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 MAMM CREEK FIELD AND GRAND VALLEY FIELD,  GARFIELD COUNTY, COLORADO

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CAUSE NOS. 191 & 510

 

ORDER NOS. 191-94 & 510-61

 

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to: 1) establish an approximate 640-acre exploratory drilling and spacing unit for Sections 11 and 14, Township 6 South, Range 92 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Williams Fork Formation of the Mesa Verde Group; and 2) pool all interests in an approximate 640-acre exploratory drilling and spacing unit for Sections 11 and 14, Township 6 South, Range 92 West, 6th P.M., to accommodate the Valley Farms F-1H Well, for the development and operation of the Williams Fork Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Antero Resources Piceance Corporation (“Antero” 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.  The NW¼ of Section 11, Township 6 South, Range 92 West, 6th P.M. is subject to this rule.

 

5.         On July 15, 2002 (amended September 8, 2005), the Commission entered Order No. 523-1, which established a Surface Use Plan for certain lands, covering and including 1450-acres in portions of Sections 9 through 16, Township 6 South, Range 92 West, 6th P.M.

 

6.         On October 31, 2005, the Commission entered Order No. 523-2, establishing certain 320-acre drilling and spacing units, allowing the drilling of vertical wells to the Williams Fork Formation on 10-acre bottom-hole density, with 100-foot or 200-foot setbacks from the unit boundaries, depending on whether such unit boundaries abut other lands approved for 10-acre well density. The N½ of Section 14, Township 6 South, Range 92 West, 6th P.M. is subject to this Order.

 

7.         On April 24, 2006, the Commission entered Order No. 191-24, establishing a 160-acre drilling and spacing unit for the SW¼ of Section 14, Township 6 South, Range 92 West, 6th P.M., allowing the drilling of vertical wells to the Williams Fork Formation on 10-acre bottom-hole density, with 100-foot or 200-foot setbacks from the unit boundaries, depending on whether such unit boundaries abut other lands approved for 10-acre well density.

 

8.         On October 31, 2011, the Commission entered Order No. 191-90, vacating Order 191-72 which had established a drilling unit consisting of the W½ of Section 11, and established certain 320-acre drilling and spacing units, including the S½ of Section 11, Township 6 South, Range 92 West, 6th P.M., allowing the drilling of vertical wells to the Williams Fork Formation on 10-acre bottom-hole density, with 100-foot or 200-foot setbacks from the unit boundaries, depending on whether such unit boundaries abut other lands approved for 10-acre well density.

 

9.         On March 30, 2012, Antero, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) establish an approximate 640-acre exploratory drilling and spacing unit for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group; and 2) pool all interests in the exploratory drilling and spacing unit, for the development and operation of the Williams Fork Formation, retroactive to the earliest date costs are incurred for the Valley Farms F-1H Well (API No. 05-045-18286) (“Well”) as allowed by §34-60-116(7), C.R.S., or the date of the Application, whichever is earlier:

 

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

                                    Section 11:     

                                    Section 14:     

 

Applicant requested the Commission establish an exploratory wellbore drilling and spacing unit (“Unit”) comprised of the Application Lands, distinct from and overlaying the existing drilling and spacing units (or portions thereof) established for vertical wells.  Production allocation from the Valley Farms F-1H Well will be based on the proportion that each mineral interest in the Unit bears to the total acreage in the Unit.  The proposed Unit includes those quarter-sections traversed by the planned horizontal leg of the Well, including a 650 foot buffer zone encompassing the treated interval of the horizontal wellbore.  Applicant is applying a 650 foot buffer zone so as to provide an additional 50 foot buffer to the Rule 318.a setback requirement of 600 feet. 

 

10.       On May 15, 2012, Antero, 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 Thomas Kuhn, Landman for Antero, 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 May 29, 2012 hearing date.

 

12.       Geologic testimony and exhibits prepared and submitted in support of the Application by Sy Luke, Geologist for Antero, concluded that a continuous gas saturated interval approximately 1600 feet in thickness exists within the Upper Cretaceous Williams Fork Formation of the Mesaverde Group underlying the Application Lands.  Testimony showed that only four horizontal wells drilled from a single wellpad would be necessary to fully develop the resource to a comparable extent as that of 16-20 vertical wells drilled from a minimum of four wellpads.  Further, resource development using horizontal well technology may result in significantly reduced surface disturbance due to the fact that 32 wells could be drilled from just two well pad locations.

 

13.       Engineering testimony and exhibits prepared and submitted in support of the Application by Mark Kachmar, Engineer of Antero Resources Piceance Corporation, showed that horizontal development of unconventional gas resources has proven effective in maximizing recovery of hydrocarbons from within a reservoir and maximizing economic returns on upfront capital investment, which would otherwise be uneconomic.  Testimony showed an expected 21% rate of return on the proposed horizontal well development.

 

14.       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.

 

15.       Antero agreed to be bound by oral order of the Commission. 

 

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 640-acre exploratory drilling and spacing unit for portions of Sections 11 and 14, Township 6 South, Range 92 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group; and 2) pool all interests in an approximate 640-acre exploratory drilling and spacing unit for Sections 11 and 14, Township 6 South, Range 92 West, 6th P.M., to accommodate the Valley Farms F-1H Well, for the development and operation of the Williams Fork Formation.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that an approximate 640-acre exploratory drilling and spacing unit, is hereby established, for the below-described lands, and one horizontal well within the unit, is hereby approved, for the production of oil, gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group:

 

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

                                    Section 11:     

                                    Section 14:     

 

IT IS FURTHER ORDERED, that the exploratory wellbore drilling and spacing unit shall overlay the existing drilling and spacing units (or portions thereof) established for vertical wells. The Unit shall include those quarter-sections traversed by the planned horizontal leg of the Well, including a 650-foot setback from the treated interval of the horizontal wellbore.  Production allocation from the Valley Farms F-1H Well shall be based on the proportion that each mineral interest in the Unit bears to the total acreage in the Unit.

 

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, all interests in an approximate 640-acre exploratory drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Williams Fork Formation, 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 Valley Farms F-1H Well:

 

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

                                    Section 11:     

                                    Section 14:     

 

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 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   4th  day of June, 2012, as of May 29, 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

June 4, 2012