112-276

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, IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO

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CAUSE NO. 112

DOCKET NO. 170700410

TYPE: POOLING

ORDER NO. 112-276

REPORT OF THE COMMISSION

The Commission heard this matter on July 24, 2017, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to pool all interests within an approximate 640-acre drilling and spacing unit established for Section 8, Township 33 North, Range 7 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 drilling of the Ute AD #1 Well and Ute AD #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”), 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 Section 8, Township 33 North, Range 7 West, N.M.P.M., for the 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 Section 8, Township 33 North, Range 7 West, N.M.P.M., 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 Section 8, Township 33 North, Range 7 West, N.M.P.M., for the development and operation of the Fruitland coal seams.

7. On July 11, 2000, the Commission entered Order No. 112-157 which allowed an optional additional well to be drilled in certain lands, including Section 8, Township 33 North, Range 7 West, N.M.P.M., 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, for the development and operation of the Fruitland coal seams.

8. On July 10, 2006, the Commission entered Order No. 112-190 which approved up to four wells in established 320-acre drilling and spacing units for certain lands, including Section 8, Township 33 North, Range 7 West, N.M.P.M., with the permitted well to be located no closer than 660 feet from the unit boundary with no interior section line setback, for the production of gas and associated hydrocarbons from the Fruitland coal seams.

9. On May 18, 2015, the Commission entered Order No. 112-253 which pooled all interests in the approximate 320-acre drilling and spacing unit established for a portion of Section 8, Township 33 North, Range 7 West, N.M.P.M., for the development and operation of the Fruitland Coal Formation, to accommodate 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 (no API No.).

10. On July 24, 2015, the Commission entered Order No. 112-275 which established an approximate 640-acre drilling and spacing unit for the production of oil, gas, and associated hydrocarbons from the Fruitland Coal Formation underlying Section 8, Township 33 North, Range 7 West, N.M.P.M., and approved the drilling of up to two horizontal wells within the drilling and spacing unit.

11. On April 19, 2017, BP, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 640-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Fruitland Coal Formation, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Ute AD #1 Well (API No. pending) and Ute AD #2 Well (API No. pending) (“Wells”):

Township 33 North, Range 7 West, N.M.P.M.

Section 8: All

12. On June 29, 2017, 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.

13. Land testimony and exhibits submitted in support of the Application by Tanya Curcuruto, Land Negotiator L48-Onshore for BP, showed that all nonconsenting interest owners were notified of the Application and received Authority for Expenditures ("AFEs") and offers to participate in the Wells. Further testimony concluded that the AFEs sent by the Applicant to the interest owners were fair and reasonable estimates of the costs of the proposed drilling operations and were received at least 35 days prior to the July 24, 2017 hearing date.

14. 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 Ute AD #1 Well and Ute AD #2 Well, but did not provide testimony for any subsequent wells.

15. 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.

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

17. 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 an approximate 640-acre drilling and spacing unit established for Section 8, Township 33 North, Range 7 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 drilling of the Ute AD #1 Well and Ute AD #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 640-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 §34-60-116(7)(b)(II), C.R.S., are first incurred for the drilling of the Ute AD #1 Well (API No. pending) and Ute AD #2 Well (API No. pending) (“Wells”):

Township 33 North, Range 7 West, N.M.P.M.

Section 8: All

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. Any working interest owner who does not elect to participate in the Well(s) or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §34-60-116(7), C.R.S. The nonconsenting working interest owner must reimburse the consenting owners for his proportionate share of the costs and risks of drilling and operating the Wells from his proportionate share of production, subject to non-cost bearing interests, until costs and penalties are recovered as set forth in §34-60-116(7), C.R.S.

4. Any unleased owner who does not elect to participate in the Well(s) or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §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. After recovery of such costs, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the well, 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 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 8th day of August, 2017, as of July 24, 2017.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

James P. Rouse, Acting Secretary