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 IN THE RULISON FIELD, GARFIELD COUNTY, COLORADO

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CAUSE NO. 139

 

ORDER NO. 139-107

 

           

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on January 11, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish an approximate 80-acre laydown drilling and spacing unit consisting of the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, and to pool all nonconsenting interests in said unit, for the operation and development of the Williams Fork Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.    Laramie Energy II, LLC (“Laramie”), 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 this order pursuant to the Oil and Gas Conservation Act.

 

4.  Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  The S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M. is subject to this Rule for the Williams Fork Formation.

 

5.  On July 23, 2007, the Commission issued Order No. 139-76, which among other things, established the equivalent of one well per 10 acres for certain lands, including the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation.

                                                                                                                        

6.  On November 23, 2009, Laramie, by its attorneys, filed with the Commission a verified application for an order to establish an approximate 80-acre laydown drilling and spacing unit consisting of the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, and to pool all nonconsenting interests in said unit, for the operation and development of the Williams Fork Formation.

 

7.    On December 29, 2009, Laramie, by its attorney, filed with the Commission a written request to approve the application based on the merits of the verified application and the supporting exhibits as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the application.

 

8.    Testimony and exhibits submitted in support of the application indicated that the geologic model of the Williams Fork Formation in the major producing areas of the Piceance Basin is well understood and consists of extensive log, completion, and reservoir engineering data from wells inside current 10-acre density areas and the extremely useful and representative nearby outcrops of producing rocks.  Additional testimony indicated that based upon outcrop studies, the majority of the discontinuous sand bodies within the Williams Fork Formation are smaller than the distance between wells drilled on a 10-acre density basis.  Further testimony indicated that the productive sandstones throughout the Williams Fork Formation contain microdarcy permeability and average 6 - 10% porosity, and that 10-acre density drilling is necessary to develop the Williams Fork Formation underlying the application lands.

 

9.    Testimony and exhibits submitted in support of the application showed based on gas-in-place calculations, a typical Williams Fork Formation well in the vicinity of the application lands will drain approximately 10 acres, and achieve an estimated ultimate recovery of approximately 581 MMCF gas.  Additional testimony showed that it is expected that 10-acre density wells completed in Williams Fork Formation in the application lands will be economic and the most efficient method of developing the lands while preventing waste.

 

10.  Testimony and exhibits submitted in support of the application showed that Laramie is a leasehold working interest owner under a Joint Operating Agreement (“JOA”) with another working interest owner, namely, Williams Production RMT Company (“Williams”) for the entirety of the application lands.  Additional testimony indicated that Laramie has proposed to drill the Beaver Creek Ranch #08-14B Well and generated an Authorization for Expenditure (“AFE”) for the drilling and completion of said well.  Further testimony showed that a letter of participation was sent to Williams, and that said letter was sent via US Mail, at least 30 days prior to the January 11, 2010 hearing.  Testimony showed that the letter of participation and the AFE were fair and reasonable, and similar to those prevailing in the area, and that Laramie has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.

 

11.  The above-referenced testimony and exhibits showed that the proposed spacing will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

 

12. Laramie 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 establish an approximate 80-acre laydown drilling and spacing unit consisting of the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, and to pool all nonconsenting interests in said unit, for the operation and development of the Williams Fork Formation.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that an approximate 80-acre laydown drilling and spacing unit is hereby established for the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, and to pool all nonconsenting interests in said unit, for the operation and development of the Williams Fork Formation.

 

                        IT IS FURTHER ORDERED, that any Williams Fork Formation wells drilled under this order shall be located downhole no closer than 100 feet from the outside boundary of the unit lands, unless such boundary abuts or corners lands for which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells.  Where the application lands abut or corner lands for which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells, then Williams Fork Formation wells shall be located downhole no closer than 200 feet from that portion of the unit boundary which abuts or corners lands for which 10-acre density has not been ordered by the Commission for the Williams Fork Formation.

 

                        IT IS FURTHER ORDERED, that, except as previously authorized by order of the Commission, wells to be drilled under this order shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or equivalent lot) unless exception is granted by the Director pursuant to application made for such exception. 

 

IT IS FURTHER ORDERED, that,

 

1.  Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, the nonconsenting interest in the established approximate 80-acre laydown drilling and spacing unit for the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6th P.M. is hereby pooled, for the development and operation of the Williams Fork Formation.

 

2.    The production obtained from the wellbore 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 wellbore spacing unit; each owner of an interest in the wellbore spacing unit shall be entitled to receive its share of the production of the well located on the wellbore spacing unit applicable to its interest in the wellbore spacing unit.

 

3.    The mineral owner being involuntarily pooled is hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well; and, the consenting owner shall be entitled to recover costs from the nonconsenting owner’s share of production as provided for by §34-60-116(7), C.R.S.

 

4.    The nonconsenting mineral owner within the wellbore spacing unit shall be treated as the owner of a 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 owner recovers, only out of the 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, the 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.

 

5.    The operator of the well drilled on the above-described unit shall furnish the nonconsenting owner 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.

 

6.    Nothing in this order is intended to conflict with §34-60-116(7)(b), C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

 

IT IS FURTHER ORDERED, that the provisions contained in the above order, shall become effective forthwith.

           

                        IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

 

                        IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

 

                        IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

 

                        ENTERED this__________ day of February, 2010, as of January 11, 2010.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________         

                                                                                    Carol Harmon, Secretary

 

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 8, 2010