BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION ) CAUSE NO. 1
AND ESTABLISHMENT OF FIELD RULES TO )
GOVERN OPERATIONS IN THE WATTENBERG ) ORDER NO. 1-122
FIELD, WELD COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on February 25, 2008, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish 160-acre drilling and spacing units for the NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell, Niobrara, “J” Sand and Dakota Formations, and to pool all nonconsenting interests in said lands for the development and operation of said formations.
The Commission finds as follows:
1. Bonanza Creek Energy Operating Company (“Bonanza Creek”), LLC, 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. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply. The NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M. are subject to this Rule for the Codell, Niobrara, “J” Sand and Dakota Formations.
5. 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. The NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M. are subject to this Rule for the Codell, Niobrara, “J” Sand and Dakota Formations.
6. On November 26, 2007, Bonanza Creek, by its attorney, filed with the Commission a verified application for an order to establish 160-acre drilling and spacing units for the NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell, Niobrara, “J” Sand and Dakota Formations, and to pool all nonconsenting interests in said lands for the development and operation of said formations.
7. On December 31, 2007, Bonanza Creek, by its attorney, filed with the Commission a written request to continue this matter to the February hearing and to allow the deadline for filing protests/interventions to the application to be extended to February 11, 2008. The matter was continued, and no protests/interventions were filed.
8. On February 13, 2008, Bonanza Creek, 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. Sworn written testimony and exhibits were submitted in support of the application.
9. Testimony and exhibits submitted in support of the application showed that Bonanza Creek owns oil and gas leasehold interests covering an undivided 74.5% of the mineral estate in the NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M., and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M., and 70 Ranch, LLC owns the remaining undivided 25.5% oil and gas mineral estate therein, which interest is not currently leased. Additional testimony indicated that Bonanza Creek has submitted a proposed lease and an Authorization For Expenditure (AFE) to 70 Ranch, giving it the opportunity to either lease all or part of its mineral interest in the acreage or participate in the drilling of the proposed wells, and that though more than 30 days have elapsed, 70 Ranch has failed to respond to the offers. Further testimony indicated that the terms of the lease offered to 70 Ranch are no less favorable than those prevailing in the area at this time, and that the costs to drill the proposed wells are comparable with costs to drill similar wells in the area.
10. Testimony submitted in support of the application showed that only one well, the Monahan Farr #1 Well, was drilled in the application lands to the “J” Sand Formation in the NE¼ NW¼ of Section 24, Township 5 North, Range 63 West, 6th P.M., and was plugged and abandoned in 2002, with royalties paid out on the basis of a 160-acre unit.
11. Testimony and exhibits submitted in support of the application showed that based on surrounding production from the Codell, Niobrara, “J” Sand and Dakota Formations, expected drainage for each formation will be significantly less than 160 acres, however, uniform spacing units of 160 acres will result in the most reasonable and economically efficient development of the application lands, and the requested 160-acre spacing units are not smaller than the maximum area that can be efficiently and economically drained by one well.
12. The above-referenced testimony and exhibits show that the proposed spacing will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.
13. Bonanza Creek Energy Operating Company agreed to be bound by oral order of the Commission.
14. 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 160-acre drilling and spacing units for the NW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. and the W½ of Section 24, Township 5 North, Range 63 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell, Niobrara, “J” Sand and Dakota Formations, and to pool all nonconsenting interests in said lands for the development and operation of said formations.
ORDER
NOW, THEREFORE, IT IS ORDERED, that 160-acre drilling and spacing units are hereby established for the following lands, for the production of gas and associated hydrocarbons from the Codell, Niobrara, “J” Sand and Dakota Formations, with the permitted wells to be located in accordance with Rule 318A.:
Township 5 North, Range 62 West, 6th P.M.
Section 18: NW¼
Township 5 North, Range 63 West, 6th P.M.
Section 24: NW¼ and SW¼
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 of the nonconsenting interests in the above-described 160-acre drilling and spacing units are hereby pooled for the development and operation of the Codell, Niobrara, “J” Sand and Dakota Formations.
2. The production obtained from the 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/her 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 March, 2008, as of February 25, 2008.
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
March 11, 2008