BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF THE APPLICATION OF D.J. SIMMONS, INC. FOR AN ORDER TO POOL ALL INTERESTS WITHIN AN APPROXIMATE 187.94-ACRE DRILLING AND SPACING UNIT FOR SECTION 22, TOWNSHIP 39 NORTH, RANGE 20 WEST, N.M.P.M., FOR THE DESERT CREEK FORMATION, PAPOOSE CANYON FIELD, DOLORES COUNTY, COLORADO

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CAUSE NO. 231

 

DOCKET NO. 1401-UP-04

 

ORDER NO. 231-16

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on January 27, 2014, at the Centennial Building, 1313 Sherman Street, Room 318, Denver, Colorado, upon an application for an order to pool all interests within an approximate 187.94-acre drilling and spacing unit established for Section 22, Township 39 North, Range 20 West, N.M.P.M. and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Stateline 2-22 Well, for the development and operation of the Desert Creek Formation.

 

FINDINGS

 

            The Commission finds as follows:

 

1.         D.J. Simmons, Inc. (“D.J. Simmons” 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.         On July 15, 1985, the Commission entered Order No. 231-6 which, among other things, expanded the spaced area of the Papoose Canyon Field as established by Order No. 231-2 to include four drilling and spacing units including an approximate 187.94-acre drilling and spacing unit established for the N˝ of Section 22, Township 39 North, Range 20 West, N.M.P.M. for the production of oil and associated hydrocarbons from the Desert Creek Formation with the permitted well to be located no closer than 990 feet from the boundaries of the unit. Section 22, Township 39 North, Range 20 West, N.M.P.M. is subject to this Order for the Desert Creek Formation.

 

5.         On April 21, 1986, the Commission entered Order No. 231-8 which, among other things, expanded the spaced area of the Papoose Canyon Field as established by Order No. 231-2 and subject to the provisions of Order Nos. 231-2 and No. 231-6, for the production of oil and associated hydrocarbons from the Desert Creek Formation.  Section 22, Township 39 North, Range 20 West, N.M.P.M. is subject to this Order for the Desert Creek Formation.

 

6.         On November 27, 2013, D.J. Simmons, Inc., by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to pool all interests in an approximate 187.94-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Desert Creek Formation, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Stateline 2-22 Well (“Well”) (API No. Pending), and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S.:

 

Township 39 North, Range 20 West, N.M.P.M.

Section 22:      N˝

           

187.94-acres, more or less, Dolores County, Colorado.

 

7.         On January 13, 2014, Richard and Barbara Kollenkark (“Kollenkarks” or “Protestants”) filed a Protest to the Application.

 

8.         On January 14, 2014, D.J. Simmons, 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.

 

9.         On January 17, 2014, a prehearing conference was held and the parties agreed to discuss the execution of a lease.

 

10.       On January 22, 2014, a second telephone prehearing conference was held at which time the Kollenkarks, by their attorney, withdrew their Protest. However, the Protestant reserved their right to raise any remaining issues relevant to the Application through a Rule 510 statement prior to the January 27, 2014 hearing date.

 

11.       Land testimony and exhibits submitted in support of the Application by Walter Parks, Senior Landman for D.J. Simmons, showed that all nonconsenting interest owners were notified of the Application and received and Authority for Expenditure ("AFE") and 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 27, 2014 hearing date.

 

12.       Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the Stateline 2-22 Well, but did not provide testimony for any subsequent wells.

 

13.       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.

                                                                                        

14.       D.J. Simmons agreed to be bound by oral order of the Commission. 

 

15.       Based on the facts stated in the verified Application, having resolved all protests, and based on the Hearing Officer review of the Application under Rule 511, the Commission should enter an order to pool all interests within an approximate 187.94-acre drilling and spacing unit established for Section 22, Township 39 North, Range 20 West, N.M.P.M. and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the Stateline 2-22 Well, for the development and operation of the Desert Creek Formation.

            ORDER

 

IT IS HEREBY ORDERED:

 

1.         Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests within an approximate 187.94-acre drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Desert Creek Formation, effective as of the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Stateline 2-22 Well:

 

                        Township 39 North, Range 20 West, N.M.P.M.

                        Section 22:  N˝

 

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.  Any party seeking the cost recovery provisions of §34-60-116 (7), C.R.S., shall first comply with subsection (d) for any subsequent well(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:

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   21st   day of February, 2014, as of January 27, 2014.

           

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary