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,
293 & 407
ORDER NOS. 232-342, 293-6
& 407-695
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REPORT OF THE COMMISSION
The
Commission heard this matter on August 20, 2012, at the offices of the Colorado
Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon
application for an order to
pool all interests in an approximate 160-acre drilling and spacing unit
established for
Section 2,
Township 5 North, Range 66 West, 6th P.M., to accommodate the
Westmoor 5 2-6-2 Well, for the development and operation of the
Cretaceous Age Formations from the base of the Dakota to the surface, to include
but not be limited to 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 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, gas
and associated hydrocarbons from the Codell Formation, 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 2, Township 5 North, Range 66 West, 6th P.M. is
subject to this Order for the Codell Formation.
5.
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, gas and associated hydrocarbons from
the Codell and Niobrara Formations, with the permitted well locations in
accordance with the provisions of Order No. 407-1. Section 2, Township 5 North, Range 66
West, 6th P.M. is subject to this Order for the Codell and Niobrara
Formations.
6.
On April 27, 1988, 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 Cretaceous
Age Formations from the base of the Dakota Formation to the surface. Rule 318A.
supersedes all prior Commission drilling and spacing orders affecting well
location and density requirements of Greater Wattenberg Area wells.
On December 5, 2005, Rule 318A was amended, among other things, to allow
interior infill and boundary wells to be drilled and wellbore spacing units to
be established. On August 8, 2011, Rule 318A was again amended, among
other things, to address drilling of horizontal wells. Section 2, Township 5 North, Range 66
West, 6th P.M. is subject to Rule 318A
for the Cretaceous Age Formations from
the base of the Dakota to the surface, to include but not be limited to the
Sussex, Codell, Niobrara, J-Sand and Dakota Formations.
7. On May 10, 2012,
Mineral, by its attorneys, filed with the
Commission a verified application (“Application”) for an order to pool
all interests in an approximate 160-acre drilling and spacing unit for the
below-described lands (“Application Lands”), to accommodate the Westmoor 5 2-6-2
Well (API No. 05-123-34640) (“Well”), for
the development and operation of the
Cretaceous Age Formations from the
base of the Dakota to the surface, to include but not be limited to the Sussex,
Codell, Niobrara, J-Sand and Dakota Formations (“Cretaceous Age 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 5 North, Range 66 West, 6th P.M.
Section 2: SW¼
8.
On June 29, 2012, Mineral requested, by its attorneys, and Commission
Staff granted, a continuance to the August 20, 2012 hearing.
9.
On July 11, 2012, pursuant to Rule 511.b. an Administrative Hearing was
held at the offices of the COGCC to determine the sufficiency of the Notices of
Hearing, which omitted Minerals request to establish a drilling and spacing
unit. Mineral, by its attorneys, set
forth its position in support of the sufficiency of the Notices.
10. On July
13, 2012, the Report of the Hearings Officer issued a finding affirming the
sufficiency of the Notices of Hearing, and recommended to the Commission that it
approve the Application as part of the consent agenda at the August 20, 2012
hearing.
11. On July
13, 2012,
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.
12. Land
testimony and exhibits submitted in support of the Application by Logan
Richardson, Vice President for Mineral, 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 and operation and was received at
least 30 days prior to the August 20, 2012 hearing date.
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.
Mineral
agreed to be bound by oral order of the Commission.
15. 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
pool all interests in an
approximate 160-acre drilling and spacing unit established for
Section 2,
Township 5 North, Range 66 West, 6th P.M., to accommodate the
Westmoor 5 2-6-2 Well, for the development and operation of the
Cretaceous Age Formations from the base of the Dakota to the surface, to include
but not be limited to the Sussex, Codell, Niobrara, J-Sand and Dakota Formations..
ORDER
NOW,
THEREFORE IT IS 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, to accommodate the Westmoor 5
2-6-2 Well, for the development and operation of
the
Cretaceous Age Formations from the base of the Dakota to the surface, to include
but not be limited to the Sussex, Codell, Niobrara, J-Sand and Dakota 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 5 North, Range
66 West, 6th P.M.
Section 2: SW¼
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
day of August, 2012, as of
August 20, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary
Dated August
30, 2012