BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS FOR THE FRUITLAND COAL FORMATION, IGNACIO-BLANCO FIELD, ARCHULETA COUNTY, COLORADO |
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CAUSE NO. 112
DOCKET NO. 150400198
ORDER NO. 112-252 |
REPORT OF THE COMMISSION
The Commission heard this matter on April 13, 2015 at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, CO, upon application for an order to pool all interests within an approximate 320-acre drilling and spacing unit established for Section 17, Township 32 North, Range 5 West, N.M.P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Seible B #1 Well and the Seible B #2 Well, for the development and operation of the Fruitland Coal Formation.
FINDINGS
The Commission finds as follows:
1. BP America Production Company (Operator No. 10000) (“BP” or “Applicant”) 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 entered Order No. 112-60 which established 320-acre drilling and spacing units, including the Application Lands, for the production of gas from the Fruitland coal seams, with the permitted well located, when north of the north line of Township 32 North, in the NW¼ and SE¼ of the section, and south of the north line of Township 32 North, in the NE¼ and SW¼ of the section, and no closer than 900 feet to any outer boundary of the section, nor closer than 130 feet to any interior quarter section line.
5. On August 15, 1988, the Commission entered Order No. 112-61 which approved the drilling of the first well in 320-acre drilling and spacing units, including the Application Lands, not in the permitted location, but rather in the other quarter section, and established additional field rules for the Fruitland coal seams.
6. On December 17, 1990 (Corrected November 7, 1999), the Commission entered Order No. 112-85 which established additional field rules for the Fruitland coal seams in 320-acre drilling and spacing units, including the Application Lands.
7. On July 11, 2000, the Commission entered Order No. 112-157 which approved an optional additional well to be drilled for production of gas from the Fruitland coal seams in 320-acre drilling and spacing units, including the Application Lands, with the permitted well to be located in any undrilled quarter section no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.
8. On December 9, 2008, the Commission entered Order No. 112-215 which approved a total of four (4) wells to be drilled for production of gas and associated hydrocarbons from the Fruitland coal seams in 320-acre drilling and spacing units, including the Application Lands, with the permitted bottom hole location for any new well to be located no closer than 660 feet to any outer boundary of the application lands with no interior quarter section line setback.
Township 32 North, Range 5 West, N.M.P.M.
Section 17: N½
7. On March 23, 2015, BP, by 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. Sworn written testimony and exhibits were submitted in support of the Application.
8. Land testimony and exhibits submitted in support of the Application by Kristin (“Kiki”) Moseley, Land Negotiator for BP, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Wells. Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 35 days prior to the April 13, 2015 hearing date.
9. Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the Seibel B #1 Well and the Seibel B #2 Well, but did not provide testimony for any subsequent wells.
10. The above-referenced testimony and exhibits show that granting the Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.
11. BP agreed to be bound by oral order of the Commission.
12. Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to pool all interests within an approximate 320-acre drilling and spacing unit established for Section 17, Township 32 North, Range 5 West, N.M.P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Seibel B #1 Well and the Seibel B #2 Well, for the development and operation of the Fruitland Coal Formation.
ORDER
IT IS HEREBY ORDERED:
1. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in an approximate 320-acre drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Fruitland Coal Formation, effective as of the earlier of the date of the Application or the date that costs were first incurred for the drilling of the Seibel B #1 Well (API No. 05-007-06125) and Seibel B #2 Well (API No. Pending):
Township 32 North, Range 5 West, N.M.P.M.
Section 17: N½
2. The production obtained from the unit shall be allocated to each owner in the drilling and spacing 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 (unleased) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (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. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116(7), C.R.S. Any party seeking the cost recovery provisions of §34-60-116(7), C.R.S., shall first comply with subsection (d) for any subsequent well(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 Well as if it had originally agreed to the drilling.
6. The operator of the well 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:
1. The provisions contained in the above order shall become effective immediately.
2. The Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.
3. Under the State Administrative Procedure Act, the Commission considers this Order to be final agency action for purposes of judicial review within 35 days after the date this Order is mailed by the Commission.
4. An application for reconsideration by the Commission of this Order is not required prior to the filing for judicial review.
ENTERED this ___ day of April, 2015, as of April 13, 2014.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By__________________________________
Julie Murphy, Secretary