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 |
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CAUSE NO. 371
ORDER NO. 371-7
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report of the commission
This cause 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,
for an order to establish three approximate 320-acre drilling and spacing units
for production from the Williams Fork Formation and Iles Formation underlying
the E½ of Section 1, the E½ of Section 2 (contains an irregular governmental
quarter section), and the N½ of Section 12, Township 9 South, Range 95 West, 6th
P.M., Mesa County, Colorado and to authorize 10-acre density optional drilling
thereon.
FINDINGS
The Commission finds as follows:
1.
Axia Energy, LLC (Axia 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. 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 Formation and Iles Formation:
Township 9 South, Range 95 West, 6th P.M.
Section 1: E½
Section 2: E½ (contains an irregular governmental quarter section)
Section 12: N½
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 three approximately 320-acre drilling
and spacing units (each consisting of an approximate ½ section) 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 Formation and Iles Formation:
Township 9 South, Range 95 West, 6th P.M.
Section 1: E½
Section 2: E½ (contains an irregular governmental quarter section)
Section 12: N½
Mesa County, Colorado
6. Applicant asserts that Williams
Fork Formation and Iles Formation wells in the Mesaverde Group on the
Application Lands 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 Formation 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 Formation 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 which the Commission has not at the time of the drilling
permit application, granted the right to drill 10-acre density Williams Fork
Formation and Iles Formation wells. Where this exception applies, Williams Fork
Formation 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 Formation 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.
9. The 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.
10. The 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.
11. The Applicant moved for dismissal
of the protest (Motion) on several grounds, requesting that the protest be
treated as a Rule 510 Statement.
12. On 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.
13. At 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 COGCC has entered orders approving 10-acre increased density for
the Williams Fork Formation and Iles Formation. 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 three 320-acre drilling
and spacing units. 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 that:
(a)
The outcrop of 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 stratigraphy, and (ii) evaluating the nature of Williams
Fork stratigraphy and its effect on reservoir discontinuities.
(b)
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 discontinuity.
(c)
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.
(d)
The various densities of wells drilled through the Coal Canyon outcrop
(as an example) show that most of the individual sands would be penetrated on
10-acre well spacing, but significantly fewer would be penetrated on 20-acre
well spacing. There is varying sand thickness and lateral discontinuity.
(e)
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.
(f)
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%.
(g)
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.
(h)
The complex vertical and horizontal stratigraphy of the sandstone
reservoirs in both the Williams Fork Formation and Iles Formation necessitates
10-acre density drilling to efficiently drain the respective reservoirs.
(i)
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:
(a) The 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 units are 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 wellbore and the Iles Formation would not be exploited or
developed without this option.
19. Axia agreed to be bound by oral order of the Commission.
20. Based on the facts stated in the
Application, the one protest having been dismissed and converted to a Rule 510
statement, and the testimony and exhibits considered by the Commission it the
hearing, the Commission should enter an order to establish three approximate
320-acre drilling and spacing units for the production of gas and associated
hydrocarbons from the Williams Fork Formation and Iles Formation underlying the
E½ of Section 1, the E½ of Section 2 (contains an irregular governmental
quarter section), and the N½ of Section 12, Township 9 South, Range 95 West, 6th
P.M., Mesa County, Colorado and to authorize 10-acre density optional drilling
thereon.
ORDER
NOW, THEREFORE IT
IS ORDERED that three approximately 320-acre drilling and spacing units are
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 P.M.
Section 1: E½
Section 2: E½ (contains an irregular governmental quarter section)
Section 12: N½
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
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.
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
November 2010, as of October 21, 2010.
OIL AND
GAS CONSERVATION COMMISSION
OF THE
STATE OF COLORADO
By____________________________________
Carol Harmon, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
November 22, 2010