BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF THE SECOND AMENDED APPLICATION OF BONANZA CREEK ENERGY OPERATING COMPANY LLC FOR AN ORDER TO VACATE AN APPROXIMATE 640-ACRE DRILLING AND SPACING UNIT ESTABLISHED BY ORDER NOS. 407-380 AND 407-633 AND ESTABLISH AN APPROXIMATE 640-ACRE DRILLING AND SPACING UNIT FOR SECTION 4, TOWNSHIP 5 NORTH, RANGE 61 WEST, 6TH P.M., FOR THE NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO

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CAUSE NOS. 407

 

DOCKET NO. 1309-SP-1153

 

ORDER NOS. 407-869

REPORT OF THE COMMISSION

 

The Commission heard this matter on October 28, 2013, at the Limon Community Center, 477 D Avenue, Limon, Colorado, upon application for an order to vacate an approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 established for Section 4, Township 5 North, Range 61 West, 6th P.M., and establish an approximate 640-acre drilling and  spacing unit for Section 4, Township 5 North, Range 61 West, 6th P.M., and  approve up to four horizontal wells within the unit, for the production of oil, gas, and related hydrocarbons of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Bonanza Creek Energy Operating Company LLC ("Bonanza 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 November 29, 2010, the Commission entered Order No. 407-380 which, among other things, established 15 approximate 640-acre drilling and spacing units, and approved one horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Section 4, Township 5 North, Range 61 West, 6th P.M. is subject to this Order for the Niobrara Formation.

 

5.         On May 29, 2012, the Commission entered Order No. 407-633 which, among other things, approved one or more additional horizontal wells within each of fifteen approximate 640-acre drilling and spacing units, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. Section 4, Township 5 North, Range 61 West, 6th P.M.  is subject to this Order for the Niobrara Formation.

 

6.         On April 27, 1988, the Commission adopted Rule 318A which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all Cretaceous Age Formations from the base of the Dakota Formation to the surface.  Rule 318A supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.  On December 5, 2005, Rule 318A was amended, among other things, to allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  On August 8, 2011, Rule 318A was again amended, among other things, to address drilling of horizontal wells.  Section 4, Township 5 North, Range 61 West, 6th P.M. is subject to Rule 318A for the Niobrara Formation.

 

7.         On July 18, 2013 (Amended on September 27, 2013), Bonanza, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified amended application (“Amended Application”) for an order to: 1) vacate an approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for the below-described lands (“Application Lands”); and 2) establish an approximate 640-acre drilling and spacing unit for the Application Lands, and approve up to ten horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the horizontal wellbores to the Niobrara Formation no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the treated interval of any other wellbore producing from the same source of supply, without exception being granted by the Director:

 

Township 5 North, Range 61 West, 6th P.M.

Section 4:        All

 

Applicant states production from existing vertical and directional wells, including the existing Pronghorn 31-4 well (API No. 05-123-23929) and the Pronghorn 14-4 well (API No. 05-123-22430) shall continue to pay in accordance with units established under Rule 318A or other prior orders of the Commission.

 

            8.         On August 29, 2013, Kaiser-Francis Oil Company (“Kaiser” or “Protestant”), by its attorneys, filed a protest (“Protest”) to the Application arguing that the Commission should approve up to four wells within the unit for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

9.         On September 4, 2013, the parties participate in a prehearing conference.  The matter was continued to the October hearing. 

 

10.       On September 27, 2013, Bonanza, by its attorneys, filed with the Commission a Second Amended Application (“Second Amended Application’) requesting that the Commission vacate an approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 4, Township 5 North, Range 61 West, 6th P.M., and to establish a 640-acre drilling and spacing unit for the Application Lands and approve up to four horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  

 

11.       On September 27, 2013, Kaiser, by its attorneys, withdrew the Protest to the Application.

 

12.       On October 4, 2013, Bonanza, by its attorneys filed with the Commission a written request to approve the Application based on the merits of the verified Second Amended Application and the supporting exhibits.  Sworn written testimony and exhibits were submitted in support of the Second Amended Application.

 

13.       Land testimony and exhibits submitted in support of the Second Amended Application by Caroline Heuring, Land Technician for Bonanza, showed that Bonanza holds oil and gas leasehold interests for the Niobrara Formation in the Application Lands.

 

14.       Geologic testimony and exhibits submitted in support of the Second Amended Application by Dana D. Strunk, Petroleum Geologist for Bonanza, showed that the Niobrara Formation underlying the Application Lands is just over 271-295 feet thick, and is a common source of supply and generally is of uniform thickness underlying the Application Lands.

 

15.       Engineering testimony and exhibits submitted in support of the Second Amended Application by Edward M. Polishuk, Senior Reservoir Engineer for of Bonanza, showed that the estimated drainage areas for analogous horizontal wells to the Niobrara Formation in the Application Lands are expected to be 62 acres.  Additional testimony concluded that based on the Net Present Value and Rate of Return, from a discounted cash flow analysis for a type well based on the existing horizontal Niobrara wells, additional horizontal development of the Niobrara Formation is economically justified.   Further testimony concluded that  with the current status of technology, horizontal drilling and completion of infill wells to the Niobrara Formation in the Application Lands will increase recovery from the reservoir and thereby prevent waste.

 

16.       The above-referenced testimony and exhibits show that granting the Second Amended Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.

 

17.       Bonanza agreed to be bound by oral order of the Commission. 

 

18.       Based on the facts stated in the verified Second Amended Application, having resolved all protests, and based on the Hearing Officer review of the Application under Rule 511, the Commission should enter an order to vacate an approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 established for Section 4, Township 5 North, Range 61 West, 6th P.M., and establish an approximate 640-acre drilling and  spacing unit for Section 4, Township 5 North, Range 61 West, 6th P.M., and  approve up to four horizontal wells within the unit, for the production of oil, gas, and related hydrocarbons of the Niobrara Formation.

 

ORDER

 

            IT IS HEREBY ORDERED:

 

1.            An approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 4, Township 5 North, Range 61 West, 6th P.M., is hereby vacated.

 

2.            An approximate 640-acre drilling and spacing unit for the below-described lands, is hereby established, and up to four horizontal wells within the unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the productive interval of the horizontal wellbore to be no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director:

 

Township 5 North, Range 61 West, 6th P.M.

Section 4:        All

 

3.         Production from existing vertical and directional wells, including the existing Pronghorn 31-4 well (API No. 05-123-23929) and the Pronghorn 14-4 well (API No. 05-123-22430), shall continue to pay in accordance with units established under Rule 318A or other prior orders of the Commission.

 

            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 30 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   8th   day of November, 2013, as of October 28, 2013.

           

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary