BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

IN THE MATTER OF THE RULES AND                            )           CAUSE NO. 1

REGULATIONS OF THE COLORADO OIL                      )          

AND GAS CONSERVATION COMMISSION,                   )           ORDER NO. 1-105

WASHINGTON COUNTY, COLORADO                            )

 

REPORT OF THE COMMISSION

 

                        This cause came on for hearing before the Commission on May 24, 2004, at 1:00 p.m. in the Community Room at City Hall, 1000 10th Street, Greeley, Colorado on the amended application of Delta Petroleum Corporation for an order to change the existing well setbacks in Rule 318.a. that apply to certain lands to allow wells drilled in excess of two thousand five hundred (2,500) feet to be located no closer than 300 feet from the boundaries of any lease line and no closer than 600 feet from any producible or drilling well or wells, for production of oil, gas and associated hydrocarbons from the Niobrara, “D” Sand, “J” Sand and Paleozoic-Mississippian Formations.

 

FINDINGS

 

1.  Delta Petroleum Corporation (“Delta”), 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.

 

                        4.  Rule 318.a. requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing.

 

                        5.  On April 5, 2004, Delta Petroleum Corporation, by its attorney filed with the Commission a verified Application for an order to change the existing well setbacks in Rule 318.a. that apply to the below-listed lands to allow wells drilled in excess of two thousand five hundred (2,500) feet to be located no closer than 300 feet from the boundaries of any lease line and no closer than 600 feet from any producible or drilling well or wells, for production of oil, gas and associated hydrocarbons from the Niobrara, “D” Sand, “J” Sand and Paleozoic-Mississippian Formations:

 

                                                                   Township 3 South, Range 49 West, 6th P.M.

                                                                   Sections 4 through 6: S½

                                                                    Sections 7 through 9: All

                                                                    Sections 15 through 36: All

 

                        6.  On May 7, 2004 Steve and Ruth Weeks filed with the Commission a written protest to the application.  In a telephone call on May 10, 2004, Mrs. Weeks indicated to Hearing Officer Beaver that none of her mineral interests were included in Delta’s application, and thus her protest was not valid.  On May 11, 2004, Jim and Vickie Cecil filed with the Commission a written protest to the application regarding the distance proposed for wells to be drilled as it relates to their mineral ownership in Section 35.  In addition, on May 11, 2004, Lanny Payne filed a written protest to the application urging that only one well be drilled per 40-acres.  The deadline for filing protests to the May hearing applications was May 10, 2004.

                       

                        7.  Hearing Officer Beaver contacted the protestants immediately upon receipt of the protests on May 11, 2004, as an administrative hearing had been scheduled for the matter since no valid protests were received by the protest deadline.  Her conversation with Mr. Payne resulted in his closer reading of Delta’s application which clearly states it plans to drill no more than one well per 40-acres.  He later indicated to Delta’s landman his intent to sign a letter formally withdrawing his protest.  The Cecils indicated their willingness to participate in a prehearing conference to be held at the time originally scheduled for an administrative hearing.

 

8.   A prehearing conference was conducted on May 11, 2004 with the Cecils participating telephonically.  After discussion between COGCC Hearing Officers and the parties, Delta removed the Cecil’s land from the application and the Cecils protest was thus deemed moot.  Section 35 is no longer included in the application and those lands remain subject to Rule 318.a. of the Rules and Regulations of the Commission.

 

9.  Testimony and exhibits presented at the administrative hearing indicated that Delta owns 100% of the acreage in the application lands except the SW¼ of Section 6 and the SE¼ of Section 28. 

 

10.  Testimony and exhibits presented at the administrative hearing showed that the “J” Sand is a blanket sand, water-driven reservoir underlying the application lands, with karst-type structures resulting from salt collapses and that the oil/water contacts are flat in the area.  Additional testimony indicated that the Niobrara, “D” Sand, “J” Sand and Paleozoic-Mississippian Formations are present throughout the application lands.

 

11.  Testimony and exhibits presented at the administrative hearing showed that Delta has acquired eighty (80) miles of seismic data from which small “J” Sand Formation structures have been identified, with the smallest structure covering  approximately 20 acres and the largest structure covering approximately 300 acres.  Additional testimony indicated that the average “J” Sand Formation structure ranges from 60 to 80 acres underlying the application lands, and that Delta needs the flexibility to locate wells to accommodate these structures.  Further testimony and exhibits showed the potential oil column and the interpreted spill-point of the structure, with the permitted well locations under Rule 318.a. and the need for flexibility to locate wells on the structures to encounter oil production.

