BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO	) ) ) )	CAUSE NO.   112 ORDER NO.   112-177

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Hearing Officers at 10:00 a.m. on November 29, 2004 in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to pool all interests in a 320-acre drilling and spacing unit for the development and operation of the Fruitland coal seams.

FINDINGS

                        The Commission finds as follows:

                        1.  On July 11, 1988, the Commission issued Order No. 112-60, which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland coal seams underlying certain lands, including the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M.

                        2.  On July 28, 2000 (amended November 19, 2001), the Commission issued Order No. 112-156, which amended Order Nos. 112-60, 112-61 and 112-85 to allow an optional additional well to be drilled for production of gas from the Fruitland Coal seams for certain lands, including the above-listed lands, with the permitted well to be located in any undrilled quarter section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line. 

                        3.  On December 23, 2002, Richard and Theresa Watson filed an application with the Commission for an order pooling their mineral interests in four (4) acres within the 320-acre drilling and spacing unit consisting of the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M., for the University #9-1 Well effective as of the date of completion.  The Applicants sought the pooling order against EnerVest San Juan Operating, LLC. (“EnerVest”) because EnerVest purchased the University #9-1 Well from Emerald Gas Operating Company, who purchased the Well from Bowen/Edwards Associates, Inc., who originally drilled the well.  The Well was operated by Texaco E & P Inc. subsequent to EnerVest and is currently operated by Chevron U.S.A.  In addition, the Applicants requested to be paid the money attributable to their mineral interests from the time of the completion of the University #9-1 Well to the present.  Further, the Applicants requested that the pooling order contain a list of all of the mineral interests of each owner in the pooled unit and their percentage interest in the 100% of the total mineral interests in the pool.

                        4.  On May 20, 2004, Chevron U.S.A. Inc. (“Chevron”), by its attorney, filed with the Commission a verified application for an order to pool all unleased mineral interests in the 320-acre drilling and spacing unit consisting of the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M. for the development and operation of the Fruitland coal seams, effective as of the effective date of the Commission’s Order.  The University 9-1 Well was drilled in the E½ of Section 9 in July 1992 and has produced since that time.  The Applicant was assigned the interests in the University 9-1 Well and its leasehold interest from Texaco Exploration and Production Inc. (“Texaco”) who acquired an interest in the Well effective November 1, 2000 and had learned that there were certain interest owners in the Well who were not receiving proceeds attributable to production from the Well.  Both representatives from Texaco and Chevron have been in contact with some of these unleased mineral owners in an attempt to arrange proper payment of proceeds as from the time Texaco acquired the well and have not been successful in all cases for various reasons.

                        5.  On June 7, 2004, William Bontrager, Attorney, filed with the Commission, on behalf of Richard and Theresa Watson (“Watson”), Charles and Mary Parnell, James and Gladys Garnand, Molly Watson and Denise A. Bohemier a protest to the Chevron application along with motion to consolidate this matter with Watson’s December 23, 2002 application for pooling. 

                        6.  On November 15, 2004, James and Gladys Garnand filed with the Commission a notice withdrawing from all proceedings in these matters with prejudice.  On November 17, 2004, all remaining protestants filed with the Commission a notice withdrawing from all proceedings in these matters with prejudice.

7.  Testimony and exhibits presented at the administrative hearing showed that an offer to lease or to participate was made on or around December 22, 1993 to Gallagher Oil Company.  Additional testimony indicated that offers to lease or to participate were made on or around December 23, 1993 to the following mineral owners:  Keith & Mary Dawes, Mary Avisa Garnand, James Garnand, Major Oil & Gas Company and Eugene A. & Maurine M. Smeja.  In addition, testimony was presented that offers to lease or to participate were made to Richard K. & Theresa Watson on May 22, 1992 and on December 23, 1993.  Subsequently, the Watson minerals were divided between Richard, Theresa & Molly Watson and Denise Bohemier.  No leases or AFEs were executed by any of these mineral owners.  These mineral owners represent approximately five percent (5%) of the total interest in the 320-acre drilling and spacing unit.

                        8.  Additional testimony presented at the administrative hearing indicated that all of the requirements of Rule 530. and §34-60-116, C.R.S. for involuntary pooling have been met by Chevron.

                        9.  Based on the facts stated in the verified application, having received protests that were withdrawn with prejudice, and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order pooling all interests in the 320-acre drilling and spacing unit consisting of the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M. for the development and operation of the Fruitland coal seams.

ORDER

                        NOW, THEREFORE IT IS 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 non-consenting interests in the 320-acre drilling and spacing unit consisting of the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M. are hereby pooled for the development and operation of the Fruitland coal seams.

            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 non-consenting 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 non-consenting 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 non-consenting 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.

            6.  Chevron U.S.A. Inc. shall be designated as the operator for the 320-acre drilling and spacing unit consisting of the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M. for the production of gas and associated hydrocarbons from the Fruitland coal seams.

                        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 December 2004, as of November 29, 2004.

                                                                        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

December 17, 2004