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 NIOBRARA, FORT HAYS, AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 190100090
TYPE: POOLING
ORDER NO. 407-2934 |
REPORT OF THE COMMISSION
The Commission heard this matter on October 30, 2019, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests within an approximate 2,560-acre drilling and spacing unit established for the below-described lands (“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 Walt 16E-20-9C Well (API No. 05-123-45243) (“Well”), for the development and operation of the Niobrara, Fort Hays, and Codell Formations:
Township 7 North, Range 67 West, 6th P.M.
Section 15: All
Section 16: All
Section 21: All
Section 22: All
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.
5. On February 19, 1992 (amended August 20, 1993), the Commission issued Order No. 407-87, which, among other things, established 80-acre drilling and spacing units for production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the permitted well locations to be in accordance with Order No 407-1. The Application Lands are subject to this Order for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
6. On July 24, 2017, the Commission issued Order No. 407-2127 which, among other things, established an approximate 2,560-acre drilling and spacing unit for the Application Lands, with authority to drill 44 horizontal wells within the unit, for production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation.
7. On December 20, 2018, which was at least 90 days before the Commission heard this matter, Extraction filed a verified amended application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in the Application Lands, for the development and operation of the Niobrara, Fort Hays, 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 Well.
8. 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.
9. Land testimony and exhibits submitted in support of the Application by Sean Flanagan, Landman for Extraction, show that in the designated horizontal wellbore spacing unit 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 unit 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 Well 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.
10. The land testimony and exhibits also demonstrated that the offers to lease were made in good faith.
11. 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.
12. 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 Well, but did not provide testimony for any subsequent wells.
13. Granting the Application is consistent with the protection of public health, safety, welfare, the environment, and wildlife resources.
14. Extraction agreed to be bound by oral order of the Commission.
15. Based on the facts stated in the verified Application, having received no protests, 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 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 Well, for the development and operation of the Niobrara, Fort Hays, and Codell Formations.
ORDER
IT IS HEREBY ORDERED:
1. Pursuant to the provisions of §34-60-116, C.R.S., all interests in the drilling and spacing unit established for the Application Lands are hereby pooled, for the development and operation of the Niobrara, Fort Hays, and Codell Formations, effective as of the date the Application was filed.
2. The production obtained from the drilling and 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 drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the drilling and spacing unit applicable to its interest in the drilling and 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.: Richard Nesbit; Heirs of Herman A. Meyer and Laura M. Meyer; the Estate of Viola Kluver Moore; Matthew James Done and Rae Marie Doner, Joint Tenants; and Matthew M. Hahn and Nicole L. Hahn, Joint Tenants.
6. Any nonconsenting unleased owner 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 Well, 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 Well 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 drilling and spacing unit.
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.
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 19th day of November, 2019, as of October 30, 2019
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Mimi C. Larsen, Secretary