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 LEFT HAND FIELD, KIOWA COUNTY, COLORADO
CAUSE NO. 252
ORDER NO. 252-10
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on March 25, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to pool all nonconsenting interests in the approximate 80-acre drilling and spacing unit for the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M.
The Commission finds as follows:
1. Bayhorse Petroleum, LLC (“Bayhorse”), 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. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply. The SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M. is subject to this Rule for the Marmaton Formation.
5. On February 3, 2010, Bayhorse Petroleum, LLC (“Bayhorse”), by its attorney, filed with the Commission a separate application for an order to establish two approximate 80-acre drilling and spacing units for the N½ SW¼ and the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M., for the production of oil and associated hydrocarbons from the Marmaton Formation. The Commission approved the two drilling and spacing units at its March 25, 2010 hearing. See Order No. 252-8.
6. On February 3, 2010, Bayhorse, by its attorney, filed with the Commission a verified application to pool all nonconsenting interests in one of the 80-acre drilling and spacing units established by Order No. 252-8 consisting of the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M., for the development and operation of the Marmaton Formation.
7. Testimony and exhibits submitted in support of the application showed that Bayhorse is the majority mineral leaseholder of lands underlying the application lands, and that Bayhorse plans to drill the Trade Winds #1-21 Well in the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M. Additional testimony and exhibits showed a list of all consenting and nonconsenting owners for the proposed pooled drilling and spacing unit consisting of the S½ SW¼ of said Section 21, and demonstrated the unleased and non-participating interests comprise approximately 26% of said unit. Further testimony indicated that offers to lease or to participate were sent to the nonconsenting owners, and that said offers were sent via U.S. Mail, at least 30 days prior to the March 25, 2010 hearing. Testimony showed that the offers to lease or participate and the Authorizations for Expenditures are fair and reasonable, and similar to those prevailing in the area, and that Bayhorse has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.
8. The above-referenced testimony and exhibits showed that the granting of the application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of oil/gas, and will not violate correlative rights.
9. Bayhorse agreed to be bound by oral order of this Commission.
10. 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 nonconsenting interests in the approximate 80-acre drilling and spacing unit for the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M.
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, the nonconsenting owners in the approximate 80-acre drilling and spacing unit established for the S½ SW¼ of Section 21, Township 18 South, Range 47 West, 6th P.M., are hereby pooled for the development and operation of the Marmaton Formation.
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 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.
4. 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.
5. 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.
6. 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 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 April, 2010, as of March 25, 2010.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
Carol Harmon, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
April 24, 2010