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 WATTENBERG FIELD,  

WELD COUNTY, COLORADO

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CAUSE NOS. 232 and 407

 

ORDER NOS. 232-261 and 407-377

           

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on September 16, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to confirm a 160-acre wellbore spacing unit consisting of the E½ NE¼ of Section 20 and W½ NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M. to accommodate the Meyer #2 Well (API #05-123-29169) and to pool all nonconsenting interests in the wellbore spacing unit, for the development and operation of the Codell, Niobrara, and “J” Sand Formations.

                                     

FINDINGS

 

The Commission finds as follows:

 

1.  Synergy Resources Corporation (“Synergy”), 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 October 19, 1981, the Commission issued Order No. 232-23, which among other things, amended Order No. 232-20 to establish additional 320-acre drilling and spacing units and allow a second well to be drilled on said units for certain lands, including Sections 20 and 21, Township 5 North, Range 66 West, 6th P.M., for the production of gas and associated hydrocarbons from the “J” Sand Formation.

 

5.  On December 19, 1983, the Commission issued Order No. 407-1 (amended on March 29, 2000 in accordance with Order No. 407-17, entered November 18, 1985), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands, including Sections 20 and 21, Township 5 North, Range 66 West, 6th P.M., with the drilling and spacing unit to be designated by the operator drilling the first well in the quarter section, (or the Director, if the operator fails to designate).  The permitted well shall be located in the center of either 40-acre tract within the drilling and spacing unit with a tolerance of 200 feet in any direction.  The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.

 

6.  On February 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas from the Codell and Niobrara Formations underlying certain lands, including Sections 20 and 21, Township 5 North, Range 66 West, 6th P.M., with the permitted well locations in accordance with the provisions of Order No. 407-1.

 

7.  On April 27, 1998, the Commission adopted Rule 318A., which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface.  On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  Sections 20 and 21, Township 5 North, Range 66 West, 6th P.M. are subject to this Rule for the Codell, Niobrara and “J” Sand Formations.

 

8.  On April 27, 1998, the Commission adopted Rule 318A., which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface.  On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  Sections 20 and 21, Township 5 North, Range 66 West, 6th P.M. are subject to this Rule for the Codell, Niobrara, and “J” Sand Formations.

 

9.  On July 29, 2010, Synergy, by its attorney, filed with the Commission a verified application for an order to confirm a 160-acre wellbore spacing unit consisting of the below listed lands, (to accommodate the Meyer #2 Well, API # 05-123-29169, with a projected bottomhole location of 1,420 feet from the north line (“FNL”) and 100 feet from the west line (“FWL”) of Section 21), and to pool all non-consenting interests in said unit, for the development and operation of the Codell, Niobrara, and “J” Sand Formations:

 

Township 5 North, Range 66 West, 6th P.M.

Section 20:      E½ NE¼

Section 21:      W½ NW¼

 

10.  On September 2, 2010, Synergy, 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. Sworn written testimony and exhibits were submitted in support of the application.

 

11.  Testimony and exhibits submitted in support of the application showed that Synergy Resources Corporation owns leasehold interests covering oil and gas under the E½ NE¼ of Section 20 and W½ NW¼ of Section 21. 

 

12.  Testimony and exhibits submitted in support of the application showed that Synergy has drilled the Meyer #2 Well, as a boundary well pursuant to Rule 318A(e), and that said well has been drilled to the "J" Sandstone Formation, but to date has only been completed in and is producing from the Niobrara Formation.

 

13.  Testimony and exhibits submitted in support of the application showed that more than thirty (30) days prior to the date of hearing Synergy sent proposed lease terms, and information regarding the nonconsenting owners' shares of drilling and completion costs, to all the unleased mineral owners listed on Exhibit A to the Verified Application, giving them the opportunity to either lease their mineral interest in the E½ NE¼ of Section 20 and W½ NW¼ of Section 21, or participate in the Meyer #2 Well; the terms of the leases offered are no less favorable than those prevailing for similar leases in the area at this time; and no such un-leased mineral owner has agreed to either enter into a lease or bear its proportional share of costs.

 

14.  The above-referenced testimony and exhibits show that granting the application will promote efficient reservoir drainage, will prevent waste, will allow greater ultimate recovery of oil and gas, will protect correlative rights, and afford each owner of an interest in the affected acreage the opportunity to recover and receive its just and equitable share of oil and gas. 

 

            15.       Synergy 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 confirm a 160-acre wellbore spacing unit consisting of the E½ NE¼ of Section 20 and W½ NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M. to accommodate the Meyer #2 Well (API #05-123-29169) and to pool all nonconsenting interests in the wellbore spacing unit, for the development and operation of the Codell, Niobrara, and “J” Sand Formations.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that a 160-acre wellbore spacing unit, is hereby confirmed, consisting of the below-listed lands, (to accommodate the Meyer #2 Well, API # 05-123-29169, with a projected bottomhole location of 1,420 feet FNL, and 100 feet FWL of Section 21), for the development and operation of the Codell, Niobrara, and “J” Sand Formations and 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 interests in said wellbore spacing unit, described below, are hereby pooled, for the development and operation of the Codell, Niobrara and “J” Sand Formations:

 

Township 5 North, Range 66 West, 6th P.M.

Section 20:      E½ NE¼

Section 21:      W½ NW¼

 

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 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(s) (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the wellbore 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.     The 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 wellbore 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 wellbore 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 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 October, 2010, as of September 16, 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

October 12, 2010