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 FORMATION COAL SEAMS, IGNACIO-BLANCO FIELD, ARCHULETA COUNTY, COLORADO |
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CAUSE NO. 112
DOCKET NO. 180400352
TYPE: UNITIZATION
ORDER NO. 112-283 |
REPORT OF THE COMMISSION
The Commission heard this matter on April 30, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, 80203, upon Application for an order to, among other things, establish an approximate 7,389.15-acre unit (“North Carracas Middle Pilot Unit” or “Proposed Unit”) for certain lands in Township 32 North, Ranges 4 and 5 West, N.M.P.M., for the purpose of unit development of the Fruitland formation coal seams, and to authorize operations for the North Carracas Middle Pilot Unit pursuant to the Unit Agreement and Unit Operating Agreement.
FINDINGS
The Commission finds as follows:
1. Red Willow Production Company (Operator No. 81295) (“Red Willow” or “Applicant”), which is a division of the Southern Ute Indian Tribe (“Tribe”) engaged in oil and gas activities and operations within the Southern Ute Indian Reservation (“Reservation”) in southwestern Colorado, 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 Colorado Oil and Gas Conservation Commission (“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, subject to the Finding Number 4, immediately below.
4. Insofar as the Application concerns lands within the jurisdiction of the Tribe, the Bureau of Land Management (“BLM”), or the Bureau of Indian Affairs (“BIA”), the Applicant submitted the Application to the Commission in accordance with the terms of the Memorandum of Understanding dated August 22, 1991 between the BLM and the Commission and the separate Memorandum of Understanding dated August 22, 1991 between the BIA, the BLM and the Tribe (collectively, the “MOUs”). The MOUs establish a cooperative mechanism under which the Commission, with the consent of the Tribe, the BLM, and the BIA, considers matters under the Oil and Gas Conservation Act affecting Indian lands in which the Tribe and the United States have a governmental interest, and the Commission issues orders relative to such matters, subject to review and revision by the BLM. In portions of the lands that are the subject of the Application, the Southern Ute Indian Tribe owns surface interests, mineral interests and leasehold interests underlying such lands.
5. The lands within the Proposed Unit have been the subject of previous orders of the Commission, including without limitation the following:
a. Commission Order No. 112-60, entered on or about June 17, 1988, which, among other things, established 320-acre drilling and spacing units for the production of gas from the Fruitland formation coal seams within the Ignacio-Blanco Field, with wells to be located no closer than 990 feet to any outer boundary of a spacing unit nor closer than 130 feet to any interior quarter section line.
b. Commission Order No. 112-61, entered on or about August 15, 1988, which among other things, amended Order No. 112-60 to reestablish 320 acre drilling and spacing units for production of gas from the Fruitland formation coal seams within the Ignacio-Blanco Field, clarified the effect of such spacing in relation to previous orders issued prior to issuance of Order No. 112-60 permitting optional second wells in certain spacing units, and addressed certain other operational matters.
c. Commission Order No. 112-88, entered into on or about February 19, 1991, for the purposes of establishing an area-wide water testing program and task group composed of representatives of the Commission, La Plata County, the Colorado Department of Health (Water Quality Control Division), Division of Water Resources, two local citizens, and two members of industry.
d. Commission Order No. 112-210, entered into on or about May 28, 2008, which amended pre-existing 320-acre spacing and established multiple spacing units of various sizes to accommodate horizontal drilling in the Fruitland formation coal seams in lands located in Township 32 North, Ranges 3, 4 and 5 West, N.M.P.M., including the following spacing unit designations for lands within the Proposed Unit:
(1) Township 32 North, Range 4 West, N.M.P.M.
Section 7: All 641.30 acres
660’ setback from outer unit boundary
1 additional optional well
(2) Township 32 North, Range 4 West, N.M.P.M.
Section 8: S/2
Section 17: All 960 acres
660’ setback from outer unit boundary
3 additional optional wells
(3) Township 32 North, Range 4 West, N.M.P. M.
Section 18: All 641.04 acres
660’ setback from outer unit boundary
1 additional optional well
(4) Township 32 North, Range 4 West, N.M.P.M.
Section 19: E/2
Section 20: W/2W/2 358.78 acres
660’ setback from outer unit boundary
No additional optional well
(5) Township 32 North, Range 4 West, N.M.P.M.
