BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF THE PROMULGATION                        )           CAUSE NO. 386

AND ESTABLISHMENT OF FIELD RULES TO                     )          

GOVERN OPERATIONS IN THE HIGHTOWER                   )           ORDER NO. 386-3

FIELD, MESA COUNTY, COLORADO                                  )

           

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on September 22, 2008, in the Sabin-Cleere Conference Room, Building A, Colorado Department of Public Health and Environment, 4300 Cherry Creek Drive South, Denver, Colorado, for an order to allow the equivalent of one well per 10 acres for certain lands in Township 9 South, Range 92 West, 6th P.M., with the permitted well to be located no closer than 100 feet from the unit boundary, for production of gas and associated hydrocarbons from the Mesaverde Formation (including upper Williams Fork and Rollins-Cozzette-Corcoran Sandstones, part of the Iles Formation).

 

            FINDINGS

 

The Commission finds as follows:

 

1.     Plains Exploration & Production Company (PXP), 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.  Certain lands in Sections 24 and 25, 35 through 36, Township 9 South, Range 92 West, 6th P.M. are subject to this rule for the Mesaverde Group.

 

5.     On June, 21, 1982, the Commission issued Order No. 386-1, which among other things, established 640-acre drilling and spacing units for certain lands including Section 16, Township 9 South, Range 92 West, 6th P.M., for production from the Mesaverde Formation (including the Cozzette and Corcoran).

 

6.     On June 30, 2008, PXP, by its attorneys, filed with the Commission a verified application for an order to vacate the 640-acre drilling and spacing unit established in Order No. 386-1 and allow the equivalent of one well per 10 acres, for the below-listed lands, for production of gas and associated hydrocarbons from the Mesaverde Formation (including upper Williams Fork and Rollins-Cozzette-Corcoran Sandstones, part of the Iles Formation):

 

Township 9 South, Range 92 West, 6th P.M.

Section 16:      S
Section 24:      Lots 1-5, N N, S NW, SW NE, W SW
Section 25:      Lots 1 and 2, N NW, S N, S
Section 34:      Homestead Entry Survey 171
Section 35:      Lots 1-5, N NW, E
Section 36:      All

 

All future wells on the application lands should be located downhole no closer than 100 feet from the boundary of lease or unit lines, as applicable, without exception granted by the Director.  In cases where the application lands abut or corner lands where the Commission has not, at the time of the drilling permit application, granted the right to drill 10-acre density Mesaverde Formation wells, the future well or wells should be located downhole no closer than 200 feet from the boundary or boundaries of the lease or unit abutting or cornering such lands, as applicable, without exception granted by the Director.  It is not intended that more than four (4) Mesaverde Formation wells would be drilled on the application lands per governmental quarter quarter section.  Mesaverde Formation wells to be drilled on the application lands will be drilled from the surface either vertically or directionally from no more than one (1) pad located on any quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Director.

 

7.     On August 5, 2008, PXP, by its attorneys, filed with the Commission a written request to continue the matter from the August 2008 Commission hearing to the September 2008 Commission hearing.

 

8.     On August 13, 2008, the Bureau of Land Management (BLM) filed with the Commission a written letter of protest alleging that the BLM manages the mineral estate underlying Section 16, Township 9 South, Range 92 West, 6th P.M., and that the aforementioned lands are leased to ExxonMobil Corporation and Plains Exploration & Production Company as the federal lessees and subject to a federal communitization agreement which is being held by an active well operated by Maralex Resources, Inc.  Further, the BLM stated that it does not have any objection to the proposal of PXP to increase well density, however, it does take exception to vacating the 640-acre drilling and spacing unit for Section 16, Township 9 South, Range 92 West, 6th P.M. under Order No. 386-1.  On September 3, 2008, the BLM filed a withdrawal of its protest due to PXP amending its application by withdrawing those lands set forth above.

 

9.     On August 28, 2008, PXP, by its attorneys, amended its application by withdrawing the S of Section 16, Township 9 South, Range 92 West, 6th P.M. from the application lands.  Accordingly, the application was amended to allow the equivalent of one well per 10 acres, for the below-listed lands, for production of gas and associated hydrocarbons from the Mesaverde Formation (including upper Williams Fork and Rollins-Cozzette-Corcoran Sandstones, part of the Iles Formation):

               

Township 9 South, Range 92 West, 6th P.M.

Section 24:      Lots 1-5, N N, S NW, SW NE, W SW
Section 25:      Lots 1 and 2, N NW, S N, S
Section 34:      Homestead Entry Survey 171
Section 35:      Lots 1-5, N NW, E
Section 36:      All

 

10.   On August 28, 2008, PXP, by its attorneys, filed with the Commission a written request to approve the application based on the merits of the amended application and the supporting exhibitsSworn written testimony and exhibits were submitted in support of the application.

 

11.   Testimony and exhibits submitted in support of the application showed that the applications lands are unspaced for the Mesaverde Formation, and that lands in the vicinity of the application lands have been approved for 10-acre density for production of gas and associated hydrocarbons from the Mesaverde Formation.  Additional testimony and exhibits indicated that PXP owns or operates working interests and leasehold interests for the application lands.  Further testimony indicated that the majority of the surface of the application lands is owned by the U.S. Forest Service, with only the application lands in Section 34 being fee owned.

 

12.   Testimony and exhibits submitted in support of the application showed that the Mesaverde Formation is composed of the Williams Fork and the Iles Formations, which are further composed of the Rollins, Cozzette, and Corcoran Formations.  Additional testimony and exhibits showed that the net sand of the Mesaverde Formation is variable in thickness and discontinuous in nature, and that the bottom portion of the Williams Fork Formation is characterized by stacked laterally-continuous coal seams that are most likely the source of the gas in the formation.

 

13.   Testimony and exhibits submitted in support of the application showed that the estimated ultimate recovery (EUR) per well on a 10-acre density basis is calculated at 0.8 BCF, and that, with 10-acre well density, 72% of the original gas-in-place will be recovered, and that drilling wells on 10-acre well density will be economic.  Additional testimony indicated that increasing well density from 40-acre to 10-acre will result in an incremental increased recovery of approximately 2.4 BCF per quarter quarter section and increase incremental EUR by 20%.  Further testimony indicated that approving 10-acre density for the Mesaverde Formation underlying the application lands will prevent waste, protect correlative rights, and assure the greatest ultimate recovery of gas and associated hydrocarbons from the reservoir.

 

14.   The above-referenced testimony and exhibits show that the proposed increased well density will allow more efficient reservoir drainage, will prevent waste, will assure the greatest ultimate recovery of gas and associated hydrocarbons, and will not violate correlative rights.

 

15.   Plains Exploration & Production Company agreed to be bound by oral order of the Commission.

 

16.   Based on the facts stated in the amended application, having received one protest which was withdraw due to the amendment made to application lands, and based on the Hearing Officer review of the application under Rule 511.b., the Commission should enter an order to allow the equivalent of one well per 10 acres, for the lands described in Finding No. 9 above, for production of gas and associated hydrocarbons from the Mesaverde Formation (including upper Williams Fork and Rollins-Cozzette-Corcoran Sandstones, part of the Iles Formation), with the permitted well to be located no closer than 100 feet from the unit boundary.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that the equivalent of one well per 10 acres is hereby approved for the below-listed lands, for production of gas and associated hydrocarbons from the Mesaverde Formation (including upper Williams Fork and Rollins-Cozzette-Corcoran Sandstones, part of the Iles Formation) :

               

Township 9 South, Range 92 West, 6th P.M.

Section 24:      Lots 1-5, N N, S NW, SW NE, W SW
Section 25:      Lots 1 and 2, N NW, S N, S
Section 34:      Homestead Entry Survey 171
Section 35:      Lots 1-5, N NW, E
Section 36:      All

 

IT IS FURTHER ORDERED, that all future wells on the application lands shall be located downhole no closer than 100 feet from the boundary of lease or unit lines, as applicable, without exception granted by the Director.  In cases where the application lands abut or corner lands where the Commission has not, at the time of the drilling permit application, granted the right to drill 10-acre density Mesaverde Formation wells, the future well or wells shall be located downhole no closer than 200 feet from the boundary or boundaries of the lease or unit abutting or cornering such lands, as applicable, without exception granted by the Director.

 

IT IS FURTHER ORDERED, that no more than four (4) Mesaverde Formation wells shall be drilled on the application lands per governmental quarter quarter section (or lots or parcels approximately equivalent thereto), either vertically or directionally, with no more than one pad per quarter quarter section unless the Director grants exception.

                        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.

 

                        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 September, 2008, as of September 22, 2008.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

September 23, 2008