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 FOR THE FRUITLAND COAL FORMATION, TIFFANY UNIT, ARCHULETA AND LA PLATA COUNTIES, COLORADO

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CAUSE NO. 112 DOCKET NO. 170100088 TYPE: POOLING ORDER NO. 112-271

REPORT OF THE COMMISSION

The Commission heard this matter on May 1, 2017, at Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests in the approximate 320-acre drilling and spacing unit comprised of Lot 3 and 4 of Section 6U and the W½ of Section 7U, Township 34 North, Range 6 West, N.M.P.M. (SUL), for the development and operation of the Fruitland Coal Formation, for the drilling of the State MZ #1R Well and the State MZ #2R Well.

FINDINGS

The Commission finds as follows:

1.         BP America Production Company (“BP America” 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 certain lands including the Application Lands 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, 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 for certain lands including the Application Lands, 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 certain lands including the Application Lands for the development and operation of the Fruitland coal seams.

7.         On December 9, 2008, the Commission entered Order No. 112-215 which approved up to four optional wells in certain lands including the Application Lands, with the permitted well to be located no closer than 660 feet from the unit boundary and with no setback to any interior quarter section line, for the production of gas and associated hydrocarbons from the Fruitland coal seams. 

8.         On December 1, 2016, Applicant, by its attorneys, filed a verified application pursuant to §34-60-116, C.R.S., for an order to pool all interests and subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., were first incurred, for the development and operation of the Fruitland Coal Formation, for the drilling of the State MZ #1R Well (API No. 05-067-08858) and the State MZ #2R Well (No API No.) (“Wells”):

Township 34 North, Range 6 West, N.M.P.M. (SUL)

Section 6U:     Lot 3 and Lot 4

Section 7U:     W½ 

9.         On April 3, 2017 Applicant submitted 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.

10.       Land testimony and exhibits submitted in support of the Application by Scott Hammond, Senior Landman, San Juan North for Applicant, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offers to participate in the Wells. Further testimony concluded that the AFEs sent by the Applicant to the interest owners is a fair and reasonable estimate of the costs of the proposed drilling operations and were received at least 35 days prior to the May 1, 2017 hearing date.

11.       Land testimony also 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 State MZ #1R Well and the State MZ #2R Well, but did not provide testimony for any subsequent Wells.

12.       Applicant agreed to be bound by oral order of the Commission. 

13.       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 in the approximate 320-acre drilling and spacing unit comprised of Lot 3 and 4 of Section 6U and the W½ of Section 7U, Township 34 North, Range 6 West, N.M.P.M. (SUL), for the development and operation of the Fruitland Coal Formation, for the drilling of the State MZ #1R Well and the State MZ #2R Well..

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 the 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 date of the Application, or the date that any of the costs specified in § 34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the State MZ #1R Well (API No. 05-067-08858) and the State MZ #2R Well (No API No.) (“Wells”):

Township 34 North, Range 6 West, N.M.P.M. (SUL)

Section 6U:     Lot 3 and Lot 4

Section 7U:     W½ 

2.         The production obtained from the drilling and spacing 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 Wells located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3.         The nonconsenting 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 §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 Wells 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 nonconsenting unleased 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 §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 12^th day of May, 2017, as of May 1, 2017.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Peter Gowen, Acting Secretary