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 PLATEAU FIELD, |
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CAUSE NO. 166 ORDER NO. 166-32 |
REPORT OF THE COMMISSION
The Commission heard this matter on January 23, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to: 1) establish an approximate 520-acre drilling and spacing unit for certain lands in Sections 19 and 30, Township 10 South, Range 94 West, 6th P.M.; 2) approve drilling of up to three horizontal wells within the unit for the production of oil, gas and associated hydrocarbons from the Mancos, Niobrara, Frontier and Mowry Formations (“Deep Formations”); 3) allow the horizontal well(s) to be located anywhere within the unit, but no portion of the horizontal lateral shall be completed closer than 600 feet from the boundaries of such unit, or closer than 1,200 feet from the wellbore of a permitted well in the same common source of supply; and 4) pool all non-consenting interests in unit wells drilled to the Deep Formations.
FINDINGS
The Commission finds as follows:
1. Laramie Energy II, LLC (“Laramie” 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. Rule 318.a. provides that wells to be drilled 2,500 feet in depth or greater shall be located not less than 600 feet from any lease line, and shall not be located less than 1,200 feet from any other producible or drilling well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing. Sections 19 and 30, Township 10 South, Range 94 West, 6th P.M. are subject to this rule for the Mancos, Niobrara, Frontier and Mowry Formations (“Deep Formations”).
5. On November 18, 2011, Laramie, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) establish an approximate 520-acre drilling and spacing unit for the drilling of a horizontal well in the below-listed lands (“Application Lands”); 2) approve drilling of up to two additional horizontal wells within the unit (for a total of three), for the production of oil, gas and associated hydrocarbons from the Deep Formations; 3) allow the horizontal well(s) to be located anywhere within the unit, but no portion of the horizontal lateral shall be completed closer than 600 feet from the boundaries of such unit, or closer than 1,200 feet from the wellbore of a permitted well in the same common source of supply; and 4) pool all non-consenting interests in unit wells drilled to the Deep Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. § 34-60-116(7)(b)(II) were first incurred for the drilling of the well, and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):
Township 10 South, Range 94 West, 6th P.M.
Section 19: SE¼ NE¼, E½ SW¼, SE¼
Section 30: NE¼, E½ NW¼
6. On January 9, 2012, Laramie, 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.
7. Land Testimony and exhibits submitted in support of the Application by N. Arthur Bollen, Consulting Landman for Laramie, showed that the mineral interests underlying the Application Lands are fee, there are no producing wells thereon, and the Applicant holds oil and gas leasehold interests in the Application Lands. Additional testimony showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure “(AFE”) and an offer to participate in the Well. Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 30 days prior to the January 23, 2012 hearing date.
8. Geologic testimony and exhibits submitted in support of the Application by Mark King, Geological and Geophysical Manager for Laramie, showed that the Deep Formations underlie and are drilling objectives for wells drilled on the Application Lands, the Deep Formations were deposited as shales and siltstones which are laterally consistent, and their porosity and permeability are much lower than the overlying Mesaverde Group. Additional testimony showed that data collected for the Deep Formations in offset wells can be used as a geologic analogy for the Application Lands.
9. Engineering testimony and exhibits submitted in support of the Application by Robert G. Hea, Vice President of Engineering and Operations for Laramie, showed that two analog horizontal wells to the Deep Formations are projected to drain 80 and just less than 160-acres respectively, limiting the drilling of horizontal wells to 320-acres would leave significant reserves behind, horizontal Deep Formation wells are commercial to drill, and the proposed 520-acre drilling and spacing unit is not less than the maximum area which can be drained by a horizontal well drilled to the Deep Formations in the Application Lands.
10. 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.
11. The Application was reviewed by the Colorado Department of Public Health and Environment (“CDPHE”) pursuant to consultation provisions of Rule 306.d. In a letter dated January 6, 2012, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the amended Application.
12. Laramie agreed to be bound by oral order of the Commission.
13. On January 20, 2012, Encana Oil & Gas Inc. (Encana) filed a Rule 510 statement in this matter.
14. On January 20, 2012, Laramie responded to the Encana Rule 510 statement by letter, attempting to resolve issues raised in the Encana Rule 510 statement. That letter stated:
“Laramie agrees that notwithstanding any pooling order which may be entered by the Commission in this matter, it will hold open its well proposal offer and AFE, which was sent to EnCana under cover of letter dated December 21, 2011, for a period of 20-days after the Commission's hearing. If EnCana accepts such offer by signing and returning the provided JOA and AFE and making its election to participate or non-consent the proposed well, on or before February 13, 2012, Laramie will consider EnCana to be a consenting leasehold owner which is not subject to statutory penalties. Otherwise, EnCana will be a non-consenting owner subject to any pooling order entered by the Commission."
15. On January 23, 2012 at the Commission hearing in this matter, Encana stated through counsel, that the Laramie proposed resolution was acceptable to it.
16. 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) establish an approximate 520-acre drilling and spacing unit for certain lands in Sections 19 and 30, Township 10 South, Range 94 West, 6th P.M.; 2) approve drilling of up to three horizontal wells within the unit for the production of oil, gas and associated hydrocarbons from the Mancos, Niobrara, Frontier and Mowry Formations; 3) allow the horizontal well(s) to be located anywhere within the unit, but no portion of the horizontal lateral shall be completed closer than 600 feet from the boundaries of such unit, or closer than 1,200 feet from the wellbore of a permitted well in the same common source of supply; and 4) pool all non-consenting interests in unit wells drilled to the Deep Formations.
ORDER
NOW, THEREFORE IT IS ORDERED, that an approximate 520-acre drilling and spacing unit, is hereby established, for the below-listed lands, and up to three horizontal wells, are hereby approved, within the Application Lands, for the production of oil, gas and associated hydrocarbons from the Mancos, Niobrara, Frontier and Mowry Formations:
Township 10 South, Range 94 West, 6th P.M.
Section 19: SE¼ NE¼, E½ SW¼, SE¼
Section 30: NE¼, E½ NW¼
IT IS FURTHER ORDERED, that the horizontal well(s) may be located anywhere within the unit, but no portion of the horizontal lateral shall be completed closer than 600 feet from the boundaries of such unit, or closer than 1,200 feet from the wellbore of a permitted well in the same common source of supply.
1. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all nonconsenting interests in the approximate 520-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Deep Formations, effective as of the earlier of the date of the Application, or the date that the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred for the drilling of the well:
Township 10 South, Range 94 West, 6th P.M.
Section 19: SE¼ NE¼, E½ SW¼, SE¼
Section 30: NE¼, E½ NW¼
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 Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
3. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
4. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116 (7), C.R.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. as amended. 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 well 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, that since Laramie and EnCana have agreed that, notwithstanding this pooling order, Laramie will hold open until February 13, 2012, its well proposal offer and AFE, which was sent to EnCana under cover of letter dated December 21, 2011, and if EnCana accepts such offer by signing and returning the provided joint operating agreement and AFE and making its election to participate or not in the proposed well, on or before that date, EnCana will be considered to be a consenting leasehold owner, and not subject to this order. Otherwise, EnCana will be a non-consenting owner subject to this order.
IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.
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 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 26th day of January, 2012, as of January 23, 2012.
CORRECTED this 2nd day of May 2012, as of January 23, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Peter J. Gowen, Acting Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
May 2, 2012