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

REPORT OF THE COMMISSION

                        The Commission heard this matter on December 12, 2011, at the Weld County Administration Building, 1150 O Street, Greeley, Colorado 80631 upon application for an order to: 1) establish a 160-acre drilling and spacing unit  in  the NW ¼, Section 22, Township 5 North, Range 66 West, 6^th P.M.; 2) authorize five wells within the unit;  and 3) pool all nonconsenting interests in the approximate 160-acre unit for the development and production of oil, gas, and associated hydrocarbons from the Sussex, Codell, Niobrara, J-Sand and Dakota Formations.

FINDINGS

The Commission finds as follows:

1.  Mineral Resources, Inc. (“Mineral” 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 October 19, 1981, the Commission entered Order No. 232-23, which among other things, established approximate 320-acre drilling and spacing units, allowing up to two wells per unit for certain lands, including  Section 22, Township 5 North, Range 66 West, 6^th P.M for the production of oil, gas and associated hydrocarbons from the “J” Sand Formation.

5.  On December 19, 1983, the Commission issued Order No. 407-1 (amended March 29, 2000), 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 with the unit to be designated by the operator drilling the first well in the quarter section.  The permitted well shall be located in the center of either 40-acre tract within the 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.  Section 22, Township 5 North, Range 66 West, 6^th P.M is subject to this Order for the Codell Formation.

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, with the permitted well locations in accordance with the provisions of Order No. 407-1.  Section 22, Township 5 North, Range 66 West, 6^th P.M is subject to this Order for the Codell and Niobrara Formations.

7.  On November 16, 1992, the Commission issued Order No. 499-15, which among other things, established 320-acre drilling and spacing units for the production of oil and/or gas from the Dakota Formation underlying certain lands, including Section 22, Township 5 North, Range 66 West, 6^th P.M.

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.  Pursuant to Rule 318A.j., Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.  Rule 318A.d. provides that an operator may allocate production to any drilling and spacing unit with respect to a particular Cretaceous Age Formation consistent with the provisions of Rule 318A.  Section 22, Township 5 North, Range 66 West, 6^th P.M. is subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Codell, Niobrara, “J” Sand, Sussex, and Dakota Formations.

9.  On August 24, 2011, Mineral, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) establish an approximate 160-acre drilling and  spacing unit for the below listed lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Sussex, “J” Sand, Dakota, Codell and Niobrara Formations (“Cretaceous Age Formations”); 2) authorize five wells within the unit; and 3) pool all nonconsenting interests in said wellbore spacing unit, to accommodate the development and operation all Cretaceous Age formations from the base of the Dakota Formation to the surface, 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 each of the five wells:

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

Section 22:    NW¼

10.  On October 28, 2011, Mineral, 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 Logan Richardson, Land Manager for Mineral, showed Mineral identified several unleased mineral interest owners in the Application Lands, provided statutory notice of involuntary pooling in accordance with Rule 530.b., more than 30-days has elapsed since written notice was mailed, and the unleased owners have not responded to the offer to lease or be voluntarily pooled.

12.  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.

13.  Mineral agreed to be bound by oral order of the Commission. 

                        14.  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 a 160-acre drilling and spacing unit  in  the NW ¼, Section 22, Township 5 North, Range 66 West, 6^th P.M.; 2) authorize five wells within the unit;  and 3) pool all nonconsenting interests in the approximate 160-acre unit for the development and production of oil, gas, and associated hydrocarbons from the Sussex, Codell, Niobrara, J-Sand and Dakota Formations.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that an approximate 160-acre drilling and  spacing unit is hereby established for the below listed lands, and five wells are hereby authorized for the production of oil, gas and associated hydrocarbons from the Sussex, “J” Sand, Dakota, Codell and Niobrara Formations (“Cretaceous Age Formations”):

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

Section 22:    NW¼

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 nonconsenting interests in the approximate 160-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Cretaceous Age 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 five wells:

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

Section 22:    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 unit; each owner of an interest in the unit shall be entitled to receive its share of the production of the Well located on the unit applicable to its interest in the 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 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 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 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   16^th  day of December, 2011, as of December 12, 2011.

                                                                        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

December 16, 2011