232-62

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 GAS SPACED AREA AND THE CODELL-NIOBRARA SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NOS. 232, 407 and 493

ORDER NOS. 232-62, 407-93

and 493-4

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on April 20, 1992, in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing, as required by law on the verified application of Freedom Energy, Inc. for an order to amend Cause No. 232 to allow the 320-acre drilling and spacing unit consisting of the N1/2 of Section 14, Township 3 North, Range 64 West, 6th P.M. to be segregated into two 160-acre drilling and spacing units consisting of the NW1/4 and the NE1/4 of said Section 14 for production from the "J" Sand Formation. In addition, the order should allow wells not to exceed a total of four to be drilled in the NE1/4 of Section 14 for production from the Codell, Niobrara, Sussex and Shannon Formations, with the downhole commingling of production from the five formations allowed. Further, the order should pool all interests in the 160-acre drilling and spacing unit consisting of the NE1/4 of Section 14, Township 3 North, Range 64 West, 6th P.M., for the development of oil, gas and associated hydrocarbons from the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations, pursuant to the provisions of 34-60-116, C.R.S., as amended.

FINDINGS

The Commission finds as follows:

1. Freedom Energy, Inc., 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.

4. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand in the Wattenberg Field with one well allowed for each unit to be located in the NE1/4 and SW1/4 and no closer than 990 feet to the boundaries of the quarter section. On August 21, 1979, the Commission issued Order No. 232-20 which allowed a second well to be drilled on each 320-acre unit.

5. In Order No. 407-1, the Commission established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 200 feet in any direction. In Order Nos. 407-10 and 407-13, the Commission amended Order No. 407-1 to include production from the Niobrara Formation in certain lands and to allow the downhole commingling of production from the Codell and Niobrara Formations.

6. In Order No. 493-2, the Commission established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Sussex Formation. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 200 feet in any direction and the downhole commingling of production from the Sussex, Codell and Niobrara Formations shall be allowed.

7. That evidence presented at the hearing indicates that the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the NE1/4 of Section 14, Township 3 North, Range 64 West, 6th P.M., in Weld County, Colorado.

8. Engineering testimony presented indicated that prudent production engineering practices would allow commingled production from the various reservoirs resulting in increased recovery of reserves and no irremediable reservoir damage.

9. A protest was filed by Union Pacific Resources Company and withdrawn after the application was amended.

10. Efforts have been made to obtain the voluntary pooling of all interests, however the applicant has been unable to locate one interest owner, Dora L. Keyes.

11. Based on the facts stated in the verified application and having been heard by the Director as Hearing Officer on April 17, 1992, and recommended for approval, the Commission should enter an order segregating the 320-acre drilling and spacing unit consisting of the N1/2 of Section 14, Township 3 North, Range 64 West, 6th P.M. into two 160-acre drilling and spacing units consisting of the NW1/4 and the NE1/4 for production from the "J" Sand Formation. In addition, the order should allow wells not to exceed a total of four to be drilled in the NE1/4 of Section 14 for production from the Codell, Niobrara, Sussex and Shannon Formations, with the downhole commingling of production from the five formations allowed. Further, the Commission should enter an order pooling all interests in the 160-acre drilling and spacing unit herein described in order to insure proper and efficient development of the oil, gas and associated hydrocarbons from the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations underlying said unit.

12. An order of the Commission pooling all interests in said drilling unit is necessary in order to afford each owner of interest in each said drilling unit the opportunity to recover and receive his just and equitable share of the oil and/or gas from the common source of supply underlying said drilling unit.

13. Production obtained from said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in each tract bears to the total number of acres within said drilling unit.

ORDER

NOW, THEREFORE, IT IS ORDERED, that,

1. Cause No. 232 is hereby amended to allow the 320-acre drilling and spacing unit consisting of the N1/2 of Section 14, Township 3 North, Range 64 West, 6th P.M. to be segregated into two 160-acre drilling and spacing units consisting of the NW1/4 and the NE1/4 of said Section 14 for production from the "J" Sand Formation.

2. One well is hereby approved to be drilled for production from the "J" Sand Formation in the NE1/4 of Section 14, located no closer than 990 feet to the boundaries of the quarter section, allowing the recompletion of said well for production from the Codell, Niobrara, Sussex or Shannon Formations. Wells not to exceed a total of four are hereby approved to be drilled in the NE1/4 of Section 14 for production from the Codell, Niobrara, Sussex and Shannon Formations, located in the center of the 40-acre quarter-quarter section with a tolerance of 200 feet in any direction. Any well completed in the "J" Sand Formation at a location permitted in accordance with Order No. 232-1 shall be approved as an exception location for the Codell, Niobrara, Sussex and Shannon Formations in the NE1/4 of Section 14.

3. Multiple zone completions and downhole commingling of oil, gas and associated hydrocarbons from the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations is hereby approved.

4. 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, all interests in the drilling and spacing unit consisting of the NE1/4 of Section 14, Township 3 North, Range 64 West, 6th P.M., Weld County, Colorado, are hereby pooled for the development of oil, gas and associated hydrocarbons from the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations underlying said unit.

5. The production obtained from said drilling 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 said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.

6. The owner of the unleased tract should be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling unit.

7. Within thirty (30) days from the date of receipt of said AFE by the owner of said tract, such owner shall indicate whether he consents to the cost of the drilling of the well and agrees to participate in such costs. Such election shall be made in writing either by executing the AFE or similar document. In the event a written election to participate is not made by said owner within such time period, said owner shall be deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well and be subject to the penalties as provided for by 34-60-116 (7).

8. Any non-consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owner's proportionate 87.5% share of production, the costs specified in C.R.S. 34-60-116 (7)(b), as amended. After recovery of such costs, the non-consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

9. The operator of any well drilled on the above described unit shall furnish all non-consenting 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.

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.

ENTERED this 20th day of May, 1992, as of April 20, 1992.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

May 15, 1992