BEFORE THE OIL AND
GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE AMENDED APPLICATION OF EXTRACTION OIL & GAS, LLC FOR AN ORDER TO ESTABLISH AN APPROXIMATE 320-ACRE HORIZONTAL DRILLING AND SPACING UNIT IN SECTION 13, TOWNSHIP 6 NORTH, RANGE 67 WEST, 6TH P.M., AND TO POOL All INTERESTS FOR THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1312-UP-254
ORDER NO. 407-913 |
REPORT OF THE COMMISSION
The Commission heard this matter on December 16, 2013, at the Ralph L. Carr Colorado Judicial Center, 1300 Broadway, 1st Floor, Room 1E, Denver, Colorado, upon application for an order to: 1) establish an approximate 320-acre drilling and spacing unit for Section 13, Township 6 North, Range 67 West, 6th P.M., and approve up to six horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; and 2) pool all interests in the approximate 320-acre drilling and spacing unit, to accommodate the Rubyanna 13NB-31W Well, the Rubyanna 13C-30W Well, the Rubyanna 13NB-29W Well, the Rubyanna 13C-28W Well, the Rubyanna 13NB-27W Well and the Rubyanna 13NC-26W Well, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Extraction Oil & Gas, LLC (“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.
4. On December 19, 1983, the Commission entered Order No. 407-1 (amended March 29, 2000) which, among other things, established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell Formation, with the unit to be designated by the operator drilling the first well in the quarter section. The permitted well shall be located in the center of either 40-acre tract within the unit with a tolerance of 200 feet in any direction. 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. Section 13, Township 6 North, Range 67 West, 6th P.M. is subject to this Order for the Codell Formation.
5. 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 and/or gas from the Codell-Niobrara Formation underlying certain lands, with the permitted well locations in accordance with the provisions of Order No. 407-1. Section 13, Township 6 North, Range 67 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.
6. On April 27, 1998, 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 of the 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 13, Township 6 North, Range 67 West, 6th P.M. is subject to Rule 318A for the Codell and Niobrara Formations.
7. On October 17, 2013 (Amended November 13, 2013), Extraction, 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) Establish an approximate 320-acre drilling and spacing unit for the below-described lands (“Application Lands”), and approve up to six horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the productive interval of the 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 located in the unit, without exception being granted by the Director; and 2) pool all interests in the approximate 320-acre drilling and spacing unit established for the below-described Application Lands, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. §34-60-116(7)(b)(II) were first incurred for drilling each of six authorized wells: the Rubyanna 13NB-31W Well, the Rubyanna 13C-30W Well, the Rubyanna 13NB-29W Well, the Rubyanna 13C-28W Well, the Rubyanna 13NB-27W Well and the Rubyanna 13NC-26W Well (“Wells”) and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):
Township 6 North, Range 67 West, 6th P.M.
Section 13: S½
Applicant stated existing vertical/directional wells shall be excluded from the unit and shall continue to pay on their current spacing or leasehold status.
Applicant stated it intends to drill the horizontal wells as part of a continuous drilling program, and will comply with Rule 530 for each of the six authorized wells pursuant to §34-60-116(7), by providing a Pro Forma AFE and Election Letter to each nonconsenting party at least 30 days prior to the hearing on the matter.
Applicant stated the horizontal wells will be drilled from a multi-well pad located in the NE¼ SE¼ of Section 13, pursuant to Rule 318A, or from an exception location outside of an authorized GWA window, with surface owner consent.
8. On December 3, 2013, Extraction, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified 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 Lane M. Jungers, President of Land Energy, Inc. for Extraction, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Well. Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 30 days prior to the December 16, 2013 hearing date.
10. Extraction identified the drilling window to be forfeited as the 400 foot by 400 foot window located in the NE¼ SE¼ of Section 13, Township 6 North, Range 67 West, 6th P.M.
11. Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the Rubyanna 13NB-31W Well, the Rubyanna 13C-30W Well, the Rubyanna 13NB-29W Well, the Rubyanna 13C-28W Well, the Rubyanna 13NB-27W Well and the Rubyanna 13NC-26W Well, but did not provide testimony for any subsequent wells.
12. The above-referenced testimony and exhibits show that granting the Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.
13. Extraction agreed to be bound by oral order of the Commission.
14. 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) establish an approximate 320-acre drilling and spacing unit for Section 13, Township 6 North, Range 67 West, 6th P.M., and approve up to six horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations; and 2) pool all interests in the approximate 320-acre drilling and spacing unit, to accommodate the Rubyanna 13NB-31W Well, the Rubyanna 13C-30W Well, the Rubyanna 13NB-29W Well, the Rubyanna 13C-28W Well, the Rubyanna 13NB-27W Well and the Rubyanna 13NC-26W Well, for the development and operation of the Codell and Niobrara Formations.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 320-acre drilling and spacing unit for the below-described lands, is hereby established, and up to six horizontal wells within the unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the productive interval of the 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 located in the unit, without exception being granted by the Director:
Township 6 North, Range 67 West, 6th P.M.
Section 13: S½
2. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in the approximate 320-acre drilling and spacing unit, are hereby pooled, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b)(II), C.R.S. are first incurred for the drilling of the Rubyanna 13NB-31W Well, the Rubyanna 13C-30W Well, the Rubyanna 13NB-29W Well, the Rubyanna 13C-28W Well, the Rubyanna 13NB-27W Well and the Rubyanna 13NC-26W Well.
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 Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
4. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
5. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116 (7), C.R.S. Any party seeking the cost recovery provisions of §34-60-116 (7), C.R.S., shall first comply with subsection (d) for any subsequent well(s).
6. Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S. as amended. After recovery of such costs, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the Well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Well as if it had originally agreed to the drilling.
7. The operator of the well drilled on the above-described drilling and spacing unit 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. Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended. Any conflict that may arise shall be resolved in favor of the statute.
9. The 400 foot by 400 foot window established pursuant to Rule 318A.a.(1) located in the NE¼ SE¼ of Section 13, Township 6 North, Range 67 West, 6th P.M., is hereby forfeited.
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 _____ day of January, 2014, as of December 16, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary