BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF CRESTONE PEAK RESOURCES OPERATING LLC FOR AN ORDER TO: (1) ESTABLISH AND APPROVE A RULE 216 COMPREHENSIVE DRILLING PLAN FOR SECTIONS 1, 2, 3, 10, 11 AND 12, TOWNSHIP 1 NORTH, RANGE 69 WEST, 6^th P.M. AND SECTIONS 25, 26, 27, 34, 35 AND 36, TOWNSHIP 2 NORTH, RANGE 69 WEST, 6^TH P.M. FOR THE COMPREHENSIVE DEVELOPMENT AND OPERATION OF THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, BOULDER COUNTY, COLORADO, AND (2) TO APPROVE A RULE 502.b. VARIANCE TO COMMISSION RULE 303.

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CAUSE NO. 1

DOCKET NO. 170500189

TYPE: GENERAL

ADMINISTRATIVE

ORDER NO. 1-225

IN THE MATTER OF THE APPLICATION OF CRESTONE PEAK RESOURCES OPERATING LLC FOR AN ORDER TO: (1) ESTABLISH AN APPROXIMATE 2,560-ACRE DRILLING AND SPACING UNIT FOR SECTIONS 1 AND 12, TOWNSHIP 1 NORTH, RANGE 69 WEST AND SECTIONS 25 AND 36, TOWNSHIP 2 NORTH, RANGE 69 WEST, 6^TH P.M. IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (2) ALLOW UP TO 72 HORIZONTAL WELLS IN THE 2,560 ACRE DRILLING AND SPACING UNIT IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (3) TO APPROVE UP TO SIX OIL AND GAS LOCATIONS/WELLPADS (LOCATIONS TO BE DETERMINED) IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN FOR THE DEVELOPMENT AND OPERATION OF THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, BOULDER COUNTY, COLORADO, AND (4) TO APPROVE A RULE 502.b. VARIANCE TO COMMISSION RULE 303.

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CAUSE NO. 407

DOCKET NO. 170500190

TYPE: SPACING

ORDER NO. 1-225

IN THE MATTER OF THE APPLICATION OF CRESTONE PEAK RESOURCES OPERATING LLC FOR AN ORDER TO: (1) ESTABLISH AN APPROXIMATE 2,560-ACRE DRILLING AND SPACING UNIT FOR SECTIONS 2 AND 11, TOWNSHIP 1 NORTH, RANGE 69 WEST AND SECTIONS 26 AND 35, TOWNSHIP 2 NORTH, RANGE 69 WEST, 6^TH P.M. IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (2) ALLOW UP TO 72 HORIZONTAL WELLS IN THE 2,560 ACRE DRILLING AND SPACING UNIT IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (3) TO APPROVE UP TO SIX OIL AND GAS LOCATIONS/WELLPADS (LOCATIONS TO BE DETERMINED) IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN FOR THE DEVELOPMENT AND OPERATION OF THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, BOULDER COUNTY, COLORADO, AND (4) TO APPROVE A RULE 502.b. VARIANCE TO COMMISSION RULE 303.

CAUSE NO. 407

DOCKET NO. 170500191

TYPE: SPACING

ORDER NO. 1-225

IN THE MATTER OF THE APPLICATION OF CRESTONE PEAK RESOURCES OPERATING LLC FOR AN ORDER TO: (1) ESTABLISH AN APPROXIMATE 2,560-ACRE DRILLING AND SPACING UNIT FOR SECTIONS 3 AND 10, TOWNSHIP 1 NORTH, RANGE 69 WEST AND SECTIONS 27 AND 34, TOWNSHIP 2 NORTH, RANGE 69 WEST, 6^TH P.M. IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (2) ALLOW UP TO 72 HORIZONTAL WELLS IN THE 2,560 ACRE DRILLING AND SPACING UNIT IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN, (3) TO APPROVE UP TO SIX OIL AND GAS LOCATIONS/WELLPADS (LOCATIONS TO BE DETERMINED) IN ACCORDANCE WITH A CORRESPONDING COMMISSION RULE 216 COMPREHENSIVE DRILLING PLAN FOR THE DEVELOPMENT AND OPERATION OF THE CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, BOULDER COUNTY, COLORADO, AND (4) TO APPROVE A RULE 502.b. VARIANCE TO COMMISSION RULE 303.

CAUSE NO. 407

DOCKET NO. 170500192

TYPE: SPACING

ORDER NO. 1-225

COMMISSION ORDER REVERSING CONTINUANCE

The Commission heard this matter on December 17, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, 80203, upon Crestone Peak Resources Operating LLC’s Exception Pursuant to § 24-4-105(14)(A)(III), C.R.S. to the Hearing Officer’s Order to Indefinitely Continue the Application and Request for Hearing before the Commission (“Exception”).

The Commission finds as follows:

1. Crestone Peak Resources Operating LLC (Operator No. 10633) (“Crestone”) is an interested party in the subject matter of the above-referenced hearing.

2. The Board of County Commissioners of Boulder County (“County”) is an interested party in the subject matter of the above-referenced hearing.

3. The City of Boulder (“City”) is an interested party in the subject matter of the above-referenced hearing.

4. Due notice of time, place, and purpose of hearing has been given in all respects as required by law.

5. The Commission has jurisdiction over the subject matter embraced in said matter and the parties interested therein, and has authority to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act (“Act”).

PROCEDURAL HISTORY

6. On February 22, 2017, Crestone filed four applications with the Commission:

a. An application in Docket No. 170500189 to establish a Rule 216 Comprehensive Drilling Plan for lands in eastern Boulder County (“CDP Application”).

b. An application in Docket No. 170500190 to establish an approximate 2,560-acre drilling and spacing unit for lands encompassed within the CDP Application.

c. An application in Docket No. 170500191 to establish an approximate 2,560-acre drilling and spacing unit for lands encompassed within the CDP Application.

d. An application in Docket No. 170500192 to establish an approximate 2,560-acre drilling and spacing unit for lands encompassed within the CDP Application.

(collectively, the three applications for a drilling and spacing unit in Docket Nos. 170500190, 170500191, and 170500192 are known herein as the “Spacing Applications”).

7. On March 17, 2017, Crestone amended the Spacing Applications.

8. On September 29, 2017, Crestone submitted its Conceptual and Preliminary CDP Elements, with attachments showing the proposed development.

9. On November 22, 2017, Crestone submitted its Second Draft Preliminary CDP Elements and an Amended CDP Application.

10. On December 28, 2017, Crestone submitted its Third Draft Preliminary CDP Elements.

11. On March 29, 2018, Crestone submitted its Fourth Draft Preliminary CDP Elements.

12. On June 14, 2018, Crestone submitted a Second Amended CDP Application.

13. On June 15, 2018, Crestone amended the Spacing Applications for a second time.

14. On June 15, 2018, Crestone submitted its Final Draft Preliminary CDP Elements (“Final CDP”).

15. The Final CDP proposes three oil and gas locations with a total of five wellpads, with specified preferred site locations and an alternative location.

16. On July 30, 2018, the Director submitted a Finding of Suitability of Crestone Peak Resources Operating LLC’s Final Comprehensive Drilling Plan Containing all Conceptual, Preliminary, and Final CDP Plan Elements (“Finding of Suitability”), in which the Director “finds that Crestone’s CDP is suitable for consideration and acceptance by the Commission.” Finding of Suitability, p. 13. The Finding of Suitability also made the following observation and conclusions:

a. “In developing its CDP, Crestone worked with Staff, the Colorado Department of Public Health and Environment (‘CDPHE’), Colorado Parks and Wildlife (‘CPW’), and other stakeholders, including Boulder County and other local governments. The Original Draft CDP, each subsequent draft CDP, and the Final CDP were made available to the public for review and comment.” Finding of Suitability, p. 1.

b. “Staff finds that the Final CDP does positively address stakeholders’ major concerns with the Original Draft CDP.” Finding of Suitability, p. 4.

c. “[A]lthough the [CDP] would identify the proposed Oil and Gas Locations, the acceptance of the CDP would not satisfy the requirements of individual Form 2A Oil and Gas Location Assessments or Form 2 Applications for Permit to Drill… [A] granular level of review by Staff will be conducted when those applications are submitted to the COGCC.” Finding of Suitability, p. 8.

d. “Crestone has satisfied Staff’s request for confirmation of the percentage mineral ownership it holds within the CDP.” Finding of Suitability, p. 13.

e. “[T]he Director finds that Crestone has satisfied the informational requirements set forth in Rule 216.c. Further, the Director finds that Crestone has satisfied the purpose of the CDP Rule.” Finding of Suitability, p. 13.

17. In the Finding of Suitability, the Director also directed that the Final CDP be placed on the Commission’s agenda for the October 29-30, 2018 Commission meeting. Finding of Suitability, p. 1.

18. On August 24, 2018, the County filed a protest to the CDP Application. On August 31, 2018, the County filed protests to the three Spacing Applications.

19. On August 24, 2018, the City filed a protest to the CDP Application.

20. On September 25, 2018, the County filed a lawsuit in Boulder County District Court, Case No. 2018CV30924 (the “Lawsuit”) against Crestone Peak.

21. On September 25, 2018, the County filed Motions to Continue (collectively “Motion”) the October 29-30, 2018 Commission hearing on the CDP Application and the Spacing Applications. The County requested that the hearings on the CDP Application and the Spacing Applications be continued until the Lawsuit is resolved.

22. On September 27, 2018, a prehearing conference was held at which the Hearing Officer heard argument on the Motion.

23. On October 4, 2018, the Hearing Officer issued an order granting the Motion and continued the CDP Application and Spacing Applications indefinitely until the Lawsuit is resolved, either by the Boulder County District Court or on appeal (“Order”). The Order stated:

a. “The Lawsuit seeks judicial resolution of several lease and easement issues which are outside the Commission’s jurisdiction, but which could directly affect Crestone’s right to pursue the relief requested by Crestone in the respective applications and the Commission’s decision upon those applications.” Order, p. 3.

b. “[Q]uestions before the Boulder County District Court may affect the access or manner in which Crestone may access the proposed surface location. Those are important considerations for the Commission’s consideration of the comprehensive drilling plan, and thus, the proposed drilling and, thus, the proposed drilling and spacing units.” Order, p. 3-4.

24. On November 1, 2018, Crestone filed its Exception. The County and the City responded in opposition to the Exception.

25. On December 3, 2018, the Hearing Officer issued a Final Prehearing Order which provided that the Commission would hear oral argument on the Exception at the December 17-18, 2018 Commission meeting.

HEARING

26. The Commission heard argument from Crestone, the County, and the City at hearing on December 17, 2018.

27. Through its pleadings and argument at hearing, Crestone argued that:

a. Rule 216.d.(4) provides that the Director shall place a CDP that the Director considers to be suitable on the Commission’s hearing agenda in a timely manner.

b. The Order does not identify any legal authority for an indefinite continuance.

c. An indefinite stay is arbitrary and capricious under § 24-4-106(7), C.R.S. of the Administrative Procedure Act (“APA”), contrary to Crestone’s due process and statutory rights, is in excess of the Commission’s authority under the Act, and it not supported by the evidence in the record.

d. The only basis for the stay is the Lawsuit, which questions the vailidity of leases held by Crestone, but the Lawsuit raises issues that are outside of the Commission’s jurisdiction to resolve, and is not a sufficient reason alone to grant the stay.

e. The stay will irreparably harm Crestone’s correlative rights, will create waste, and will harm other mineral interest owners in the CDP.

f. The Finding of Suitability recognized Crestone’s right to develop.

28. Crestone also requested, in the alternative, that the Commission bifurcate the Spacing Applications from the CDP Application and allow the Spacing Applications to proceed to hearing.

29. Through its pleadings and at hearing, the County and the City argued:

a. The Lawsuit calls into question Crestone’s ownership of mineral interests, as well as Crestone’s ability to construct or access surface locations where those locations are proposed in CDP.

b. The Commission does not have jurisdiction over those issues raised by the Lawsuit.

c. The Hearing Officer has the authority to grant the stay under Rule 506.a.

d. If the County prevails in the Lawsuit Crestone will not be able to proceed with the development plan proposed in the CDP. In the interests of judicial economy, the Commission should not proceed with hearing the CDP and Spacing Applications until the Lawsuit is resolved.

30. Following argument, the Commission deliberated. The Commission then voted 6-2 in favor of reversing the Order, and directing Staff to place the CDP and Spacing Applications on the Commission’s hearing agenda when appropriate.

