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BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
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IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE CANAL FIELD, MORGAN COUNTY, COLORADO |
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CAUSE NO. 142
ORDER NO. 142-4 |
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 8:30 a.m. on July 10, 1998 in Suite 801, 1120 Lincoln Street, Denver, Colorado on the verified application of Deer Creek Exploration, Inc., (“Deer Creek”) for an order to establish 160-acre exploratory drilling and spacing units for certain lands in Canal Field (the “Application”). Deer Creek also requested that the Commission designate the Private Oil Industries, Inc. Shorty No. 2 Well as the permitted well for the 160-acre unit consisting of the NE¼ of Section 34. The Applicant also asked the Commission to order that the interests in the proposed exploratory drilling and spacing units be pooled for the development and operation of the Dakota "D" Sand Formation.
FINDINGS
The Commission finds as follows:
1. Deer Creek Exploration, Inc., 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. On March 4, 1960, the Commission issued Order No. 142-1, which established two (2) 600-acre drilling and spacing units for the production of gas from the Dakota "D" Sand Formation underlying the below-described lands:
Township 3 North, Range 59 West, 6th P.M.
Section 3: NW¼
Section 4: NE¼, E½ NW¼
Township 4 North, Range 59 West, 6th P.M.
Section 33: E½, E½ W½
Section 34: W½
The following drilling and spacing units were established:
Unit 1: Township 3 North, Range 59 West, 6th P.M.
Section 3: NW¼
Section 4: NE¼, E½ NW¼
Township 4 North, Range 59 West, 6th P.M.
Section 33: S½ SE¼, SE¼ SW¼
Section 34: S½ SW¼
Unit 2: Township 4 North, Range 59 West, 6th P.M.
Section 33: NE¼, E½ NW¼, N½ SE¼, NE¼ SW¼
Section 34: NW¼, N½ SW¼
5. Subsequent Amended Order No. 142-3, vacated Unit 2 and established a 160-acre exploratory drilling and spacing unit in the NE¼ of Section 33, Township 4 North, Range 59 West, 6th P.M. for production from the Dakota "D" and Dakota "J" Sand Formations.
6. On May 13, 1998, Deer Creek filed the Application with the Commission seeking an order to establish 160-acre exploratory drilling and spacing units for the below-described lands. The Application proposed that permitted wells be located no closer than 600 feet from the outer boundary of the unit and no closer than 1,200 feet from any existing producing well, for production from the Dakota "D" Sand Formation. The Application further sought a Commission order to pool the interests in the 160-acre drilling and spacing units for the development and operation of the Dakota "D" Sand Formation:
Township 4 North, Range 59 West, 6th P.M.
Section 27: SW¼, SE¼
Section 34: NE¼
(the “Application Area”)
7. Deer Creek further requested an order to designate the Private Oil Industries, Inc. Shorty No. 2 Well, located 660 feet FNL and 656 feet FEL in the NE¼NE¼ of Section 34 as the permitted well for the 160-acre unit consisting of the NE¼ said section.
8. On June 29, 1998, Duane S. Larson filed a protest to the Application stating that establishing the requested 160-acre drilling and spacing units would not ensure proper, efficient and uniform development of the area.
9. On June 30, 1998, the Bureau of Land Management ("BLM") filed a letter in support of the requested 160-acre drilling and spacing units based on federal mineral ownership of a portion of the Application Area.
10. On July 6, 1998, Forward Resources, Inc. (“Forward”) filed a protest to the Application. Although Forward agreed that 160 acres is the proper area to drain a Dakota “D” Sand Formation well, Forward contended that the requested drilling setbacks contained in the Application resulted in 40-acre spacing units, and as such would violate the correlative rights of Forward and other parties.
11. On July 8, 1998, the Director and Secretary convened a prehearing conference attended by Deer Creek, Protestants and COGCC staff to clarify the scope of the relief requested in the Application.
12. Testimony and evidence presented at the hearing indicated that 160-acre drilling and spacing units are not smaller than the maximum area that can be efficiently and economically drained by one well in accordance with § 34-60-116 (2), C.R.S. Establishing these units will prevent waste and protect correlative rights.
