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 BUZZARD FIELD,
MESA COUNTY, COLORADO
CAUSE NO. 371
ORDER NO. 371-6
of the commission
came on for hearing before the Commission at 9:00 a.m. on October 21, 2010, at
the West Garfield Campus, Colorado Mountain College, 3695 Airport Road, Rifle,
Colorado, upon application for an order to establish an approximate
640-acre drilling and spacing unit for
production from the Williams Fork and Iles Formations
Section 14 (all), Township 9 South, Range 95
West, 6th P.M. and to authorize
10-acre density optional drilling thereon.
finds as follows:
Axia Energy, LLC (Axia or
Applicant), as applicant herein, is an interested party in the subject matter of
the above-referenced hearing.
Due notice of the time, place and
purpose of the hearing has been given in all respects as required by law.
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 Oil and Gas
Conservation 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 below-listed lands
are subject to this Rule for the Williams Fork and Iles Formations:
Township 9 South, Range 95 West, 6th
Section 14: All
Mesa County, Colorado
5. On September 1, 2010, Applicant, by its attorneys, filed with the
Commission a verified application (Application) for an order to establish an
approximate 640-acre drilling and spacing unit consisting of the below-listed
lands (Application Lands) and allow the
equivalent of one well per 10 acres, for the production of gas and associated
hydrocarbons from the Williams Fork and Iles Formations:
Township 9 South, Range 95 West, 6th
Section 14: All
Mesa County, Colorado
Applicant asserts that Williams Fork and Iles Formation wells in the Mesaverde
Group on the Application Lands now should be allowed to be drilled on a 10-acre
density basis. With respect to the Iles Formation, Applicant further asserts
that the Commission should allow 10- acre density for the Iles Formation because
the option to complete a well to the Iles Formation is economic and efficient
when completed within a Williams Fork wellbore. Applicant asserts that the Iles
Formation would not be exploited or developed without this option.
7. Applicant requests that the
Commission allow Williams Fork and Iles Formation wells in the Mesaverde Group
to be optionally drilled upon a 10-acre density basis. Each well is to be
located downhole anywhere within the unit provided no such wells shall be
located downhole any closer than 100 feet from the boundary of the unit. An
exception for this 100-foot rule shall apply when the unit boundary abuts or
corners lands for which the Commission has not at the time of the drilling
permit application, granted the right to drill 10-acre density Williams Fork and
Iles Formation wells. Where this exception applies, Williams Fork and Iles
Formation wells shall be drilled downhole no closer than 200 feet from that
portion of the unit boundary which abuts or corners the lands for which 10-acre
density downhole drilling for Williams Fork and Iles Formation wells has not
been ordered by the Commission.
8. Applicant requests that the
Commission allow wells drilled under this Application to 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.
Application was referred to the Colorado Department of Public Health and
Environment (CDPHE) and the Colorado Division of Wildlife (DOW) for comments.
CDPHE commented positively on the Application, stating: “CDPHE believes that the
addition of this proposed drilling and spacing unit will result in appropriate
protection of public health, safety, welfare and environment.” No comment has
been received as of the hearing date from DOW.
Application was protested by Laura Amos and Larry Amos (Protestants). The
Protestants have an unleased mineral interest in a related matter (Docket No.
1010-SP-32) near the Application Lands, but have no interest in the Application
Lands. The basis of the protest was: 1) concern that 10-acre density would
increase possibilities for emergencies and increase pressure on the resources of
the local Emergency Response Team; 2) concerns about notice requirements under a
Memorandum of Understanding between the Commission and Bureau of Land Management
(BLM) and the U.S. Forest Service; 3) alleged defects in the BLM leasing
program; and 4) concerns about the lack of operating history of the Applicant.
Applicant moved for dismissal of the protest (Motion) on several grounds,
requesting that the protest be treated as a Rule 510 Statement.
October 13, 2010, the Hearing Officer considered the Motion and the Protestants’
argument in opposition to the Motion at a prehearing conference held in the
offices of the Commission. The Hearing Officer recommended granting the Motion
and treating the protest as a Rule 510 Statement. The primary basis for
recommending dismissal of the protest was that the protest was directed towards
matters irrelevant to a spacing decision.
hearing, the Commission dismissed the protest,
treated the protest as a Rule 510 Statement, and proceeded with hearing the
matter. The Commission heard live testimony, and considered previously submitted
written testimony that was already part of the record.
