BEFORE THE OIL
AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE BUZZARD FIELD, MESA COUNTY, COLORADO |
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CAUSE NO. 371
ORDER NO. 371-13
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REPORT OF COMMISSION
This cause came on for hearing before the Commission on June 27, 2011, at Elbert County Fairgrounds, Ag Building, 95 Ute Avenue, Kiowa, Colorado, for an order to establish spacing units, and to establish well density and well location rules applicable to the drilling and producing of wells from the Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier and Mowry Formations ("Deep Formations") in specified portions of Section 17, Township 9 South, Range 94 West, 6th P.M., Mesa County, Colorado.
FINDINGS
The Commission finds as follows:
1. Laramie Energy II, LLC (“Laramie” 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 May 18, 1981, the Commission entered Order No. 371-1, which among other things, established 160-acre drilling and spacing units for certain lands, including Section 17, Township 9 South, Range 94 West, 6th P.M., for the production of gas and associated hydrocarbons from the Mesaverde Formation, with the permitted well to be no closer than 660 feet from the boundaries of the unit.
Section 17: |
W½ and S½ SE¼ |
The Application further requested all future Williams Fork and Iles Formation wells to be drilled under this Application should be located downhole anywhere upon the Application Lands, but no closer than 100 feet from the boundaries of the unit, or lease line in the unspaced lands, without exception being granted by the Director of the Commission. It is provided however that in cases where the lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells, the well should be located downhole no closer than 200 feet from the boundaries of the unit, or lease line in the unspaced lands, so abutting or cornering such lands, without exception being granted by the Commission.
The Application further requested all future Deep Formation wells to be drilled under this Application should be located no closer than 600 feet from the east and west boundaries of the unit, or lease line in the unspaced lands, and no closer than 100 feet from the north or south boundaries of the unit, or lease line in the unspaced lands, unless such north or south boundary abuts or corners lands which have not of drilling permit application been granted the right to drill 10-acre density for the Williams Fork Formation, in which case any well drilled to the Deep Formation shall be drilled downhole no closer than 200 feet from that potion of such north or south unit boundary which so abuts or corners the lands in which 10-acre density for the Williams Fork Formation wells have not been approved by the Commission, without exception being granted by the Commission.
The Application further requested all Iles Formation wells drilled under this Application should be drilled only in conjunction with the drilling of a Williams Form Formation well.
The Application further requested, except as previously authorized by order of the Commission, wells to be drilled under this Application should be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter section (or lots or parcels approximately equivalent thereto), unless exception is granted by the Commission pursuant to application made for such exception.
6. On May 2, 2011, EnCana Oil & Gas (USA) Inc. (“EnCana”), by its attorney, filed a protest in this matter. EnCana requested that the Commission retain setbacks for the Deep Formations established under Rule 318.a.
7. On May 2, 2011, OXY USA Inc. (“OXY”), by its attorney, filed a protest in this matter. OXY objected to the vacation of the 160-acre spacing unit, creation of two 160-acre spacing units for the Deep Formations, the proposed 10-acre bottomhole well density for the Deep Formations, and setbacks for the Deep Formation that are less than 600 feet.
8. On May 10, 2011, the Bureau of Land Management (“BLM”), by its representative, protested the Application. BLM objected to Deep Formation setbacks being less than 600 feet.
9. On May 19, 2011 a prehearing conference was conducted in this matter, with all parties participating except BLM. Laramie worked out a tentative settlement with EnCana, involving an amended application that would not reduce setbacks for the Deep Formations below 600 feet, unless adjacent or cornering lands had 10-acre well density for the Deep Formations, in which case the setbacks would be 100 feet. The proposed resolution between Laramie and EnCana left one unresolved issue between Laramie and OXY, that being, whether there was adequate evidentiary support for 10-acre well density in the Deep Formations.
10. On May 31, 2011, Laramie, by its attorney, filed an amended application (the “First Amended Application”) requesting two 160-acre spacing units for the Deep Formations, consistent with those for the Mesaverde Formation, and dropping its request for setbacks less than 600 feet for the Deep Formations for the following described lands:
Township 9 South, Range 94 West, 6th P.M.
Section 17: NW¼ and SW¼
11. On May 31, 2011, EnCana withdrew its protest in the matter.
12. On June 14, 2011, Laramie, by its attorney, filed a Second Amended Application (the “Second Amended Application” ) which clarified that if such unit boundary abuts or corners lands in respect of which the Commission, at the time of drilling permit application, has granted the right to drill 10-acre density wells for the Deep Formations, then any well to the Deep Formation shall be drilled downhole no closer to the unit boundary than the setback provided in such order covering such other lands, or 600 feet, whichever is less, and if the order covering such abutting or cornering lands does not expressly provide for Deep Formation setbacks, no closer than 600 feet from such unit boundary, and notwithstanding the above, any Deep Formation well drilled adjacent to the boundary between the units composed of the NW¼and SW¼of Section 17, may be drilled no closer than 100 feet from such unit boundary.
13. On June 17, 2011, OXY, by its attorney, withdrew its protest in the matter.
14. On June 14, 2011, Laramie, by its attorney, 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.
15. Land testimony and exhibits submitted in support of the Second Amended Application by Mark Petry, Vice President of Business Development for Laramie, stated Laramie holds the majority oil and gas leasehold in the Application Lands and records indicate that the Commission has approved 10-acre well density for the Mesaverde Group Formations on nearby lands in Garfield County, Colorado. The testimony further showed that the oil and gas interests in the N½SE¼ of Section 17 of the Application Lands are owned by the United States and administered by the BLM. These lands have been included in an approved federal exploratory unit.