COMMISSION FINDINGS AND CONCLUSIONS

31. Rule 506.c. provides that both the Hearing Officer and the Commission “may for good cause cancel or continue any hearing to another date.”

32. In deciding whether to grant a continuance, the court should consider the circumstances of the particular case and weigh the right of the party requesting the continuance to a fair hearing against the prejudice that may result from the delay. See Bithell v. Western Care Corp., 762 P.2d 708 (Colo. App. 1988).

33. Under a traditional standard for a stay, courts consider four factors: “(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Romero v. City of Fountain, 307 P.3d 120, 122 (Colo. App. 2011). Court have also considered: “comity, the extent of disputed factual (as opposed to legal) issues involved, the order in which the courts obtained jurisdiction, adequacy of relief available in state court, avoidance of maneuvers to clog efficient judicial machinery, the need for comprehensive litigation, and the desirability of avoiding piecemeal litigation.” In re Application for Water Rights of U.S., 101 P.3d 1072, 1081 (Colo. 2004).

34. Rule 216.d.(4) provides that “[t]he Director shall place on the Commission’s hearing agenda in a timely manner a Comprehensive Drilling Plan that has been agreed to in writing by the operator(s) and that the Director considers suitable…”

35. The Commission does not have jurisdiction remedy the issues raised in the Lawsuit as determination of those issues relates to interpretation or enforcement of leases or other contracts. See Chase v. Colorado Oil and Gas Conservation Com’n, 284 P.3d 161, 168 (Colo. App. 2012).

36. In the Finding of Suitability, the Director found that the Crestone had satisfied the informational requirments of Rule 216, that the purpose Rule 216 had been met, that the Final CDP was suitable for Commission consideration. The Director also directed that the Final CDP be placed on the Commission’s agenda for the October 29-30, 2018 Commission meeting.

37. The Finding of Suitability also provides that Crestone satisfied Staff’s request for information showing that Crestone is an owner within the CDP lands.

38. The Finding of Suitability demonstrates that Staff and the parties have spent significant time and effort on the CDP. See Finding of Suitability, p. 6 (discussing the CDP process and review); and p. 11 (Staff recommendations and best management practices).

39. If approved by the Commission, the CDP is only the beginning of the Commission’s regulatory process. Crestone will be required to submit and obtain approvals for drilling and spacing units, as well as submit and obtain Form 2s and 2As for all wells and surface locations.

40. None of the factors to be considered favor a stay of the CDP or Spacing Applications.

41. The County and the City have not shown that they are likely to succeed on the merits in the Lawsuit.

42. As the CDP process is an initial step in the regulatory process, neither the County nor the City will be irreparably injured absent a stay. Further, the County and the City have relief available in state court as they may request that a court stay the effect of Commission orders.

43. No essential factual or legal issues overlap between the Lawsuit and the CDP and Spacing Applications. There is no danger of differing decisions on the same issues arising out of the Lawsuit and the CDP and Spacing Applications.

44. The stay disrupts the Commission’s orderly process and is contrary to principals of judicial economy. To stay the CDP process following the significant time and effort that has been expended by Staff and all parties, as well as following the Director’s finding of suitability, would be to upend the Rule 216 process. It is in the Commission’s interest, as well as in the interest of the public, that the Rule 216 process proceed so that the purpose of the Rule 216 process to facilitate discussions about impacts and identify measures to minimize those impacts is realized.

45. The stay could encourage the filing of lawsuits to prevent the Commission from proceeding with its regulatory processes and clog the efficient machinery of the Commission.

46. The stay presents the same issues to the Spacing Applications as it does to the CDP Application, so there is no need to consider the Applications separately.

47. In reaching these findings and conclusions, the Commission does not reach or express any opinion on the merits of the Lawsuit, the CDP Application, or the Spacing Applications.

ORDER

IT IS HEREBY ORDERED:

1. The October 4, 2018, Order granting an indefinite continuance is REVERSED.

2. The Director may set Docket Nos. 170500189, 170500190, 170500191, 170500192 for hearing in the ordinary course of Commission business.

IT IS FURTHER ORDERED:

1. The provisions contained in the above order shall become effective immediately.

ENTERED this 10th day of January, 2019, as of December 17, 2018.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Mimi C. Larsen, Secretary