112-282

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. 180300123

TYPE: SPACING

ORDER NO. 112-282

REPORT OF THE COMMISSION

The Commission heard this matter on March 19, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado upon application for an order to: 1) vacate two approximate 320-acre drilling and spacing units established by Order No. 112-60 for Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.); and 2) establish an approximate 640-acre drilling and spacing unit for Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L), and approve two additional horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from 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 for certain lands, including Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.), 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 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.), 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. Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.), for the production of oil, gas, and associated hydrocarbons from the Fruitland coal seams.

7. On December 1, 2003, the Commission entered Order No. 112-170 which authorized the drilling of two wells, the Secord 17U-34-6 #1 Well (API 05-067-09009), a production well, and the Secord 17U-34-6 #1X, a service well, with the permitted horizontal laterals to be located no closer than 660 feet to the exterior boundaries of the section, with no interior quarter section line setbacks, and no setback between completed intervals of the wells, for the development and operation of the Fruitland coal seams. Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.), is subject to this Order for the production of oil, gas, and associated hydrocarbons from the Fruitland coal seams.

8. On December 18, 2017, BP, by its attorneys, filed with the Commission a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to: 1) vacate two approximate 320-acre drilling and spacing units established by Order No. 112-60 for the below-described lands (“Application Lands”); 2) establish an approximate 640-acre drilling and spacing unit and approve up to two additional horizontal wells in the unit for the production of oil, gas and associated hydrocarbons from the Fruitland Coal Formation; 3) require that the productive interval of the proposed Secord 17U-34-6 No. 2 Well (API No. pending) and Secord 17U-34-6 No. 3 Well (API No. pending) (collectively “Wells”) be located no closer than 660 feet from the boundary of the proposed unit with no internal section line setbacks; and 4) provide that there should be no setbacks established between the productive intervals of the Wells and no setbacks established between the productive intervals of the Wells and the Secord 17U-34-6 #1 and #1X due to the complex geometry and open-hole completions of the existing laterals:

Township 34 North, Range 6 West, N.M.P.M. (S.U.L)

Section 17: All

Applicant states that the Wells will be drilled from an existing surface location which will be expanded to accommodate the two additional Wells being requested.

9. On February 26, 2018, 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.

10. Land testimony and exhibits submitted in support of the Application by Scott Hammond, Senior Landman, San Juan North for BP, showed that BP holds an undivided 100% leasehold interest in the Application Lands and has a right to drill in the Application Lands.

11. Geologic testimony and exhibits submitted in support of the Application by John S. Hornbuckle, Geologist for BP, showed that the coal thickness in the area of drilling is 30 to 40 feet net for the sum of all the coal seams (i.e., the Lemon and Lemon-L seams). Geologic testimony showed that the Fruitland Coal Formation is present throughout the Application Lands and constitute a common source of supply.

12. Engineering testimony and exhibits submitted in support of the Application by Tamara Golson, Reservoir Engineer for BP, showed that currently there is only one producing Fruitland Coal well located on the Application Lands, that the well only drains 10 acres of the 640 acres in the Application Lands, and is uneconomic to produce. The existing well will be plugged and abandoned after the additional wells come online. Engineering testimony further showed that the drainage area for the proposed Fruitland Coal Formation wells is estimated at 292 acres, and an approximate 640-acre drilling and spacing unit is therefore not less than the maximum area than can be efficiently, economically and effectively drained by two horizontal wells producing oil, gas, and associated hydrocarbons from the Fruitland Coal Formation.

13. 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: 1) vacate two approximate 320-acre drilling and spacing units established by Order No. 112-60 for Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.); and 2) establish an approximate 640-acre drilling and spacing unit for Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L), and approve two additional horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Fruitland Coal Formation.

ORDER

IT IS HEREBY ORDERED:

1. Two approximate 320-acre drilling and spacing units established by Order No. 112-60 for Section 17, Township 34 North, Range 6 West, N.M.P.M. (S.U.L.), are hereby vacated.

2. An approximate 640-acre drilling and spacing unit for the below-described lands is hereby established, and a total of two horizontal wells, those being the proposed Secord 17U-34-6 No. 2 Well (API No. pending) and Secord 17U-34-6 No. 3 Well (API No. pending) (collectively “Wells”), within the unit are hereby approved, for the production of oil, gas and associated hydrocarbons from the Fruitland Coal Formation:

Township 34 North, Range 6 West, N.M.P.M. (S.U.L)

Section 17: All

3. The productive interval of the Wells shall be located no closer than 660 feet from the boundary of the proposed unit with no internal section line setbacks. Further, there are no setbacks established between the productive intervals of the Wells and no setbacks established between the productive intervals of the Wells and the Secord 17U-34-6 #1 Well and Secord 17U-34-6 #1X Well due to the complex geometry and open-hole completions of the existing laterals

4. Any horizontal wells shall be drilled from an existing surface location which may be expanded to accommodate the two additional Wells being requested, unless the Director grants an exception.

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 23rd day of May, 2018, as of April 30, 2018.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By__________________________________

Julie Spence Prine, Secretary