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

REPORT OF THE COMMISSION

            This cause came on for hearing before the Commission on November 29, 2010, in Suite 801 of The Chancery Building, 1120 Lincoln Street, Denver, Colorado for an order to pool all nonconsenting interests in an established 320-acre drilling and spacing unit consisting of the S½ of Section 21, Township 34 North, Range 9 West, N.M.P.M., La Plata County, Colorado for the development and operation of the Fruitland coal seams.

FINDINGS

The Commission finds as follows:

1.    BP America Production Company (“BP”), 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.    On June 17, 1988, the Commission issued Order No. 112-60, which among other things, established 320-acre drilling and spacing units for certain lands, including Section 21, Township 34 North, Range 9 West, N.M.P.M. (SUL), for the production of gas from the Fruitland coal seams, with the permitted well to located no closer than 990 feet to any outer unit boundary and no closer than 130 feet to any interior quarter section line.

5.    On April 24, 2000, the Commission issued Order No. 112-157, which among other things, authorized the drilling of a second optional well in certain 320-acre drilling and spacing units, including Section 21, Township 34 North, Range 9 West, N.M.P.M. (SUL), for the production of gas from the Fruitland coal seams, with the permitted well to located no closer than 990 feet to any outer unit boundary and no closer than 130 feet to any interior quarter section line.

6.    On April 24, 2000, the Commission issued Order No. 112-190, which among other things, authorized the drilling of up to four optional wells in certain 320-acre drilling and spacing units, including Section 21, Township 34 North, Range 9 West, N.M.P.M. (SUL), for the production of gas from the Fruitland coal seams, with the permitted well to located no closer than 660 feet from the unit boundary with no interior section line setback.

7.    On June 18, 2010, BP, by its attorneys, filed with the Commission a verified application (the “Application”) to pool all nonconsenting interests for the 320-acre drilling and spacing unit consisting of the S½ of Section 21, Township 34 North, Range 9 West, N.M.P.M. (SUL), for the development and operation of the Fruitland coal seams.  Further, it is alleged by BP that it has drilled, but is not yet producing, the Groff GU A #3 Well (the “Well”) within the drilling and spacing unit, and it requests the pooling order be retroactive to the spud date of the Well.

8.    This matter was originally set for hearing before the Commission on August 12, 2010, but has been continued three times at the request of BP’s attorneys.  No protests have been filed in the matter.

9.    On October 7, 2010, BP, through its attorneys, 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.

10.  Testimony and exhibits in support of the Application by Ryan Fitzpatrick, Land Negotiator for BP, showed that BP owns an approximate 84.1% working interest in the Well.

11.  The Fitzpatrick testimony states that BP has drilled the Well within the established 320-acre drilling and spacing unit and the Well has been producing since June 2010.

12.  The Fitzpatrick exhibits showed a list of all consenting and nonconsenting parties within the 320-acre drilling and spacing unit subject to this compulsory pooling action. 

13.  The Fitzpatrick testimony states that offers to lease were sent to all unleased mineral interest owners.  The testimony showed that the offers were consistent with local industry practices, and appeared fair and reasonable.  Further testimony submitted showed the offers were sent via the U.S. Mail and all were received at least thirty days prior to the November 29, 2010 hearing date.

14.  The Fitzpatrick testimony further provides that while BP has offered leases to the unleased mineral interest owners, several parties have declined the offer to lease their respective interests or participate in the Well.     

15.  BP agreed to be bound by oral order of the Commission.

16.  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., the Commission should enter an order to pool all nonconsenting interests in an established 320-acre drilling and spacing unit consisting of the S½ of Section 21, Township 34 North, Range 9 West, N.M.P.M., La Plata County, Colorado 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., the nonconsenting interests in the established 320-acre drilling and spacing unit for the below-described lands are hereby pooled, for the development and operation of the Fruitland coal seams:

Township 34 North, Range 9 West, N.M.P.M. (SUL)

Section 21:    S½

La Plata County, Colorado

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 drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the well located on the drilling and spacing unit applicable to its interest in the drilling and spacing 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 well(s) (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the drilling and spacing 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 well(s) and be subject to the penalties as provided for by §34-60-116 (7)(c), 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% 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 well(s), surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the well(s) 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 immediately.

                        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 2010, as of November 29, 2010.

                                                            OIL AND GAS CONSERVATION COMMISSION

                                                              OF THE STATE OF COLORADO

                                                                                                                                                                        By__________________________         __

                                                                        Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

December 20, 2010