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. 190900548

 

TYPE: POOLING

 

ORDER NO. 407-2956

REPORT OF THE COMMISSION

 

The Commission heard this matter on November 20, 2019, at the University of Northern Colorado, University Center Ball Room, 2101 10th Avenue, Greeley, Colorado, upon application for an order to 1) amend Order No. 407-2457, which pooled all interests within an approximate 640-acre drilling and spacing unit established for the below-described lands (“Application Lands”), to remove from the Order the 70 Ranch10-5-1L Well, the 70 Ranch 10-5-3L Well, the 70 Ranch 10-6-2L Well, the 70 Ranch 10-6-4L Well, the 70 Ranch 10-7-1L Well, and the 70 Ranch 10-7-3L Well because these wells were never drilled, and 2) to pool all interests within the Application Lands for the drilling of the 70 Ranch 10-13-2L Well (API No. 05-123-47591), the 70 Ranch 10-4-4L Well (API No. 05-123-47592), the 70 Ranch 10-14-1L Well (API No. 05-123-47593), the 70 Ranch 10-15-3L Well (API No. 05-123-47594), the 70 Ranch 10-16-2L Well (API No. 05-123-46613), the 70 Ranch 10-17-1L Well (API No. 05-123-46615), the 70 Ranch 10-5-4L Well (API No. 05-123-46614), and the 70 Ranch 10-18-3L Well (API No. 05-123-46612) (“Wells”), for the development and operation of the Niobrara and Codell Formations:

 

Township 4 North, Range 63 West, 6th P.M.

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FINDINGS

 

The Commission finds as follows:

 

1.               Confluence DJ LLC (Operator No. 10518) (“Confluence” 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 December 12, 2011, the Commission entered Order No. 407-528 which, among other things, established 51 approximate 640-acre drilling and spacing units, including Section 10, Township 4 North, Range 63 West, 6th P.M., of the Application Lands, and approved up to two horizontal wells within each unit, for production of oil, gas, and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore for the permitted well to be no closer than 460 feet from the unit boundaries.

 

6.               On June 6, 2016, the Commission entered Order No. 407-1740 which, among other things, modified Order No. 407-528 to include the Codell Formation and approved an additional 18 horizontal wells, for a total of up to 20 horizontal wells, within the existing approximate 640-acre drilling and spacing unit established by Order No. 407-528 for Section 10, Township 4 North, Range 63 West, 6th P.M., of the Application Lands, for the production of oil, gas, and associated hydrocarbons from the Niobrara and Codell Formations.

 

7.               On January 29, 2018, the Commission entered Order No. 407-2308 which, among other things: 1) vacated an approximate 640-acre drilling and spacing unit established by Order Nos. 407-528 for Section 10, Township 4 North, Range 63 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation; 2) vacated Order No. 407-1740 as to Section 10, Township 4 North, Range 63 West, 6th P.M.; 3) established two approximate 640-acre drilling and spacing units for the Application Lands, and approved a total of up to 12 horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with nine horizontal wells to be drilled from the Niobrara Formation and three horizontal wells to be drilled from the Codell Formation; 4) providing that the wellbores of any horizontal wells may enter the Codell and Niobrara Formations anywhere within the unit, or on adjacent lands, subject to Rule 318A, unless an exception is granted by the Director; 5) providing that the productive interval of any horizontal well shall be no closer than 460 feet from the boundaries of the unit and not less than 150 feet from the productive interval of another well within the unit, unless an exception is granted by the Director; and 6) providing that the wells shall be drilled on no more than one well pad within the unit subject to Rule 318A or on adjacent lands, unless an exception is granted by the Director.

 

8.               On May 22, 2018, the Commission entered Order No. 407-2457 which, among other things pooled all interest within the approximate 640-acre drilling and spacing unit 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 70 Ranch 10-5-1L Well, the 70 Ranch 10-5-3L Well, the 70 Ranch 10-6-2L Well, the 70 Ranch 10-6-4L Well, the 70 Ranch 10-7-1L Well, the 70 Ranch 10-7-3L Well, the 70 Ranch 10-8-2L Well, and the 70 Ranch 10-8-4L Well. Pursuant to Order No. 407-2457, Applicant has drilled two of the eight wells applicable to Order No. 407-2457: the 70 Ranch 10-8-4L Well and the 70 Ranch 10-8-2L Well. 

 

9.               On July 15, 2019, which was at least 90 days before the Commission heard this matter, Confluence filed a verified application (“Application”) pursuant to § 34-60-116, C.R.S., for an order to: 1) amend Order No. 407-2457 to remove the 70 Ranch10-5-1L Well, the 70 Ranch 10-5-3L Well, the 70 Ranch 10-6-2L Well, the 70 Ranch 10-6-4L Well, the 70 Ranch 10-7-1L Well, and the 70 Ranch 10-7-3L Well because these wells were never drilled, and 2) to pool all interests within the Application Lands for the drilling of the Wells, for the development and operation of the Niobrara and Codell Formations.

 

10.            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.

 

11.            Land testimony and exhibits submitted in support of the Application by William E. Nicas, Senior Vice President of Land and Business Development for Confluence, and the verified Application, 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 the owners within the 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 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.

 

12.            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.

 

13.            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.

 

14.            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.

 

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

 

16.            Confluence agreed to be bound by oral order of the Commission.

 

17.            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: 1) amend Order No. 407-2457 to remove the 70 Ranch10-5-1L Well, the 70 Ranch 10-5-3L Well, the 70 Ranch 10-6-2L Well, the 70 Ranch 10-6-4L Well, the 70 Ranch 10-7-1L Well, and the 70 Ranch 10-7-3L Well because these wells were never drilled, and 2) to pool all interests within the Application Lands for the drilling of the Wells, for the development and operation of the Niobrara and Codell Formations.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         Order No. 407-2457 is amended to remove the 70 Ranch10-5-1L Well, the 70 Ranch 10-5-3L Well, the 70 Ranch 10-6-2L Well, the 70 Ranch 10-6-4L Well, the 70 Ranch 10-7-1L Well, and the 70 Ranch 10-7-3L Well because these wells were never drilled.

 

2.         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.

 

3.         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.

 

4.         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: Bonanza Creek Energy Operating Company, LLC and Croke Minerals Irrevocable Trust.   

 

5.         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.

 

6.         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.: the Estate of Barbara Eleanor Milne Bruce, Kendall Clifton, and Thomas James Bruce.

 

7.         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.

 

8.         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.

 

9.         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.

 

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

 

11.       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 6th day of December, 2019, as of November 20, 2019

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Mimi C. Larsen, Secretary