BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

IN THE MATTER THE PROMULGATION AND

ESTABLISHMENT OF FIELD RULES TO GOVERN

OPERATIONS IN THE HUNTER MESA AND GRASS MESA FEDERAL UNITS, GARFIELD COUNTY, COLORADO

 

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CAUSE NO.   139

 

ORDER NO.   139-42

 

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on January 6, 2004, in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to allow wells in the Grass Mesa Unit and the Hunter Mesa Unit be drilled such that surface and bottom hole locations of each well are located less than 600 feet from the common boundary between two federal units, as an exception to Commission Rule 318.d.(3), so long as surface and bottom hole locations of each well are 600 feet or more from any lands not included in either federal unit. 

 

FINDINGS

 

The Commission finds as follows:

 

1.  EnCana Oil & Gas (USA) Inc. (“EnCana”) 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 and the terms of the Memorandum of Understanding (“MOU”) between the Commission and the Bureau of Land Management (“BLM”).

 

            4.  On November 30, 1993, the Bureau of Land Management (“BLM”) approved the Hunter Mesa Unit as a federal exploratory unit and the below-listed lands are a portion of the lands that fall within the Hunter Mesa Unit:

 

Township 7 South, Range 92 West, 6th P.M.

Sections 4 through 6: All

 

Township 7 South, Range 92 West, 6th P.M.

Sections 1 through 4: All

 

            5.  April 28, 1994, the BLM approved the Grass Mesa Unit as a federal exploratory unit and the below-listed lands are a portion of the lands that fall within the Grass Mesa Unit:

 

Township 6 South, Range 92 West, 6th P.M.

Sections 31 and 32: All

Section 33: N˝, SEĽ

 

Township 6 South, Range 93 West 6th P.M.

Sections 33 through 36: All

 

            6.  Grass Mesa Unit and Hunter Mesa Unit share a common boundary extending from the northwest corner of Section 4, Township 7 South, Range 93 West, 6th P.M. to the northeast corner of Section 4, Township 7 South, Range 92 West, 6th P.M. (the “Common Unit Boundary”).  All lands north of this boundary, except the southwest of Section 33, Township 6 South, Range 92 West, 6th P.M. are committed to the Grass Mesa Unit.  All lands south of this boundary are committed to the Hunter Mesa Unit.

 

            7.  EnCana has drilled, completed and currently operates multiple wells in both Hunter Mesa Unit and Grass Mesa Unit (the “Unit(s)”).  Wells in both Units produce oil, gas and associated hydrocarbons from the Mesaverde Formation, which is the unitized formation for both Units and is located at depths of greater than 2500 feet throughout both Units.  Under the terms of both unit agreements, EnCana is obligated to produce unitized substances in the most economic and efficient manner, without waste.  Information obtained from current and past operations in both Units indicated the most economic and efficient development of gas from the Mesaverde Formation in both Units requires wells to be located less than 1200 feet from an adjacent well producing from the same formation.  Wells located 1200 feet or more apart will leave significant amounts of gas in the ground, resulting in waste.

 

            8.  Colorado Oil and Gas Conservation Commission (“Commission”) Rule 318.d.(3) provides that no well in excess of 2,500 feet in depth shall be located less than 600 feet from the exterior boundary of a federal unit unless authorized by the Commission after notice to owners outside the federal unit area.

 

            9.  On November 17, 2003, EnCana, by its attorney, filed with the Commission a verified application for an order to allow wells in the Grass Mesa Unit and the Hunter Mesa Unit to be drilled such that surface and bottom hole locations of each well are located less than 600 feet from the common boundary between the two federal units, as exceptions to Commission Rule 318.d.(3), so long as surface and bottom hole locations of each well are 600 feet or more from any lands not included in either Unit.  EnCana further requested the Commission allow surface and bottom hole locations of wells within either Unit and adjacent to the common unit boundary to be located less than 600 feet from lands not included in either Unit, as exceptions to Commission Rule 318.d.(3), provided a waiver or consent is obtained in accordance with Commission Rule 318.c. only from the operator of a contiguous or cornering drilling unit of unspaced offset lease outside either Unit toward whom the well is proposed to be moved.  If the operator of the proposed well is the same as the operator of the drilling unit or unspaced offset lease toward which the well is proposed to be moved, waivers must be obtained from the mineral interest owners under such drilling unit or unspaced offset lease; however, no waiver or consent shall be required from lease owners or mineral owners who own interests within either Unit. 

 

            10.  On December 10, 2003, Jabek Ltd. filed with the Commission a protest to EnCana’s application.  On December 11, 2003, ROGO LLLP filed with the Commission a protest to EnCana’s application.  On December 12, 2003, MORGO Family Limited Partnership filed with the Commission a protest to EnCana’s application.

 

            11.  On December 15, 2003, Calpine Natural Gas L.P. filed a letter with the Commission not objecting to EnCana’s application as long as the final order contains language requiring EnCana to obtain a waiver from Calpine when a surface or bottomhole location is proposed to lie within 600 feet of any lands not included in either the Hunter Mesa Unit or the Grass Mesa Unit and operated by Calpine.

 

            12.  On December 15, 2003, Nancy Pittman filed with the Commission a protest to EnCana’s application.  On December 17, 2003, Robert Bass filed with the Commission a protest to EnCana’s application.  On December 18, 2003, Daniels Petroleum Company filed with the Commission a protest to EnCana’s application.

 

            13.  On December 23, 2003, EnCana and the BLM entered into a Cooperative Production Agreement (“CPA”) that allowed production to be allocated fifty percent (50%) to the Hunger Mesa Unit and fifty percent (50%) to the Grass Mesa Unit for wells drilled to and producing from the Mesaverde Formation within 600 feet on either side of the Unit boundaries. 

 

14.  On December 24, 2003, Kelly Couey filed with the Commission a protest to EnCana’s application.  On December 29, 2003, Mamm Mountain Ranch filed with the Commission a protest to EnCana’s application.

 

            15.  On December 30, 2003, William A. Keefe, attorney, filed an Entry of Appearance on behalf of Protestants Jabek Ltd., ROGO LLLP and MORGO Family Limited Partnership.

 

16.  A prehearing conference was held on this matter on January 2, 2004 and a prehearing conference summary was submitted to the Commission and the parties.

 

APPLICANT’S EVIDENCE

 

17.  The Commission heard testimony from Doug Jones, Land Team Lead for EnCana, describing the two federal units.  He testified that the Hunter Mesa Unit is a 53,000 acre federal unit and the Grass Mesa Unit is a 9,300 acre federal unit.  Mr. Jones utilized exhibits to show the border between the Units and the area that comprises the CPA.  He indicated that wells would be located 600 feet from the unit boundaries and from any uncommitted tracts, such as the Calpine acreage.  Mr. Jones described the federal unit process, including the drilling of the first well, the initial participating areas and the circle-tangent method of determining a participating area which is defined as an area that is reasonably proved to be productive.  He testified that during the second five (5) years of a federal unit, an operator is obligated to drill one well every ninety (90) days and once the five (5) years is up, the unit contracts to participating areas only.  EnCana will not know the final participating area configuration for the Hunter Mesa Unit until six (6) months from the first date of production from the last well drilled by January 24, 2004.  Mr. Jones testified that currently there are several revisions to the participating areas in both Units pending BLM approval, and that when all of the revisions are approved, approximately eighty percent (80%) of the lands in the Grass Mesa Unit and approximately thirty percent (30%) of the lands in the Hunter Mesa Unit will be in participating areas.  He testified that EnCana’s policy has been to pay royalty owners on the submitted revisions to the participating areas prior to BLM approval.  Mr. Jones further testified that one third (⅓) of the lands in the CPA are not in a participating area.

 

18.  The Commission heard testimony from David Uhl, Geologist for EnCana regarding the structure of the Mamm Creek Field and the description of the Williams Fork Formation.  Mr. Uhl utilized exhibits to show that production in the Williams Fork Formation is from a 1500 foot to 2500 foot gas column.  He described the reservoir variability at 10-acre density, indicating that sands rarely extend greater than ten (10) feet, and that the sands are highly discontinuous.  He testified that there is nothing unique about the lands within the CPA.