Section 20: E/2; E/1W/2 356.58 acres
660’ setback from outer unit boundary
No additional optional well
(6) Township 32 North, Range 5 West, N.M.P.M.
Section 11: All 640 acres
660’ setback from outer unit boundary
1 additional optional well
(7) Township 32 North, Range 5 West, N.M.P.M.,
Section 12: All 640 acres
660’ setback from outer unit boundary
1 additional optional well
(8) Township 32 North, Range 5 West, N.M.P.M.
Section 13: All 640 acres
660’ setback from outer unit boundary
1 additional optional well
(9) Township 32 North, Range 5 West, N.M.P.M.
Section 14: All 640 acres
660’ setback from outer unit boundary
1 additional optional well
(10) Township 32 North, Range 5 West, N.M.P.M.
Section 15: All 640 acres
660’ setback from outer unit boundary
1 additional optional well
(11) Township 32 North, Range 5 West, N.M.P.M.
Section 23: E/2; E/2W/2 371.76 acres
660’ setback from outer unit boundary
No additional optional well
(12) Township 32 North, Range 5 West, N.M.P.M.
Section 24: W/2E/2; W/2 370.02 acres
660’ setback from outer unit boundary
No additional optional well
(13) Township 32 North, Range 4 West, N.M.P.M.
Section 19: W/2
Township 32 North, Range 5 West, N.M.P.M.
Section 24: E/2E/2 365.45 acres
660’ setback from outer unit boundary
No additional optional well
6. No Fruitland formation coal seam well has been drilled within the Proposed Unit or within those spacing units identified immediately above in Paragraph 5 established through Commission Order 112-210.
7. Rule 401.a. provides that no person shall perform any enhanced recovery operations, cycling or recycling operations including the extraction and separation of liquid hydrocarbons from natural gas in connection therewith, or operations for the storage of gaseous or liquid hydrocarbons, nor shall any person carry on any other method of unit or cooperative development or operation of a field or part of either, without having first obtained written authorization from the Commission to perform the aforementioned activities or operations.
8. On March 1, 2018, Red Willow, by its attorneys, filed with the Commission a verified application (“Application”) for an order to vacate all prior spacing units, setbacks and optional well authorizations within the below described lands (“Application Lands”) with respect to the Fruitland Formation coal seams, establish an approximate 7,389.15-acre unit for the Application Lands pursuant to §34-60-118, C.R.S. for the North Carracas Middle Pilot Unit, for production of gas from the Fruitland Formation coal seams, and providing that the productive interval of any well drilled in the Proposed Unit be no closer than 200 feet from the unit boundary and 150 feet from another well producing from the same formation:
Township 32 North, Range 4 West, N.M.P.M.
Section 7: E/2; E/2W/2; Lots 1 and 2 (W/2NW/4); Lots 3 and 4 (W/2SW/4)
Section 8: S/2
Section 17: All
Section 18: Lots 1 and 2 (W/2NW/4); Lots 3 and 4 (W/2SW/4); NE/4; E/2NW/4; E/2SW/4; SE/4
Section 19: Lots 1and 2 (W/2NW/4); Lots 3, 4, 5, and 6 (S/2); NE/4; E/2NW/4
Section 20: N/2; Lots 1, 2, 3, and 4 (S/2)
Township 32 North, Range 5 West, N.M.P.M.
Section 11: All
Section 12: All
Section 13: All
Section 14: All
Section 15: All
Section 23: N/2; Lots 1, 2, 3, and 4 (S/2)
Section 24: N/2; Lots 1, 2, 3, and 4 (S/2)
9. Applicant requests that the Commission approve a state unit for cooperative development and operation of the Proposed Unit pursuant to §34-60-118 C.R.S. and the applicable provisions of the Commission’s 400 Series Rules.
10. On April 9, 2018, Red Willow, 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. Land Testimony and exhibits submitted in support of the Application by Edward Mora, Landman for Red Willow, showed that Red Willow has a 74.51% working interest in the Application Lands, that the surface of the Application Lands is owned by the Applicant and the BLM, and that use of the surface of the Proposed Unit shall continue to be governed by any existing surface use agreements or surface use provisions of oil and gas leases applicable to the Application Lands, and included a representative copy of the Unit Agreement and a representative copy of the Unit Operating Agreement. Further testimony showed that both the Unit Agreement and the Unit Operating Agreement will be approved in writing by the parties who will be required to pay at least eighty percent (80%) of the costs of the unit operation and by the owners of at least eighty percent (80%) of the production of proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments shortly after approval of the North Carracas Middle Pilot Unit.
