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. 1-153
FIELD, WELD COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on August 12, 2010, in the Adams County Economic Development Offices, 12050 N. Pecos St., Suite 200, Westminster, Colorado, for an order to establish a 160-acre drilling and spacing unit for the SW¼ of Section 18, Township 5 North, Range 62 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.
FINDINGS
The Commission finds as follows:
1. Bonanza Creek Energy Operating Company, LLC, (“Bonanza Creek”), 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 SW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. are subject to this Rule for the Codell, Niobrara, “J” Sand 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 SW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M. are subject to this Rule for the Codell, Niobrara, “J” Sand and Dakota Formations.
6. On May 19, 2010, Bonanza Creek, by its attorney, filed with the Commission a verified application for an order to establish a 160-acre drilling and spacing unit in the following lands (“Application Lands”) 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.:
Township 5 North, Range 62 West, 6th P.M.
Section 18: SW¼
7. On June 23, 2010, 70 Ranch LLC (“70 Ranch”), by its attorney, filed with the Commission a protest. 70 Ranch is a surface and mineral interest owner in the Application Lands and alleged that any release of hydrocarbons into certain soils that have unique characteristics would be extremely detrimental to 70 Ranch’s water business.
8. On August 5, 2010, a pre-hearing conference was held, and the hearing officer made a preliminary determination that the issues raised by the protest were surface use issues only and not relevant to an application to establish drilling and spacing units and involuntarily pooling the mineral interests therein. The parties have negotiated lease terms, but 70 Ranch has not signed the lease because the surface use agreement has not been completed.
9. On August 6, 2010, 70 Ranch, by its attorney, filed with the Commission a withdrawal of its protest.
10. On August 10, 2010, 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 as is provided for by Rule 511. Sworn written testimony and exhibits were submitted in support of the application.
11. Testimony submitted in support of the application indicated that Bonanza Creek owns oil and gas leasehold interests covering an undivided 74.5% of the mineral estate in the SW¼ of Section 18, Township 5 North, Range 62 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.
12. Further testimony submitted in support of the application 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 though more than 30 days have elapsed, 70-Ranch has failed to sign the lease; and the terms of the lease offered are no less favorable than those prevailing in the area at this time.
13. Further testimony submitted in support of the application indicated that the uniform spacing unit of 160 acres with the approval of four wells will result in the most reasonable and economically efficient development of the application lands, assist in preventing waste, avoid the drilling of unnecessary wells, and protect correlative rights; and the requested 160-acre spacing unit with one well drilled per 40 acres is not smaller than the maximum area that can be efficiently and economically drained by one well.
14. Bonanza Creek agreed to be bound by an oral order of the Commission.
15. Based on the facts stated in the verified application, having received one protest that was withdrawn, and based on the Hearing Officer review of the application under Rule 511.b., the Commission should enter an order establishing a 160-acre drilling and spacing unit consisting of the SW1/4 of Section 18, Township 5 North, Range 62 West, 6th P.M for production of oil and gas from the Codell, Niobrara, Dakota and “J” Sand formations, and pooling all non-consenting interests in said units with respect to said formations.
ORDER
NOW, THEREFORE, IT IS ORDERED, that a 160-acre drilling and spacing unit consisting of the SW¼ of Section 18, Township 5 North, Range 62 West, 6th P.M is hereby established for production of oil and gas from the Codell, Niobrara, “J” Sand and Dakota Formations;
IT IS FURTHER ORDERED, that:
1. The interests of all non-consenting owners in the following drilling and spacing unit are hereby pooled for the development and operation of the Codell, Niobrara, “J” Sand and Dakota Formations for the following wells and any future wells that may be approved for the drilling and spacing unit, effective as of the spud date of the respective well:
Township 5 North, Range 62 West, 6th P.M.
Section 18: SW¼
Antelope 13-18 Well (API No. 05-123-31852) with a planned bottomhole location at 1,980 feet from the south line (“FSL”) and 660 feet from the west line (“FWL”)
Antelope 14-18 Well (API No. 05-123-31828) with a planned bottomhole location at 660 FSL and 660 FWL
Antelope 23-18 Well (API No. 05-123-31827) with a planned bottomhole location at 1,980 FSL and 1,980 FWL
Antelope 24-18 Well (API No. 05-123-31829) with a planned bottomhole location at 660 FSL and 1,980 FWL
2. The production obtained from the drilling and spacing 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 the unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the wells located on the unit applicable to its interest in such unit.
3. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the wells (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the applicable unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
4. The unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the wells (as described hereinabove) together with future wells drilled to the Codell, Niobrara, “J” Sand and Dakota Formations in the 160-acre drilling and spacing unit and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.
5. Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each 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, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the wells as if it had originally agreed to the drilling.
6. The operator of the wells drilled on the above-described drilling and spacing 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.
7. Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended. Any conflict that may arise shall be resolved in favor of the statute.
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, 2010, as of August 12, 2010.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Carol Harmon, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
September 8, 2010