14. 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 the designated horizontal wellbore spacing units established for the Application Lands and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Wells, 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., all interests in the designated horizontal wellbore spacing units established for the Application Lands are hereby pooled, for the development and operation of the Niobrara and Codell Formations, effective as the date the Application was filed.

2.         The production obtained from each 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 the owner’s share of the production of the Well located on the designated horizontal wellbore spacing unit applicable to the owner’s interest in the designated horizontal wellbore spacing unit. 

3.         The following working interest owner(s) did not elect to participate in the Well(s) or failed to make a timely election and are hereby deemed to be nonconsenting and subject to the penalties as provided for in § 34-60-116(7), C.R.S: None.

4.         Each nonconsenting working interest owner must reimburse the consenting owners for the owner’s proportionate share of the costs and risks of drilling and operating the Well(s) from the owner’s proportionate share of production, subject to 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.

5.         The following unleased owner(s) did not elect to participate in the Well(s) or failed to make a timely election and are hereby deemed to be nonconsenting and subject to the penalties as provided for in § 34-60-116(7), C.R.S.: Mary O. Jones and the Heirs of Florence M. Schmidt.

6.         Any nonconsenting unleased owner within a designated horizontal wellbore spacing unit shall be deemed to have a landowner's royalty, proportionate to each owner’s record title interest, of:

a. for a gas well as defined in the Commission Regulations, 13% until the consenting owners recover, only out of each nonconsenting owner's proportionate 87% share of production, the costs specified in §34-60-116(7)(b), C.R.S.;

b. for an oil well as defined in the Commission Regulations, 16% until the consenting owners recover, only out of each nonconsenting owner's proportionate 84% share of production, the costs specified in §34-60-116(7)(b), C.R.S.

After recovery of the costs specified in § 34-60-116(7)(b), C.R.S., each unleased nonconsenting mineral owner owns its proportionate 8/8ths share of the Wells, surface facilities, and production, and is liable for its proportionate share of further costs as if the nonconsenting owner had originally agreed to the drilling.

7.         The operator of the Wells drilled on the designated horizontal wellbore spacing units 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.

8.         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 units.

9.         The operator shall not use the surface owned by a nonconsenting owner without the nonconsenting owner’s permission.

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

11.       The designated horizontal wellbore spacing units described above shall be considered drilling and spacing units 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 23rd day of October, 2019, as of September 25, 2019

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Mimi C. Larsen, Secretary