 

19.  The Commission heard testimony from Tom Hewett, Group Leader and Reservoir Engineer for EnCana.  Mr. Hewett utilized exhibits to show the existing setbacks analogous to 40-acre spacing and the distance between wells.  He indicated that Mamm Creek volumetrics show gas in place equal to 72.3 BCF and the recovery of gas in place shows an approximate forty-nine percent (49%) recovery factor with 20-acre spacing.  Mr. Hewitt testified that the drilling of wells in the CPA will recover additional reserves while protecting correlative rights, that would otherwise result in incomplete drainage.  He described exhibits showing 10-acre density drainage ellipses on all existing wells which show undrained lands along the CPA area.  Mr. Hewett indicated that all parties will benefit from the approval of EnCana’s application.

 

PROTESTANTS’ EVIDENCE

                                                           

20.  The Commission heard testimony from Harold Shaeffer, royalty and mineral owner in the Hunter Mesa Unit, and owner of Jabek.  Mr. Shaeffer stated that he has been authorized by his two sisters, of MORGO Family Limited Partnership and ROGO LLLP, to testify on their behalf.  He testified that farmers and ranchers have lost all control of their lands inside a federal unit, and as such the mineral wealth of farms and ranches have been diluted.  Mr. Shaeffer indicated that it is impossible for farmers and ranchers to have control over well locations within federal units.  He testified that he has a reputation for supporting gas development, however, he does not want the Commission to allow inconsistent spacing to continue.  Mr. Shaeffer described the length of time that it takes for the BLM to approve Unit revisions.  He believes that there is sufficient acreage to drill without allowing the CPA area to be approved.  Mr. Shaeffer testified that only thirty (30) out of the four hundred and four (404) wells are located on federal leases.

 

21.  The Commission heard testimony from Kelly Couey, land owner in both the Hunter Mesa Unit and Grass Mesa Unit.  Mr. Couey stated that he agreed with Mr. Shaeffer about how private lands within federal units are being affected.  He testified that he does not object to wells being drilled on his land, but would like a say in where the wells are drilled or if the wells are necessary.  Mr. Couey stated that he would prefer the COGCC to be the regulatory agency over his fee lands.

 

PUBLIC COMMENT/PARTICIPATION

 

22.  Pursuant to Rule 510., Barrett Baker, owner and operator of Daniels Petroleum Company, who owns an overriding royalty interest and a royalty interest in both federal Units made a statement.  Mr. Baker described his past experience with Mobil Oil in leasing and drilling in the area, as well as his experience with Snyder Oil to form both federal Units.  He testified that three (3) sections were not committed to the Hunter Mesa Unit and that Synder Oil planned to drill on a 40-acre basis.  Mr. Baker believes it is unfair to allow unitization to govern so much fee land.

 

23.  The Commission heard testimony from Rick Ryan, Petroleum Engineer for the BLM regarding the pending revisions submitted by EnCana for the Hunter Mesa Unit.  Mr. Ryan indicated that the Hunter Mesa Unit will contract on January 24, 2004 and that all wells drilled by that date will be evaluated by September 24, 2004 as to whether they are participating wells so that the final Unit boundary can be determined.  Mr. Ryan indicated that the circle-tangent method to allocate production was created in the late 1950’s to early 1960’s by the United States Geological Survey and is used as a default unless operators suggest another allocation method.  Mr. Ryan stated that non-paying well status can change if the unit operator or the BLM can show that a producing well has become a paying well.

 

24.  After deliberations, the Commission found the application should be approved, requiring that all wells should be drilled directionally from existing pads and that new well locations may be approved if an Application for Permit-to-Drill is submitted with a signed surface use agreement.

 

ORDER

 

            NOW, THEREFORE, IT IS ORDERED, that an exception to Rule 318.d.(3) is hereby granted to allow wells in the Grass Mesa Unit and the Hunter Mesa Unit be drilled such that surface and bottom hole locations of each well are located less than 600 feet from the common boundary between the two federal Units.  

 

IT IS FURTHER ORDERED, that all wells shall be drilled directionally from existing pads and new well locations shall be approved if an Application for Permit-to-Drill is submitted with a signed surface use agreement.

 

            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 January, 2004, January 6, 2004.

 

                                                                 OIL AND GAS CONSERVATION COMMISSION

                                                                 OF THE STATE OF COLORADO 

 

 

 

 

                                                                 By _______________________________________

Dated at Suite 801                                                      Patricia C. Beaver, Secretary

1120 Lincoln Street

Denver, Colorado 80203

January 27, 2004