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, LA PLATA COUNTY, COLORADO
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CAUSE
NO. 112
DOCKET
NO. 150500274
ORDER
NO. 112-253
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REPORT
OF THE COMMISSION
The Commission heard this matter on May 18,
2015, at the Aims Community College, 260
College Avenue, Fort Lupton, Colorado, upon an application for an order
to pool all interests within a 320-acre drilling and spacing unit established
for the W˝ of Section 8, Township 33 North, Range 7 West, N.M.P.M., and to
subject any nonconsenting interests to the cost recovery provisions of C.R.S. §
34-60-116(7) for the Southern Ute 01-08 #1 Well (a/k/a Southern Ute GU 1-8 #1
Well or Southern Ute 1-8 #1 FC Well) and the Southern Ute 01-08 #2 Well (a/k/a
Southern Ute 1-8 #2 FC Well), for the development and operation of the
Fruitland Coal Formation.
FINDINGS
The Commission finds
as follows:
1.
BP
America Production Company (“Applicant”) (Operator No. 10000) ("BP" or
"Applicant"),
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 entered Order No. 112-60 which established
320-acre drilling and spacing units for production of gas from the Fruitland
coal seams, with the permitted well to be located no closer than 990 feet to
any outer boundary of the unit, nor closer than 130 feet to any interior
quarter section line, including certain lands in Townships 32 through 34 North,
Ranges 7 and 9 through 11 West, N.M.P.M., for the production of methane gas
from the Fruitland coal seams.
5.
On
August 15, 1988, the Commission entered Order No. 112-61 which amended parts of
Order No. 112-60 and established rules for the production of coalbed methane in
the Fruitland Coal Seams, with the productive interval of the wellbore to be no
closer than 990 feet to any outer boundary of the unit, and no closer than 130
feet to any interior quarter section line, without exception granted by the
Director.
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
May 15, 2000, the Commission entered Order No. 112-157 which allowed an
optional second Fruitland coal seam well to be drilled in each 320-acre
drilling and spacing unit with such additional well being located no closer
than 990 feet to any outer boundary of the unit, nor closer than 130 feet to
any interior quarter section line, including certain lands in Townships 32
through 34 North, Ranges 7 and 9 through 11 West, N.M.P.M., for the production
of methane gas from the Fruitland coal seams.
8.
On
July 10, 2006, the Commission entered Order No. 112-190, which approved up to
four wells in approximate 320-acre drilling and spacing units established for
certain lands, with the permitted well to be located no closer than 660 feet
from the unit boundary, for the production of gas and associated hydrocarbons
from the Fruitland coal seams.
9.
On
March 19, 2015, Applicant, by its attorneys, filed with the Commission pursuant
to C.R.S. § 34-60-116 a verified application (“Application”) for an order to
pool all interests in a 320-acre drilling and spacing unit established for the below-described
lands, 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
any of the costs specified in C.R.S. § 34-60-116(7)(b)(ll) were first incurred
for the drilling of the Southern Ute 01-08 #1 Well (a/k/a Southern Ute GU 1-8
#1 Well or Southern Ute 1-8 #1 FC Well) (API No. 05-067-06003), and the
Southern Ute 01-08 #2 Well (a/k/a Southern Ute 1-8 #2 FC Well) (API No.
Pending) (“Wells”), and to subject any nonconsenting interests to the cost
recovery provisions of C.R.S. § 34-60-116:
Township
33 North, Range 7 West, N.M.P.M.
Section
8: W˝
10.
On
April 27, 2015, Applicant, 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.
11.
On
April 23, 2015, William D. Bontrager filed a 510 statement to the Application.
On May 6, 2015, Applicant filed a response to the 510 statement.
.
12.
Land
testimony and exhibits submitted in support of the Application by Kristin
(“Kiki”) Moseley, Land Negotiator for Applicant, showed that all nonconsenting
interest owners who could be located by Applicant were notified of the
Application and received an Authority for Expenditure (“AFE”) and offer to
participate for each of the Wells. Further testimony concluded that the AFEs sent
by the Applicant to the interest owners were a fair and reasonable estimate of
the costs of the proposed drilling operations and were received at least 35
days prior to the May 18, 2015 hearing date.
13.
Land
testimony showed the Applicant complied with the requirements of Rule 530,
and is entitled to the cost recovery provisions pursuant to C.R.S. § 34-60-116
for the Southern Ute 01-08 #1 Well (a/k/a Southern Ute GU 1-8 #1 Well or
Southern Ute 1-8 #1 FC Well) and the Southern Ute 01-08 #2 Well (a/k/a Southern
Ute 1-8 #2 FC Well).
14.
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.
15.
Applicant
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 interests within a 320-acre
drilling and spacing unit established for the W˝, Section 8, Township 33 North,
Range 7 West, N.M.P.M., and to subject any nonconsenting interests to the cost
recovery provisions of C.R.S. § 34-60-116 for the Wells, for the
development and operation of the Fruitland Coal Formation.
ORDER
IT IS HEREBY ORDERED:
1.
Pursuant
to the provisions of C.R.S. § 34-60-116, as amended, of the Oil and Gas
Conservation Act, all interests within a 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 any of the costs
specified in C.R.S. § 34-60-116(7)(b)(ll) were first incurred for the drilling
of the Southern Ute 01-08 #1 Well (a/k/a Southern Ute GU 1-8 #1 Well or
Southern Ute 1-8 #1 FC Well) and the Southern Ute 01-08 #2 Well (a/k/a Southern
Ute 1-8 #2 FC Well):
Township 33 North, Range 7 West, N.M.P.M.
Section 8: W˝
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 Wells 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 Wells (including penalties as provided by C.R.S. §
34-60-116(7)(b)) out of production from the drilling and spacing unit
representing the cost-bearing interests of the nonconsenting working interest
owners as provided by C.R.S. § 34-60-116(7)(a).
4.
Any
unleased owners are hereby deemed to have elected not to participate and shall
therefore be deemed to be nonconsenting as to the Wells and be subject to the
penalties as provided for by C.R.S. § 34-60-116(7). Any party seeking the cost
recovery provisions of C.R.S. § 34-60-116(7) 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 C.R.S. § 34-60-116(7)(b), 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 C.R.S. § 34-60-116, 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 1st day
of June, 2015, as of May 18, 2015.
OIL
AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By
Julie
Murphy, Secretary