BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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. 1-137 and 407-325
WELD COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on September 22, 2008, in the Sabin-Cleere Conference Room, Building A, Colorado Department of Public Health and Environment, 4300 Cherry Creek Drive South, Denver, Colorado, for an order to establish a 160-acre wellbore spacing unit consisting of the S˝ NEĽ and N˝ SEĽ of Section 31, Township 5 North, Range 65 West, 6th P.M., for the production of oil and associated hydrocarbons from the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, and to pool all nonconsenting interests in the 160-acre wellbore spacing unit, for the development and operation of said formations.
The Commission finds as follows:
1. Mineral Resources, Inc. (“Mineral Resources”), 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. Section 31, Township 5 North, Range 65 West, 6th P.M. is subject to this Rule for the Sussex, “J” Sand, and Dakota Formations.
7. 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. Section 31, Township 5 North, Range 65 West, 6th P.M. is subject to this Rule for the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations.
10. On September 11, 2008, 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. Sworn written testimony and exhibits were submitted in support of the application.
11. Testimony and exhibits submitted in support of the application showed that the applicant owns the drill site and proposes to drill one directional well for the production of oil and associated hydrocarbons from the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations in the 160-acre wellbore spacing unit consisting of the S˝ NEĽ and N˝ SEĽ of Section 31, Township 5 North, Range 65 West, 6th P.M.
12. Testimony and exhibits submitted in support of the application showed that letters were sent to all consenting and nonconsenting parties within the proposed 160-acre wellbore spacing unit. Additional testimony showed the letters sent to all nonconsenting parties offered mineral leases at $100 per acre with a 12.5% royalty interest, opportunities to participate in the venture, or mineral interest purchases, and that said letters contained Authorizations for Expenditures and offers to lease mineral interests, which are fair and reasonable and no less favorable than those currently prevailing in the area, and that those nonconsenting owners have elected not to participate. Further testimony showed that the offers were sent via mail at least thirty (30) days prior to the hearing date.
13. Testimony and exhibits submitted in support of the application showed that establishing one 160-acre wellbore spacing unit will facilitate drilling and producing multiple formations while protecting correlative rights and that waste will be prevented.
14. The above-referenced testimony and exhibits show that the proposed wellbore spacing unit will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of oil, and will not violate correlative rights.
15. Mineral Resources, Inc. agreed to be bound by oral order of the Commission.
16. Based on the facts stated in the verified application, having received one protest which has been resolved, 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 wellbore spacing unit consisting of the S˝ NEĽ and N˝ SEĽ of Section 31, Township 5 North, Range 65 West, 6th P.M., for the production of oil and associated hydrocarbons from the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, and to pool all nonconsenting interests in the 160-acre wellbore spacing unit, for the development and operation of said 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 the 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 September, 2008, as of September 22, 2008.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
Patricia C. Beaver, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
September 24, 2008