14. Land testimony
and exhibits in support of the Application showed that the Application Lands are
in close proximity to other areas where the Commission has entered orders
approving 10-acre density for the Williams Fork and Iles Formations. Applicant
holds a majority leasehold ownership interest in the Application Lands, and
Applicant’s leasehold ownership interest is the basis for its request for the
640-acre drilling and spacing unit. The surface and mineral estates are owned
in fee or are federally owned. No more than one surface pad per quarter-quarter
section will be utilized for the Application Lands and, if possible, Applicant
will utilize existing or common pads for development. Applicant will use
reasonable efforts to limit pad surface disturbance and the number of pads to
develop the acreage efficiently.
15. Geologic testimony and exhibits in support of the application showed
The outcrop of the Williams Fork
and Iles Formations at Coal Canyon near Palisade, Colorado (as an example)
reveals exposures of the Williams Fork Formation that allow for (i) geologic
mapping and statistical analysis of the complex Williams Fork Formation
stratigraphy, and (ii) evaluating the nature of Williams Fork Formation
stratigraphy and its effect on reservoir discontinuities.
The scaled stratigraphic cross
section of the outcrop illustrates the vertical and horizontal complexity of the
Williams Fork sand bodies with respect to width, height and lateral
The descriptive classification of
the fluvial sand bodies in the Williams Fork Formation at Coal Canyon, with a
corresponding statistical summary of the dimensions of each sand body type,
shows that the sand bodies have a mean average height of 9.3 feet and an average
width of 526 feet. This characterization of the Williams Fork Formation is
relevant to the entire Piceance Basin and applies to the Application Lands.
The various well densities of wells
drilled through Coal Canyon outcrop (as an example) show that most of the
individual sands would be penetrated on 10-acre well density, but significantly
fewer would be penetrated on 20-acre well density. There is varying sand
thickness and lateral discontinuity.
The structure map illustrated the
top of the Rollins Member of the Iles Formation, the Application Lands, and
wells drilled into the Mesaverde Group. The map noted three wells referred to
in subsequent exhibits. The wells are the Dan Kenney Estate #1, the CH Four Ltd
#1, and the Aitken 23-11.
Gas column thicknesses for the
three wells range between 996 and 1,044 feet. Net pay for the three wells ranges
from 129 to 197 feet. Porosity of the three wells ranges from 9.1% to 10.5%.
Percent saturation of water from the three wells ranges from 35% to 47%.
The Iles Formation cross section
for the Aitken 23-11 and the CH Four Ltd #1 wells, both closely spaced,
illustrates the gross sand thicknesses in the Rollins, Cozzette and Corcoran
members of the Iles Formation and the gas-filled effective porosity. The gross
sand packages appear to correlate between wells, but the cross section
demonstrates that a significant percentage of the gas-filled effective porosity
does not correlate between wells.
The complex vertical and horizontal
stratigraphy of the sandstone reservoirs in both the Williams Fork and Iles
Formations necessitates 10-acre density drilling to efficiently drain the
The ultimate recovery of
gas-in-place in the Williams Fork Formation and Iles Formation underlying the
Application Lands will be maximized by 10-acre density drilling.
16. Engineering testimony and exhibits showed that:
average net pay across the Williams Fork and Iles Formations is 322 feet. The
average net pay was calculated from open hole logs from wells that were drilled
prior to Axia’s acquisition of the lands. The average water saturation and
porosity is 45% and 10%, respectively. These numbers can be used to determine
the average gas in place on 10 acres. Using standard gas in place calculations,
the minimum gas-in-place for 10 acres is 1.424 billion standard cubic feet (bscf).
Based upon a recovery factor of 85%, it is expected the Williams Fork and Iles
Formations will contribute 1.21 billion cubic feet (bcf) per 10 acres.
