BEFORE THE OIL AND GAS
CONSERVATION COMMISSION
OF THE STATE OF
IN
THE MATTER OF THE PROMULGATION )
CAUSE NO. 517
AND
ESTABLISHMENT OF FIELD RULES TO )
GOVERN
OPERATIONS IN THE
RIVER
FIELD, LAS ANIMAS COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for
hearing before the Commission on January 7, 2003 at 8:30 a.m. in Suite 801, The
Chancery Building, 1120 Lincoln Street, Denver, Colorado for an order to
establish 160-acre drilling and spacing units for certain lands for the
production of oil and gas from the Vermejo Coal Formation and for an order
pooling all non-consenting interests in the unit.
SUMMARY OF PROCEEDINGS
1. Robert L. Bayless, Producer LLC (“Bayless”)
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
terms of the Memorandum of Understanding (“MOU”) between the Commission and the
Bureau of Land Management (“BLM”).
4. On October 31, 2000, the Commission
established 160-acre drilling and spacing units for certain lands in Townships
30 and 31 South, Range 65 West, 6th P.M., Townships 29, 30 and 31 South, Range
66 West, 6th P.M. and Township 31 South, Range 67 West, 6th P.M. for the
production of coalbed methane gas from the Raton and Vermejo Coal
Formations. On
5. On
Township 34 South, Range 65
West, 6th P.M.
Section 7: NW¼
Township 34 South, Range 66
West, 6th P.M.
Section 1: SE¼
Section 12: NE¼
The following wells,
operated by Evergreen Operating Company, have been drilled and are producing
from the Vermejo Coal Formation. Bayless
requested that the Commission designate these wells as the permitted wells for
the drilling and spacing units and that an order pooling all interests in the
proposed units be approved for the development and operation of the Vermejo
Coal Formation.
Well
Location Unit
Road Runner #12-7 Well SW¼
NW¼ Section 7-34S-65W NW¼
Gladiator
(a/k/a Ernest) #21-7 Well NE¼ NW¼ Section 7-34S-65W NW¼
Bobcat #33-1 Well NW¼ SE¼ Section
1-34S-66W SE¼
Bullsnake #34-1 Well SW¼ SE¼ Section
1-34S-66W SE¼
Doe #42-12 Well SE¼ NE¼ Section 12-34S-66W NE¼
6. On
7. On
8. A prehearing conference was held on this
matter on
APPLICANT’S EVIDENCE
9. The Commission heard expert testimony from Mr.
Matthew Silverman, Consulting Petroleum Geologist, regarding the geologic
development in the Lorencito Field, who opined that the drilling of additional
wells in the application lands would yield increasingly small amounts of gas
because the existing wells produce a total of approximately 2.8 million cubic
feet of gas per day.
10. The Commission heard expert testimony from Mr.
John Seidle, Consulting Senior Reservoir Engineer, on the existing wells in and
surrounding the application lands regarding production data, drainage areas and
the economics of drilling additional wells.
Mr. Seidle opined that the average drainage area for wells in the area is
104 acres, that the coalbed methane gas has been fully developed in the
application lands, that drilling additional wells in the application lands would
be wasteful, and that the application is necessary to protect correlative
rights.
11. The Commission heard expert testimony from Ms.
C Jay Turner, Land Manager, regarding the terms of the federal lease acquired
by Bayless and ownership of the surrounding minerals and surface.
12. The Commission heard expert testimony from
Mr. Robert Bayless, Engineer and President of Bayless, regarding the BLM’s
concerns about potential drainage of the lease and the negotiations between
Bayless and Evergreen to address these concerns.
EVERGREEN’S EVIDENCE
13. The Commission heard expert testimony from
Mr. John Buckley, Landman, regarding the history of the wells drilled on the
application lands prior to the acquisition of the federal lease by Bayless, access
to the federal lease, and the number of working interest and royalty owners who
would be affected by a pooling order.
14. The Commission heard expert testimony from
Mr. Dennis Carlton, Geologist and Senior Vice-President, regarding the geologic
development in and surrounding the application lands,, who opined that only
some individual coal seams can be correlated throughout the area, that
compartmentalization of the coal seams is likely in the area, and that it is
necessary to have flexibility to drill additional wells in each section to
recover the gas reserves.
15. The Commission heard expert testimony from
Mr. Paul Onsager, Senior Reservoir Engineer, regarding production data,
volumetric calculations, drainage areas, and the economics for drilling
additional wells. He opined that
locating wells on 40-acre tracts would be beneficial for production, that
additional wells are justified based on decline curve data and strong gas
prices, and that incremental recovery and accelerated production would be
economic from wells drilled on the Bayless federal lease.
16. The Commission heard expert testimony from
Mr. Mark Sexton, Engineer and President, regarding well economics, the
infrastructure of the gathering system in the area, and negotiations with Bayless
to address the BLM’s concerns about potential drainage.
PUBLIC COMMENT
17. A Rule 510 Statement was made by Ms. Diana
Dedde, Petroleum Engineer, who expressed her concern about the protection of
mineral owners’ rights in cases of isolated leases.
FINDINGS
18. Based on the testimony and exhibits presented
at the hearing, the Commission finds that drilling additional wells on the
application lands would be economic to recover incremental reserves and
accelerate production, that the drilling of additional wells on the application
lands would not result in waste, that the protection of correlative rights on
the application lands are best achieved by the drilling of additional wells,
and that the applicant did not meet its burden of proof to establish 160-acre
drilling and spacing units for the lands described above in Finding No. 5.
NOW, THEREFORE IT IS ORDERED,
that the application for an order to establish 160-acre drilling and spacing
units for the below-listed lands for the production of gas and associated
hydrocarbons from the Vermejo Coal Formation is hereby denied:
Township 34 South, Range 65
West, 6th P.M.
Section 7: NW¼
Township 34 South, Range 66
West, 6th P.M.
Section 1: SE¼
Section 12: NE¼
IT IS FURTHER ORDERED, that the provisions contained in
the above order shall become effective forthwith.
IT
IS FURTHER ORDERED, that the Commission expressly reserves its right, after
notice and hearing, to alter, amend or repeal any and/or all of the above
orders.
ENTERED this day of February, 2003, as of
OIL
AND GAS CONSERVATION COMMISSION
OF THE STATE OF
By
Patricia C. Beaver, Secretary
Dated
at