16. Geologic testimony and exhibits submitted in support of the Second Amended Application by Joan Tilden, Senior Geoscientist, Project Manager for MHA Petroleum Consultants, on behalf of Laramie stated that the Williams Fork, Iles, and Deep Formations underlie and are drilling objectives for wells drilled on the Application Lands. The testimony further stated that the Williams Fork Formation consists of sand bodies that are highly discontinuous in nature, and wells drilled on 10 acre density will therefore statistically be unlikely to encounter the same sand bodies. The testimony further stated that data collected for the Deep Formations in offset wells can be used as a geologic analogy for the Application Lands.
17. Engineering testimony and exhibits submitted in support of the Second Amended Application by John Seidle, Consulting Engineer for Laramie stated that the Application Lands are bordered by acreage previously approved by the Commission for 10-acre density drilling in the Williams Fork and Iles Formations, and there are no known differences in these Formations between the Application Lands and the areas already approved by the Commission for 10-acre density. The Seidel testimony further stated that nearby Williams Fork wells drain on average, approximately 11 acres per well. These wells are likely to be economic, and drilling at 20-acre density would leave significant undrained areas behind and create waste. The testimony further stated that wells drilled to the Iles Formation only drain on average 18 acres, and are not likely to be economic. Therefore the best way to recover Iles Formation reserves is through joint development with the Williams Fork sands. The Seidel testimony further stated that the Type Well in the Deep Formations drains approximately 9.9 acres. Drilling at 20-acre density would leave significant undrained areas behind and create waste. Developing the Williams Fork, Iles, and Deep Formations in common wellbores drilled on 10-acre density is the most efficient and unobtrusive method to recover these reserves, and would not result in the drilling of unnecessary wells.
18. The Second Amended Application was reviewed by the Colorado Department of Public Health and Environment (“CDPHE”) pursuant to consultation provisions of Rule 306.d. In a letter dated June 10, 2011, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not have any objections to the approval of the Application.
19. On June 22, 2011, BLM withdrew it protest in the matter.
20. The above-referenced testimony and exhibits show that granting the Second Amended Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.
21. Laramie agreed to be bound by oral order of the Commission.
22. Based on the facts stated in the verified Application, having resolved the protests in this matter to the satisfaction of the protestants, and based on the Hearing Officer review of the Second Amended Application under Rule 511., the Commission should enter an order: (1) establishing two approximate 160-acre drilling and spacing units for the NW¼ and SW¼ of Section 17, Township 9 South, Range 94 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations; (2) approving increased well density equivalent to 10-acre density for the Williams Fork and Iles Formations for the Application Lands; (3) approving 100 foot setbacks for the Williams Fork and Iles Formations for the Application Lands where adjacent lands are approved for 10-acre well density, and 200 foot setbacks where adjacent lands are not approved for 10-acre well density; (4) approving the equivalent of one well per 10-acre density for the Deep Formations of W½ of Section 17, Township 9 South, Range 94 West, 6th P.M.; (5) approving 600 foot setbacks for the Deep Formations for the Application Lands, unless adjacent lands are approved for 10-acre well density, then any well to the Deep Formation shall be drilled downhole no closer to the unit boundary than the setback provided in such order covering such other lands, or 600 feet, whichever is less; (6) providing that Iles Formation wells be drilled only in conjunction with Williams Fork Formation wells; and (7) providing maximum well pad density of one per quarter-quarter section or equivalent, unless an exception is approved by the Director.
ORDER
Section 17: |
W½ and SE¼ |
Section 17: |
W½ |
IT IS FURTHER ORDERED, that all future Williams Fork and Iles Formation wells drilled under this Application shall be located downhole no closer than 100 feet from the boundaries of the unit, or lease lines, without exception being granted by the Director. It is provided however that in cases where the lands abut or corner lands without approved 10-acre well density, the setbacks shall be 200 feet from the boundaries of the unit, or lease line, without exception granted by the Commission.
IT IS FURTHER ORDERED, for the portion of the Application Lands for which 10-acre well density is approved for the Deep Formations, wells shall be located no closer than 600 feet from the boundaries of each spacing unit, unless such boundary abuts or corners lands with approved 10-acre well density for the Deep Formations, in which case, the Deep Formation setback shall be downhole no closer to the unit boundary than the setback provided in the order granting 10-acre spacing covering such other lands, or 600 feet, whichever is less 100 feet, without exception being granted by the Commission.
IT IS FURTHER ORDERED, that all Iles Formation wells drilled under this Application shall be drilled only in conjunction with the drilling of a Williams Fork Formation well.
IT IS FURTHER ORDERED, that except as previously authorized by order of the Commission, wells to be drilled under this Application shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter section (or lots or parcels approximately equivalent thereto), unless exception is granted by the Commission pursuant to application made for such exception.
IT IS FURTHER ORDERED, that well density and location rules specified by this Order shall not apply to horizontal wells, which shall continue to be governed by existing Commission rules and orders.
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 30th day of June, 2011, as of June 27, 2011.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert A. Willis, Acting Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
June 30, 2011