 

12.  Testimony and exhibits presented at the administrative hearing showed that certain areas on the mapped structures would not be accessed if wells were required to be located in accordance with Rule 318.  Additional testimony indicated that in Section 29 alone approximately 843,750 barrels of oil are estimated in place, with approximately 481,500 barrels of oil inaccessible and left in the ground if the application were not granted.  Further testimony indicated that Delta plans to calculate reserves and allocate production volumetrically and pool production under its lease provisions. 

 

13.  Subsequent to the administrative hearing, Delta submitted a letter describing the manner in which it would protect correlative rights of offsetting owners in the event that drainage results in one or more adjacent mineral tracts.  The letter states that “Identification of structure boundaries and the drainage area will be based upon geological and engineering data developed from drilling and production operations.  The proportionate participation in a unit of various mineral tracts may be determined by surface area, by hydrocarbon volumetric calculations based, or on a combination of such methods.”

 

14.  The approval of the application would allow wells to be located to accommodate small structures in the “J” Sand Formation and thus recover oil reserves that would otherwise be left in the ground.  Delta should report its findings to the Commission within one (1) year of obtaining production from its first well drilled under the provisions of the requested setbacks, unless Delta files with the Commission a request to increase well density before that date, in which case an increased density application will require the same data to be presented.

 

15.  Delta Petroleum Corporation agreed to be bound by oral order of the Commission.

 

16.  Based on the facts stated in the verified application, having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to change the existing well setbacks in Rule 318.a. that apply to the lands described above in Finding No. 5, except for Section 35, to allow wells drilled in excess of two thousand five hundred (2,500) feet to be located no closer than 300 feet from the boundaries of any lease line and no closer than 600 feet from any producible or drilling well or wells, for production of oil, gas and associated hydrocarbons from the Niobrara, “D” Sand, “J” Sand and Paleozoic-Mississippian Formations. 

17.  Subsequent to the hearing, as requested at the time of the hearing by several Commissioners, Delta submitted letters containing a description of the Paleozoic-Mississippian Formation intervals that are subject to Delta’s Application.  The stratigraphic description for all formations subject to this Order should be defined as from the surface to the stratigraphic equivalent of the base of the Top of the Precambrian, the top of which formation is determined to be at a depth of 6,520’ subsurface as found in the California Oil Mumm #1 Well located in the NE¼ NE¼ of Section 1, Township 3 South, Range 48 West, 6th P.M., Yuma County, Colorado.  The specific formations include the Niobrara, “D” Sand, “J” Sand Lyons Sandstone, Satanka, Ingleside, Fountain, Arbuckle, and Reagan Sandstone Formations, all of which are included in the above stratigraphic description.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, Rule 318.a is hereby amended to change the existing well setbacks that apply to the below-described lands to allow wells drilled in excess of two thousand five hundred (2,500) feet to be located no closer than 300 feet from the boundaries of any lease line and no closer than 600 feet from any producible or drilling well or wells, for production of oil, gas and associated hydrocarbons from the Niobrara, “D” Sand, “J” Sand and Paleozoic-Mississippian Formations. 

 

                                                Township 3 South, Range 49 West, 6th P.M.

                                                Sections 4 through 6: S½

                                                Sections 7 through 9: All

                                                Sections 15 through 34: All

                                                Section 36: All

 

IT IS FURTHER ORDERED, that Delta shall report its findings to the Commission within one (1) year of obtaining production from its first well drilled under the provisions of the requested setbacks, unless Delta files with the Commission a request to increase well density before that date, in which case an increased density application shall require the same data to be presented.

 

                        IT IS FURTHER ORDERED, that the provisions contained in the above orders 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.

 

                        IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

 

                        IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

 

                         ENTERED this                       day of June, 2004, as of May 24, 2004.

 

                                                 OIL AND GAS CONSERVATION COMMISSION

                                                            OF THE STATE OF COLORADO

 

 

 

                                                            By__________________________________________

                                                                                    Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 10, 2004