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 AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 190900577
TYPE: POOLING
ORDER NO. 407-2948 |
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 in 16 approximate 1,600-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 Berry IC 11-159HC in WSU #1 (API No. 05-123-49857), Berry IC 11-239HN in WSU #2 (API No. 05-123-49859), Berry IC 11-199HC in WSU #3 (API No. 05-123-49861), Berry IC 11-162HNX in WSU #4 (API No. 05-123-49866), Berry IC 11-162HN in WSU #5 (API No. 05-123-49915), Berry IC 11-159HN in WSU #6 (API No. 05-123-49867), Berry IC 11-119HN in WSU #7 (API No. 05-123-49856), Berry IC 11-119HNX in WSU #8 (API No. 05-123-49863), Berry IC 11-082HN in WSU #9 (API No. 05-123-49862), Berry IC 11-082HC in WSU #10 (API No. 05-123-49864), Berry IC 11-042HN in WSU #11 (API No. 05-123-49865), Berry IC 11-042HNX in WSU #12 (API No. 05-123-49868), Berry IC 11-039HN in WSU #13 (API No. 05-123-49854), Berry IC 11-039HC in WSU #14 (API No. 05-123-49858), Berry IC 11-239HNX in WSU #15 (API No. 05-123-49860), and the Berry IC 11-202HN in WSU #16 (API No. 05-123-49855) (“Wells”), for the development and operation of the Niobrara and Codell Formations:
Township 3 North, Range 67 West, 6th P.M.
Section 7: All
Section 8: W˝W˝
Township 3 North, Range 68 West, 6th P.M.
Section 11: E˝E˝
Section 12: All
Wellbore Spacing Unit (“WSU”) No 1
Berry IC 11-159HC Well – Codell Formation
WSU No. 2
Berry IC 11-239HN – Niobrara
WSU No. 3
Berry IC 11-199HC – Codell
WSU No. 4
Berry IC 11-162HNX – Niobrara
WSU No. 5
Berry IC 11-162HN – Niobrara
WSU No. 6
Berry IC 11-159HN – Niobrara
WSU No. 7
Berry IC 11-119HN – Niobrara
WSU No. 8
Berry IC 11-119HNX – Niobrara
WSU No. 9
Berry IC 11-082HN – Niobrara
WSU No. 10
Berry IC 11-082HC – Codell
WSU No. 11
Berry IC 11-042HN – Niobrara
WSU No. 12
Berry IC 11-042HNX – Niobrara
WSU No. 13
Berry IC 11-039HN – Niobrara
WSU No. 14
Berry IC 11-039HC – Codell
WSU No. 15
Berry IC 11-239HNX – Niobrara
WSU No. 16
Berry IC 11-202HN – Niobrara
FINDINGS
The Commission finds as follows:
1. Great Western Operating Company, LLC (Operator No. 10110) (“Great Western” 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 Formation.
5. On December 19, 1983 (amended on March 29, 2000 in accordance with Order No. 407-17, entered November 18, 1985), the Commission issued Order No. 407-1, which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands, including portions of the Application Lands, with the drilling and spacing unit to be designated by the operator drilling the first well in the quarter section, (or the Director, if the operator fails to designate). Order No. 407-17 provides that the permitted well shall be located in the center of either 40-acre tract within the drilling and spacing unit with a tolerance of 200 feet in any direction, and that the operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.
6. On February 19, 1992 (amended August 20, 1993), the Commission entered Order No. 407-87 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, with the permitted well locations in accordance with the provisions of Order No. 407-1.
7. On July 29, 2013, the Commission entered Order No. 407-833 which established an approximate 640-acre drilling and spacing for Section 11, Township 3 North, Range 68 West, 6th P.M., and approved up to 12 horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Codell-Niobrara Formation. Section 11, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the Niobrara and Codell Formations.
8. On March 17, 2014, the Commission entered Order No. 407-967 which pooled all interests in an approximate 640-acre designated wellbore spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Postle IC 11-4HN Well in the Codell-Niobrara Formation. Order No. 407-967 does not affect this Application.
9. On July 28, 2014, the Commission entered Order No. 407-1091 which pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Postle IC 11-302HN Well (API No. 05-123-38971) in the Niobrara Formation. Order No. 407-1091 does not affect this Application.
10. On July 28, 2014, the Commission entered Order No. 407-1092 which pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Postle IC 11-342HC Well (API No. 05-123-38972) in the Codell Formation. Order No. 407-1092 does not affect this Application.
11. On July 28, 2014, the Commission entered Order No. 407-1093 which pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Postle IC 11-379HN Well (API No. 05-123-38969) Niobrara Formation. Order No. 407-1093 does not affect this Application.
12. On July 28, 2014, the Commission entered Order No. 407-1094 which pooled all interests in an approximate 320-acre designated horizontal wellbore spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Postle IC 11-382HN Well (API No. 05-123-38970) in the Niobrara Formation. Order No. 407-1094 does not affect this Application.
13. On October 27, 2014, the Commission entered Order No. 407-1145 which pooled all interests within an approximate 640-acre drilling and spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., and subjected any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Postle IC 11-122HN Well, Postle IC 11-039HN Well, Postle IC 11-162HN Well, Postle IC 11-239HN Well, Postle IC 11-279HN Well, Postle IC 11-319HN Well, Postle IC 11-042HC Well, Postle IC 11-159HC Well, and the Postle IC 11-259HC Well, for the development and operation of the Wells in the Niobrara and Codell Formations.
14. On January 30, 2017, the Commission entered Order No. 407-1874 which approved a total of up to 17 horizontal wells within an approximate 640-acre drilling and spacing unit established by Order No. 407-833 for Section 11, Township 3 North, Range 68 West, 6th P.M., for the production of the oil, gas, and associated hydrocarbons from the Codell and Niobrara Formations.
15. On January 30, 2017, the Commission entered Order No. 407-1876, which vacated Order No. 407-1091, which pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 3 North, Range 68 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation, effective as of the earlier of the date of the original pooling application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of Postle IC 11-302HN Well.
16. On March 20, 2017, the Commission entered Order No. 407-1907 which approved a total of up to 19 horizontal wells within an approximate 640-acre drilling and spacing unit established by Order No. 407-833 for Section 11, Township 3 North, Range 68 West, 6th P.M., for the production of the oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.
6. On June 27, 2019, which was at least 90 days before the Commission heard this matter, Great Western 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.
7. 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.
8. Land testimony and exhibits submitted in support of the Application by Santiago Rodriguez, Senior Landman for Great Western, show that in each 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 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 60 days after receiving the offer to participate, and that any unleased owners had at least 60 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, contained the contact information for a representative of the Applicant, and contained the Commission’s pooling brochure or a link to access it.
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. Great Western 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 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 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: Kerr-McGee Oil & Gas Onshore LP (NC in IC 03-039HC & IC 03-242HC), Cache Energy Investments, Dios del Mar Petroleum Company, Inc., Malu Lani Oil & Gas Company, Inc., Ronald D. Smith, Shoreline Energy Holdings II, LLC, Southwestern Eagle, LLC and Gary S. Sandlin, 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.: Dr. Daniel A. Fajardo, Sara A. Fajardo, Irene Rodriguez. Kevin J. Murphy and Julie Murphy f/k/a Julie A. Frey, joint tenants.
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 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