BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE APPLICATION OF KERR-MCGEE OIL & GAS ONSHORE LP FOR AN
ORDER POOLING ALL INTERESTS IN FOUR APPROXIMATE 160-ACRE DESIGNATED WELLBORE
SPACING UNITS LOCATED IN SECTIONS 29 AND 32, TOWNSHIP 2 NORTH, RANGE 67 WEST, 6TH P.M. FOR
THE CODELL, NIOBRARA AND J SAND FORMATIONS,
WATTENBERG FIELD, WELD COUNTY, COLORADO |
)
)
)
)
)
)
)
)
) |
CAUSE NOS. 232 & 407
DOCKET NO. 1211-UP-279
ORDER NOS. 232-347 & 407-751 |
REPORT OF THE COMMISSION
The Commission heard this matter on February 11, 2013, 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 within each of
four approximate 160-acre designated wellbore spacing units established for
Sections 29 and 32, Township 2 North, Range
67 West, 6th P.M., to accommodate the
Hidden Creek 23-29 Well, the Hidden Creek 25-29 Well, the Hidden Creek 35-29
Well, and the Hidden Creek 36-29
Well, for the development and operation of the J Sand, Codell and
Niobrara Formations.
FINDINGS
The Commission finds as follows:
1.
Kerr-McGee Oil & Gas Onshore LP
(“Kerr-McGee” 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
issued Order No. 232-23 which, among other things, established 320-acre drilling
and spacing units, and approved up to two wells within each unit, for the
production of oil, gas and associated hydrocarbons from the J Sand Formation. Sections 29 and 32, Township 2 North,
Range 67 West, 6th P.M. are subject to this Order for the J Sand
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.
Sections 29 and 32, Township 2 North, Range 67 West, 6th P.M. are
subject to this Order for the Codell and Niobrara Formations.
6.
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 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 to, among other things, address
drilling of horizontal wells.
Sections 29 and 32, Township 2 North, Range 67 West, 6th P.M. are
subject to this Order for the J Sand, Codell and Niobrara Formations.
7.
On September 17, 2012 (Amended November 7, 2012),
Kerr-McGee, by its attorneys, filed with the Commission pursuant to §
34-60-116 C.R.S., a verified amended application (“Amended Application”) for an
order to pool all interests within each of four approximate 160-acre designated
wellbore spacing units established for
the below-described lands (“Application Lands”), for the development and
operation of the J Sand, Codell and Niobrara Formations, effective as of the
earlier of the date 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
respective well, and to subject any nonconsenting interests to the cost recovery
provisions of C.R.S. § 34-60-116(7):
the Hidden Creek 23-29 Well (API No.
05-123-35020) for the Codell and Niobrara Formations, located in the following
lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: E½ SW¼,
W½ SE¼
(WSU #1 – 160-acres);
the Hidden Creek 25-29 Well (API No. 05-123-35025) for the Codell and Niobrara
Formations, located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: SE¼ NW¼,
SW¼ NE¼, NW¼ SE¼, NE¼ SW¼ (WSU #2 –
160-acres);
the Hidden Creek 35-29 Well (API No. 05-123-35018) for the J Sand, Codell and
Niobrara Formations, located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: S½ SW¼
Section 32: N½ NW¼
(WSU #3 – 160-acres);
the Hidden Creek 36-29 Well (API No. 05-123-35013) for the J Sand, Codell and
Niobrara Formations, located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: SE¼ SW¼,
SW¼ SE¼
Section 32: NE¼ NW¼,
NW¼ NE¼
(WSU #4 – 160-acres).
8.
On October 22, 2012, MRPC II, LLC (“MRPC” or “Protestant”), filed a
protest in the matter, alleging Kerr-McGee never contacted MRPC or offered to
purchase MRPC’s interests, enter into a farm-out or similar agreement or offer
to carry the costs to drill and complete the proposed boundary/in-fill wells.
9.
On November 1, 2013, Kerr-McGee and MRPC jointly requested, and
Commission staff granted, a continuance to the January 7, 2013 hearing.
10. On
December 13, 2013, Kerr-McGee and MRPC jointly requested, and Commission staff
granted, a continuance to the February 11, 2013 hearing.
11. On
February 5, 2013, MRPC withdrew its protest in this matter. MRPC made
certain requests to the Commission Staff regarding accounting and
Payment-of-Proceeds information for all Wells in the Application Lands in which
MRPC has an interest. All such requests may be addressed by MRPC
submitting a Form 37 under current Commission rules and C.R.S. 34-60-118.5.
12. On
February 11, 2013, Kerr-McGee, by its attorneys, requested the Commission
approve the Application based on the merits of the verified Application and the
supporting exhibits. Sworn written
testimony and exhibits were presented at the hearing in support of the
Application.
13.
Land testimony and exhibits submitted in support of the Application by R.C.
Kimball, Staff Landman for Kerr-McGee, 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 Wells. 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 February 11, 2013 hearing date.
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.
Kerr-McGee 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 pool all interests within each of
four approximate 160-acre designated wellbore spacing units established for
Sections 29 and 32, Township 2 North, Range
67 West, 6th P.M., to accommodate the
Hidden Creek 23-29 Well, the Hidden Creek
25-29 Well, the Hidden Creek 35-29 Well, and the
Hidden Creek 36-29 Well, for the
development and operation of the J Sand, Codell and Niobrara 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 interests in each of four approximate 160-acre
designated wellbore spacing units established for the below-described lands, are
hereby pooled, for the development and operation of the J Sand, Codell, and
Niobrara 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) are
first incurred for the drilling of:
the Hidden Creek 23-29 Well, for the Codell
and Niobrara Formations, located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: E½ SW¼,
W½ SE¼
(WSU #1 – 160-acres);
the Hidden Creek 25-29 Well, for the Codell and Niobrara Formations, located in
the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: SE¼ NW¼,
SW¼ NE¼, NW¼ SE¼, NE¼ SW¼
(WSU #2 – 160-acres);
the Hidden Creek 35-29 Well, for the J Sand, Codell and Niobrara Formations,
located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: S½ SW¼
Section 32: N½ NW¼
(WSU #3 – 160-acres);
the Hidden Creek 36-29 Well, for the J Sand, Codell and Niobrara Formations,
located in the following lands:
Township 2 North, Range 67 West, 6th P.M.
Section 29: SE¼ SW¼,
SW¼ SE¼
Section 32: NE¼ NW¼,
NW¼ NE¼
(WSU #4 – 160-acres).
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 (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.
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 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 wellbore spacing unit described above, shall be
considered a drilling and spacing unit established by the Commission for
purposes of Rule 530.a.
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 February, 2013, as of February 11, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary