BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF
IN
THE MATTER OF THE PROMULGATION AND ) CAUSE NOS. 1 AND 407
ESTABLISHMENT OF FIELD
RULES TO GOVERN )
OPERATIONS IN THE
WATTENBERG FIELD, ) ORDER NOS. 1-116 AND 407-302
This cause came on for hearing before the Commission
at 9:00 a.m. on July 23, 2007, in Suite 801, The Chancery Building, 1120
Lincoln Street, Denver, Colorado for an order to establish a 160-acre drilling
and spacing unit consisting of the SW¼ NW¼ and the NW¼ SW¼ of Section 16 and
the NE¼ SE¼ and the SE¼ NE¼ of Section 17, Township 5 North, Range 65 West, 6th
P.M. as a wellbore spacing unit for production from the Sussex, Codell,
Niobrara, “J” Sand or Dakota Formations, and to pool all nonconsenting
interests in the 160-acre drilling and spacing unit for the development and
operation of said formations.
FINDINGS
The
Commission finds as follows:
1. On November
18, 1985, the Commission issued Order No. 407-1 (amended on March 29, 2000)
which established 80-acre drilling and spacing units for the production of oil
and/or gas and associated hydrocarbons for the Codell and Niobrara Formations
underlying certain lands, including Sections 16 and 17, Township 5 North, Range
65 West, 6th P.M., with the unit to be designated by the operator
upon 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.
2. Rule 318.a.
of the Rules and Regulations of the Commission 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. The SW¼ NW¼ and the NW¼ SW¼ of Section 16 and
the NE¼ SE¼ and the SE¼ NE¼ of Section 17, Township 5 North, Range 65 West, 6th
P.M. are subject to this Rule for the
3. 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. On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established. Sections 16 and 17, Township 5 North, Range 65 West, 6th P.M. were included in this Rule.
4. On June 1,
2007, Mineral Resources, Inc. (“Mineral Resources”), by its attorney, filed
with the Commission a verified application for an order to establish a 160-acre
drilling and spacing unit consisting of the SW¼ NW¼ and the NW¼ SW¼ of Section
16 and the NE¼ SE¼ and the SE¼ NE¼ of Section 17, Township 5 North, Range 65
West, 6th P.M. as a wellbore spacing unit for production from the
Sussex, Codell, Niobrara, “J” Sand or Dakota Formations, and to pool all nonconsenting
interests in the 160-acre drilling and spacing unit for the development and
operation of said formations.
5. On July 13, 2007, Mineral Resources, by its
attorney, filed with the Commission a written request to approve the
application based on the merits of the verified application and the supporting
exhibits.
6. Testimony
and exhibits submitted in support of the application showed that Mineral
Resources proposes to drill one well directionally under the unit and that all
mineral owners have been contacted with offers to either lease or
participate. Additional testimony and
exhibits submitted in support of the application demonstrated that there are
unleased mineral owners at this time. Further
testimony submitted indicated that Mineral Resources continues to work toward
obtaining leases or participation from these unleased mineral owners.
7. Testimony
and exhibits submitted in support of the application showed that letters were
sent between June 26, 2006 and November 1, 2006 to each mineral owner offering
leases at $50 per acre with a 12½% royalty interest, or offering an opportunity
to participate as a working interest in the well. Additional testimony showed that these terms
are similar to those prevailing in the area.
None of the mineral owners have agreed to date to participate as working
interest owners.
8. Testimony
and exhibits submitted in support of the application showed that Mineral
Resources owns the drill site. Further information
showed that the City of
9. Testimony
and exhibits submitted in support of the application showed that establishing one
160-acre drilling and spacing unit will facilitate drilling and producing
multiple formations while protecting correlative rights and that waste will be
prevented and production accounting will be simplified.
10. Mineral Resources, Inc. agreed to be bound by an oral order of the
Commission.
11. 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.b., the Commission should enter an order to establish a 160-acre drilling and spacing unit consisting of the SW¼ NW¼ and the NW¼ SW¼ of Section 16 and the NE¼ SE¼ and the SE¼ NE¼ of Section 17, Township 5 North, Range 65 West, 6th P.M. as a wellbore spacing unit for production from the Sussex, Codell, Niobrara, “J” Sand or Dakota Formations, and pool all nonconsenting interests in the 160-acre drilling and spacing unit for the development and operation of said formations.
ORDER
NOW, THEREFORE IT IS ORDERED,
that Order No. 407-1 is hereby amended and a 160-acre drilling and spacing unit
is hereby established for the SW¼ NW¼ and
the NW¼ SW¼ of Section 16 and the NE¼ SE¼ and the SE¼ NE¼ of Section 17,
Township 5 North, Range 65 West, 6th P.M. as a wellbore spacing unit
for production from the Sussex, Codell, Niobrara, “J” Sand or Dakota
Formations.
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 nonconsenting
interests in the 160-acre drilling and
spacing unit consisting of the SW¼ NW¼ and the NW¼ SW¼ of Section 16 and
the NE¼ SE¼ and the SE¼ NE¼ of Section 17, Township 5 North, Range 65 West, 6th
P.M. are hereby pooled for the development
and operation of the Sussex, Codell, Niobrara, “J” Sand or Dakota
Formations.
2.
The production obtained from each drilling 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 each drilling
unit; each owner of an interest in each drilling unit shall be entitled to
receive his/her share of the production of the well located on each drilling
unit applicable to his interest in each drilling unit.
3.
Said owners are hereby deemed to have elected not to participate and
shall therefore be deemed to be nonconsenting as to the well(s) and be subject
to the penalties as provided for by §34‑60‑116 (7) , C.R.S.
4. Any
nonconsenting 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/her
record title interest, whatever that interest may be, until such time as the
consenting owner recovers, only out of the 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, the nonconsenting mineral owner shall then own his/her
proportionate 8/8ths share of the well, surface facilities and production, and
then be liable for his/her proportionate share of further costs incurred in
connection with the well as if he/she had originally agreed to the drilling.
5. The operator of any well drilled on the
above-described unit shall furnish all 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.
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.
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 August, 2007, as of July 23, 2007.
OIL
AND GAS CONSERVATION COMMISSION
OF THE STATE OF
By
Patricia
C. Beaver, Secretary
Dated at
August
15, 2007