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

 

IN  THE  MATTER  OF THE  APPLICATION  OF EXTRACTION OIL & GAS, LLC FOR AN  ORDER TO POOL ALL INTERESTS IN AN APPROXIMATE 320-ACRE DRILLING AND SPACING UNIT ESTABLISHED FOR SECTION 36, TOWNSHIP 6 NORTH,  RANGE 66 WEST,  6TH P.M., FOR THE CODELL AND NIOBRARA FORMATIONS, BRACEWELL FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 407

 

DOCKET NO. 1401-UP-05

 

ORDER NO. 407-920

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on January 27, 2014, at the Centennial Building, 1313 Sherman Street, Room 318, Denver, Colorado, upon application for an order to pool all interests in an approximate 320-acre drilling and spacing unit established for the N½ of Section 36, Township 6 North, Range 66 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Hiner 36NC-18W Well, the Hiner 36NB-19W Well, the Hiner 36C-20W Well, the Hiner 36NB-21W Well, the Hiner 36C-22W Well and the Hiner 36NB-23W 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 June 27, 1983, the Commission entered Order No. 381-1 which, among other things, established 80-acre drilling and spacing units for the production of oil and associated hydrocarbons from the Codell Formation underlying certain lands in the Bracewell Field. The N½ of Section 36, Township 6 North, Range 66 West, 6th P.M. is subject to this Order for the Codell Formation.

            5.         On June 18, 1984, the Commission entered Order No. 381-2 which, among other things, established 80-acre drilling and spacing units for the production of oil and associated hydrocarbons from the Niobrara Formation.  By Order No. 381-2, the Niobrara Formation was included in the spaced area of the Bracewell Field as provided for in Order No. 381-1.  The N½ of Section 36, Township 6 North, Range 66 West, 6th P.M. is subject to this Order for the Niobrara Formation.

            6.         On June 18, 1984, the Commission entered Order No. 381-3 which, among other things, permitted multiple completions of wells in the Codell and Niobrara Formations, and where there is no difference in ownership between formations, to commingle production from the formations in the wellbore for existing wells and wells to be drilled.  The N½ of Section 36, Township 6 North, Range 66 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.

            7.         On February 18, 1985, the Commission entered Order 381-5 which, among other things, approved an optional additional well on each established 80-acre drilling and spacing unit in the undrilled 40-acre tract, for the production of oil and associated hydrocarbons from the Codell and Niobrara Formations.  The additional well would be subject to the Order Nos. 381-1, 381-2, and 381-3.  The N½ of Section 36, Township 6 North, Range 66 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.

            8.         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 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 36, Township 6 North, Range 66 West, 6th P.M. is subject to Rule 318A for the Codell and Niobrara Formations.

            9.         On February 11, 2013, the Commission entered Order No. 381-17 which, among other things, vacated two 80-acre drilling and spacing units established by Order No. 381-1 and Order No. 381-2 for the NE¼ of Section 36, Township 6 North, Range 66 West, 6th P.M. and established an approximate 160-acre drilling and spacing  unit for the NE¼ of Section 36, Township 6 North, Range 66 West, 6th P.M. for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.  The NE¼ of Section 36, Township 6 North, Range 66 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.

            10.       On November 25, 2013, Extraction, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified concurrent application (“Concurrent Application”) for an order to vacate an approximate 160-acre drilling and spacing unit established by Order No. 381-17 for the NE¼ of Section 36, Township 6 North, Range 66 West, 6th P.M. and to establish an approximate 320-acre drilling and spacing unit for the N½ of Section 36, Township 6 North, Range 66 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.

11.       On November 25, 2013, Extraction, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to pool all interests in an approximate 320-acre drilling and spacing unit established for the below-described lands (“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 §34-60-116(7)(b), C.R.S.  were first incurred for the drilling of the Hiner 36NC-18W Well (API No. TBD), the Hiner 36NB-19W Well (API No. TBD), the Hiner 36C-20W Well (API No. TBD), the Hiner 36NB-21W Well (API No. TBD), the Hiner 36C-22W Well (API No. TBD) and the Hiner 36NB-23W Well (API No. TBD) (“Initial Wells”) and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S.:

 

                                    Township 6 North, Range 66 West, 6th P.M.

                                    Section 36:   N½

 

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), C.R.S., 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 NE¼ of Section 36, Township 6 North, Range 66 West, 6th P.M. from an authorized window pursuant to Rule 318A, or from an exception location with surface owner consent.

 

12.       On January 13, 2014, 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.

 

13.       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 each of the six Initial Wells.  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 operations and was received at least 30 days prior to the January 27, 2014 hearing date.

 

14.       Land testimony showed Applicant complied with the elements of Rule 530 for each of the Initial Wells.  For purposes of pooling and cost recovery pursuant to §§34-60-116(6) and (7), C.R.S., Applicant requests the Commission:


                        a.    require each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in the six Initial Wells collectively, rather than in each Initial Well individually; and


                        b.     for each nonconsenting owner, apply the cost recovery provisions of §34-60-116(7), C.R.S. to each of the Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and


                        c.     require Applicant to re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and


                        d.     require Applicant to re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the drilling and spacing unit.

 

15.       Applicant stated it will begin drilling the Initial Wells within one year from the date of entry of this Order, by obtaining the necessary approvals and permits to drill.  Failure to obtain the necessary permits shall not relieve Applicant from this requirement or extend the time period approved by this Order.

 

16.       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.

 

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

 

18.       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 an approximate 320-acre drilling and spacing unit established for the N½ of Section 36, Township 6 North, Range 66 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Hiner 36NC-18W Well, the Hiner 36NB-19W Well, the Hiner 36C-20W Well, the Hiner 36NB-21W Well, the Hiner 36C-22W Well and the Hiner 36NB-23W Well, for the development and operation of the Codell and Niobrara Formations.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         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 established for the below-described lands, 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), C.R.S. are first incurred for the drilling of the Hiner 36NC-18W Well, the Hiner 36NB-19W Well, the Hiner 36C-20W Well, the Hiner 36NB-21W Well, the Hiner 36C-22W Well and the Hiner 36NB-23W Well:

 

                                    Township 6 North, Range 66 West, 6th P.M.

                                    Section 36:   N½

 

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 Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

 

3.         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 each 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.

 

4.         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).

 

5.         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.

 

6.         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.

 

7.         For purposes of pooling and cost recovery pursuant to §§34-60-116(6) and (7), C.R.S.:


                        a.    Each interest owner who is not pooled voluntarily shall make an election to participate or be pooled by statute in the six Initial Wells collectively, rather than in each Initial Well individually; and


                        b.     for each nonconsenting owner, the cost recovery provisions of §34-60-116(7), C.R.S. shall apply to each of the six Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and


                        c.     Applicant shall re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and


                        d.     Applicant shall re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the drilling and spacing unit.

 

8.         Applicant stated it will begin drilling the Initial Wells within one year from the date of entry of this Order, by obtaining the necessary approvals and permits to drill.  Failure to obtain the necessary permits shall not relieve Applicant from this requirement or extend the time period approved by this Order.

 

9.         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.

 

10.       Existing vertical/directional wells shall be excluded from the unit and shall continue to pay on their current spacing or leasehold status.

 

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 February, 2014, as of January 27, 2014.

           

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary