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. 190900541 TYPE: POOLING ORDER NO. 407-2947

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 960-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 Reeman 5X-HNB-04-06-65 Well (API No. Pending), the Reeman 8X-HNC-04-06-65 Well (API No. Pending), the Reeman 8X-HNA-04-06-65 Well (API No. Pending), the Reeman 8X-HNB-04-06-65 Well (API No. Pending), the Reeman 8X-HC-04-06-65 Well (API No. Pending), the Reeman 7X-HNC-04-06-65 Well (API No. Pending), the Reeman 7X-HNB-04-06-65 Well (API No. Pending), the Reeman 7X-HNA-04-06-65 Well (API No. Pending), the Reeman 7X-HC-04-06-65 Well (API No. Pending), the Reeman 6X-HNC-04-06-65 Well (API No. Pending), the Reeman 6X-HNB-04-06-65 Well (API No. Pending), the Reeman 6X-HNA-04-06-65 Well (API No. Pending), the Reeman 6X-HC-04-06-65 Well (API No. Pending), the Reeman 5X-HNC-04-06-65 Well (API No. Pending), the Reeman 5X-HNA-04-06-65 Well (API No. Pending), the Reeman 5X-HC-04-06-65 Well (API No. Pending), the Reeman 4X-HNC-04-06-65 Well (API No. Pending), the Reeman 4X-HNB-04-06-65 Well (API No. Pending), the Reeman 4X-HNA-04-06-65 Well (API No. Pending), the Reeman 4X-HC-04-06-65 Well (API No. Pending), the Reeman 3X-HNC-04-06-65 Well (API No. Pending), the Reeman 3X-HNB-04-06-65 Well (API No. Pending), the Reeman 3X-HNA-04-06-65 Well (API No. Pending), the Reeman 3X-HC-04-06-65 Well (API No. Pending), the Reeman 1X-HNB-04-06-65 Well (API No. Pending), the Reeman 2X-HNC-04-06-65 Well (API No. Pending), the Reeman 2X-HNB-04-06-65 Well (API No. Pending), the Reeman 2X-HNA-04-06-65 Well (API No. Pending), the Reeman 2X-HC-04-06-65 Well (API No. Pending), and the Reeman 1X-HNC-04-06-65 Well (API No. Pending) (“Wells”), for the development and operation of the Niobrara and Codell Formations:   

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

Section 4:        W½

Section 5:        All

FINDINGS

The Commission finds as follows:

1. Nickel Road Operating LLC (Operator No. 10669), together with Nickel Road Development LLC, which is an affiliate of Nickel Road Operating LLC under common ownership and control (together, “Nickel Road” 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 February 19, 1992, the Commission entered Order No. 407-87 (amended August 20, 1993) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations underlying certain lands, with permitted well locations in accordance with the provisions of Order No. 407-1. The Application Lands are subject to this Order for the Niobrara and Codell Formations.

5. 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.

6. On March 11, 2019, the Commission entered Order No. 407-2775 which, among other things, established an approximate 1,120-acre drilling and spacing unit for the W½ and SE¼ of Section 4 and Section 5, Township 6 North, Range 65 West, 6^th P.M., and approved a total of up to 32 horizontal wells within the unit for the production of oil, gas and associated hydrocarbons from the Niobrara and Codell Formations, providing that the productive interval of the wellbores be located no closer than 460 feet from the boundaries of the proposed unit and no closer than 150 feet from the productive interval of any other wellbore within the unit, unless the Director grants an exception, and authorizing up to two multi-well pads within the unit, or adjacent thereto, unless the Director grants an exception.

7. On September 25, 2019, the Commission entered Order No. 407-2923 which, among other things, amended Order No. 407-2775 to exclude the SE¼ of Section 4, Township 6 North, Range 65 West, 6^th P.M., from the approximate 1,120-acre drilling and spacing unit that Order No. 407-2775 previously established, to create an approximate 960-acre drilling and spacing unit for the Application Lands and approved a total of up to 32 horizontal wells within the unit, for production from the Niobrara and Codell Formations, with the productive interval of any wellbore to 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 within the unit, unless the Director grants an exception.

8. On May 28, 2019, which was at least 90 days before the Commission heard this matter, Nickel Road filed a verified 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 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.

9. 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.

10. Land testimony and exhibits submitted in support of the Application by Blake Leavitt, Land Manager for Nickel Road, show that 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 there are no unleased owners with the Application Lands. Also, the owners within the unit received an offer to participate at least 90 days before the hearing date and the owners to be pooled did not elect in writing to consent to the Wells within 60 days after receiving the offer to participate.

11. In addition, the land testimony and exhibits show that the offers to participate contained the Commission’s pooling brochure or a link to access it, the particular owner’s share of the total estimated drilling and completion costs for the Wells, and also the following information for each Well: the location, measured depth, true vertical depth, and lateral length, the total estimated drilling and completion cost, and the estimated spud date.

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 Wells, 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. Nickel Road 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 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 drilling and spacing unit established for the Application Lands are hereby pooled, for the development and operation of the Niobrara 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 Wells 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: Edge Energy II LLC, Flinthills Oil Company LLC, Noble Energy Inc., SRC Energy Inc., and Vida Nova Investments LLC.

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.: None.

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 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 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 21st day of November, 2019, as of October 30, 2019

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Mimi C. Larsen, Secretary