12. Geology testimony and exhibits submitted in support of the Application by Tom Ann Casey, Senior Geologist for Red Willow, showed that the Fruitland Formation coal seams are present throughout the Application Lands, are approximately 26 to 38 feet thick and are generally of uniform thickness throughout the Application Lands
13. Engineering testimony and exhibits submitted in support of the Application by Paul Marusak, Reservoir Engineer for Red Willow and showed that drilling and completing horizontal wells within the Fruitland Formation coal seams underlying the Application Lands is an efficient and economic method of developing the resource. Testimony concluded reducing setbacks will foster responsible development of oil and gas, protect the public and private interests against waste in the production of oil and gas, and safeguard the correlative rights of owners and producers in a common source of oil and gas such that each owner or producer may obtain a just and equitable share of production therefrom.
14. Applicant agrees to be bound by oral order of the Commission in accordance with the MOUs.
15. Based on the facts stated in the Application, having received no protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order establishing an approximate 7,389.15-acre unit (“North Carracas Middle Pilot Unit” or “Proposed Unit”) for certain lands in Township 32 North, Ranges 4 and 5 West, N.M.P.M., for the purpose of unit development of the Fruitland formation coal seams, and authorizing operations for the North Carracas Middle Pilot Unit pursuant to the Unit Agreement and Unit Operating Agreement, which may be amended from time to time pursuant to the terms thereunder.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 7,389.15-acre unit is hereby established for the below-described lands for production of gas from the Fruitland Formation coal seams, hereinafter known as the North Carracas Middle Pilot Unit:
Township 32 North, Range 4 West, N.M.P.M.
Section 7: E/2; E/2W/2; Lots 1 and 2 (W/2NW/4); Lots 3 and 4 (W/2SW/4)
Section 8: S/2
Section 17: All
Section 18: Lots 1 and 2 (W/2NW/4); Lots 3 and 4 (W/2SW/4); NE/4; E/2NW/4; E/2SW/4; SE/4
Section 19: Lots 1and 2 (W/2NW/4); Lots 3, 4, 5, and 6 (S/2); NE/4; E/2NW/4
Section 20: N/2; Lots 1, 2, 3, and 4 (S/2)
Township 32 North, Range 5 West, N.M.P.M.
Section 11: All
Section 12: All
Section 13: All
Section 14: All
Section 15: All
Section 23: N/2; Lots 1, 2, 3, and 4 (S/2)
Section 24: N/2; Lots 1, 2, 3, and 4 (S/2)
2. Operations are hereby authorized for the North Carracas Middle Pilot Unit pursuant to the Unit Agreement and the Unit Operating Agreement, which may be amended from time to time pursuant to the terms thereunder, and without subsequent approval by the Commission.
3. This Order shall become effective upon approval in writing of the plan of Unit operations by those persons who, under the Commission’s Order, will be required to pay at least eighty-percent (80%) of the costs of the Unit operation, and also by the owners of at least eighty-percent (80%) of the production or proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments, and finding by the Commission in a supplemental order, after application, notice, and such supplemental hearing as may be required, that the requisite 80% approvals have been obtained.
4. If the persons owning the required percentage of interest in the Unit area do not approve the plan of unit operations within a period of six months from the effective date of this Order, this Order shall become ineffective and shall be revoked by the Commission unless for good cause shown the Commission extends said time.
5. All operations, including, but not limited to, the commencement, drilling, or operation of a well upon any portion of the Unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the Unit area by the several owners thereof. The portion of the Unit production allocated to a separately owned tract in the Unit area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled thereon. Operations conducted pursuant to this Order shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the Unit area to the extent that compliance with such obligations cannot be had because of this Order.
6. No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by this Order, but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions hereof.
7. Except to the extent that the parties affected so agree, this Order shall not be construed to result in a transfer of all or any part of title of any person to the oil and gas rights in any tract in the Unit area. All property, whether real or personal, that may be acquired in the conduct of unit operations under this Order shall be acquired for the account of the owners within the Unit area, and shall be the property of such owners in the proportion that the expenses of unit operations are charged.
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 24th day of May, 2018, as of April 30, 2018.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Julie Spence Prine, Secretary