13. Testimony and evidence presented at the hearing support the entry of an order to pool the interests in the SE¼ of Section 27 and the NE¼ of Section 34, both in Township 4 North, Range 59 West, 6th P.M. to allow each owner the opportunity to obtain its just and equitable share of production from the spaced area. Testimony and evidence further indicated that the parties should share in the cost and revenue from the pooled areas as provided in the Order below. The propriety of entering an order to pool the interests in the SW¼ of Section 27, Township 4 North, Range 59 West, 6th P.M. was continued to the October, 1998 hearing so that further information can be exchanged to allow the parties to consider a voluntary pooling agreement.
14. Testimony and evidence presented at the hearing supported a finding that the Shorty No. 2 Well located in the NE¼ NE¼ of Section 34, Township 4 North, Range 59 West should be the permitted well for the pooled area embracing the NE¼ of said Section 34 pursuant to § 34-60-116 (7)(a), C.R.S. Testimony and evidence further indicated that Deer Creek and Forward should share prospectively in the costs and revenues from the Shorty No. 2 Well from the date of the Commission Order, subject to receipt and approval of final title material.
15. The Commission acknowledges that this Order may require a royalty accounting to the BLM which the Commission recognizes as a separate issue from the exercise of state authority to establish drilling and spacing units and to enter involuntary pooling orders. Any royalty issues may be resolved independent of this Order by the parties and the BLM.
16. Based on the facts stated in the verified application and testimony presented at the time of hearing, the Commission finds it should enter an order establishing 160-acre drilling and spacing units for the Application Area, with the permitted well to be located no closer than 600 feet from the outer boundary of the unit and no closer than 1,200 feet from any existing producing well, for production from the Dakota "D" Sand Formation. In addition, an order should be entered approving the Private Oil Industries, Inc. Shorty No. 2 Well, located 660 feet FNL and 656 feet FEL in the NE¼ NE¼ of Section 34 as the permitted well for the 160-acre unit consisting of the NE¼ said section. Further, an order should be entered pooling all interests in the Application Area for the development and operation of the Dakota "D" Sand Formation with the exception of the SW¼ of Section 27, Township 4 North, Range 59 West, 6th P.M., which has been continued to the October hearing.
ORDER
NOW, THEREFORE IT IS ORDERED, that 160-acre drilling and spacing units are hereby established for the below-described lands, with the permitted well to be located no closer than 600 feet from the outer boundary of the unit and no closer than 1,200 feet from any existing producing well, for production from the Dakota "D" Sand Formation:
Township 4 North, Range 59 West, 6th P.M.
Section 27: SW¼, SE¼
Section 34: NE¼
IT IS FURTHER ORDERED, that the Private Oil Industries, Inc. Shorty No. 2 Well, located 660 feet FNL and 656 feet FEL in the NE¼ NE¼ of Section 34, Township 4 North, Range 59 West, 6th P.M., shall be the permitted well for the 160-acre unit consisting of the NE¼ said Section 34.
IT IS FURTHER ORDERED, that:
1. Pursuant to the provisions of §34-60-116 C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the SE¼ of Section 27, Township 4 North, Range 59 West, 6th P.M., and the NE¼ of Section 34, Township 4 North, Range 59 West, 6th P.M., are hereby pooled for the development and operation of the Dakota "D" Sand Formations.
2. The Shorty No. 2 Well shall be the designated well for the pooled area embracing the NE¼ of Section 34 and that production obtained from the Shorty No. 2 Well and the costs for all future operations 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 said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.
3. That production obtained from the SE¼ of Section 27 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 said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.
4. The owner of any unleased tract in these drilling units should be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling unit.
5. Within thirty (30) days from the date of receipt of said A.F.E. by any owner in the SE¼ of Section 27, such owner shall indicate whether he consents to the cost of the drilling of the well and agrees to participate in such costs. Such election shall be made in writing either by executing the AFE or similar document. In the event a written election to participate is not made by said owner within such time period, said owner shall be deemed to have elected not to participate and shall therefore be deemed to be non‑consenting as to the well and be subject to the penalties as provided for by §34‑60‑116 (7), C.R.S.
6. Any non‑consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non‑consenting 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, the non‑consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.
7. The operator of any well drilled on the above described units shall furnish all 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.
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 July, 1998, as of July 10, 1998.
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
July 18, 2018