(b) Average well costs for
drilling and completing a well in the Williams Fork and Iles Formations in the
Kimball Creek field are expected to be $1,500,000. The average working interest
is 100% and the average net revenue interest is 80%. Based on Axia’s completion
practices and experience in the Piceance Basin, Axia used an average initial
production of 1,100 thousand cubic feet per day (mcf/d) and an average gross
estimated ultimate recovery of 1.21 bcf. Axia also used specific variables for
market price and price differentials along with deductions for compression,
gathering, royalties, lease operating expenses, marketing and shrink. Using
these parameters, the expected rate of return is 26%; the net present value at
20% is $228,000; and the discounted payout is 4.5 years. The reserve life is
34.6 years. This meets Axia’s economic hurdles.
(c) The Iles Formation type curve illustrated the average
production normalized to time zero for 225 wells in the area with Iles only
production. These wells are in close proximity to Applicant’s Kimball Creek
Field and represent a good sample. The average initial production was 166 mcf/day.
Applicant matched this production with decline analysis to find an average
estimated ultimate recovery for economics.
(d) A single well drilled to the Iles Formation alone would cost approximately
$1,300,000. Assuming the same 100% working interest and 80% net revenue
interest, at this well cost and expected recovery, the economic results would be
negative and do not meet Applicant’s standards. The wells would not be drilled
solely for the Iles Formation. In order to prevent waste and reduce the
potential number of surface locations, the Iles Formation will be developed in
conjunction with the Williams Fork Formation. If the Iles Formation is
developed and comingled with the Williams Fork Formation, it can be developed
economically and prevent waste.
(e) With 10-acre density approval,
Applicant can minimize rig moves and re-disturbance of pads. The Commission’s
approval of this Application will allow the ability to optimally place bottom
hole locations that will in turn maximize ultimate recovery of gas-in-place and
provide community benefits by lessening operational time per well location and
reduce road traffic.
17. Testimony and exhibits showed that
granting the Application will promote efficient reservoir drainage, will prevent
waste, will allow greater ultimate recovery of oil and gas, will protect
correlative rights, and that the requested drilling and spacing unit is not
smaller than the area that can be efficiently drained by one well.
18. Multiple wells have been drilled upon
lands in close proximity to the Application Lands with the result that
geological and engineering evidence indicates that Williams Fork Formation and
Iles Formation wells in the Mesaverde Group on the Application Lands now should
be allowed to be drilled on a 10-acre density basis.
Based on the testimony and
exhibits submitted in support of the Application, the Commission should allow
10-acre density for the Iles Formation because the option to complete a well to
the Iles Formation is economic and efficient when completed within a Williams
Fork Formation wellbore and the Iles Formation would not be exploited or
developed without this option.
19. Axia has agreed
to be bound by oral order of the Commission.
Based on the facts stated in the Application, the one protest having been
dismissed and converted into a Rule 510 statement, and the testimony and
exhibits considered by the Commission at the hearing, the Commission should
enter an order to establish an approximate 640-acre drilling and spacing unit
for the production of gas and associated hydrocarbons from the Williams Fork and
Iles Formation underlying Section 14 (all), Township 9 South, Range 95 West, 6th
P.M. and to authorize 10-acre density optional drilling thereon.
NOW, THEREFORE IT IS ORDERED that a 640-acre drilling and spacing unit is
established for the production of gas and associated hydrocarbons from the
Williams Fork and Iles Formations of the
Application Lands described as follows:
Township 9 South, Range 95 West, 6th
Section 14: All
Mesa County, Colorado
IT IS FURTHER
ORDERED, that Williams Fork Formation and Iles Formation wells in the Mesaverde
Group shall be optionally drilled upon a 10-acre density basis. Each well is to
be located downhole anywhere within the unit but no closer than 100 feet from
the drilling and spacing unit boundary where immediately adjacent or cornering
(“Contiguous”) lands have been approved by the Commission for 10-acre drilling
density, and no closer than 200 feet from the drilling and spacing unit boundary
where Contiguous lands have not been approved by the Commission for 10-acre
density downhole drilling for Williams Fork and Iles Formation wells, unless an
exception is granted by the Director of the Commission.
IT IS FURTHER ORDERED, that any well drilled
pursuant to this Order 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, the provisions contained in the above Order shall become
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
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
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 November 2010, as of October 21, 2010.
GAS CONSERVATION COMMISSION
STATE OF COLORADO
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
November 22, 2010