BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ) CAUSE NO. 407
ESTABLISHMENT OF FIELD RULES TO GOVERN )
OPERATIONS IN THE WATTENBERG FIELD, ) ORDER NO. 407-300
WELD COUNTY, COLORADO )
This cause came on for hearing before the Commission at 9:00 a.m. on March 26, 2007, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to pool all nonconsenting interests in the 80-acre drilling and spacing unit consisting of the W½ NE¼ of Section 12, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Blue Chip Oil, Inc. ("Blue Chip"), 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 November 18, 1985, the Commission issued Order No. 407-1 (amended on March 29, 2000), which established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons for the Codell and Niobrara Formations underlying certain lands, including Section 12, Township 3 North, Range 68 West, 6th P.M., with the unit to be designated by the operator upon drilling the first well in the quarter section. The permitted well shall be located in the center of either 40-acre tract within the unit with a tolerance of tow hundred (200) feet in any direction. The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.
5. On April 27, 1998, the Commission adopted Rule 318A. which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface. Section 12, Township 3 North, Range 68 West, 6th P.M. is subject to this Rule.
6. On February 1, 2007, Blue Chip, by its attorney, filed with the Commission a verified application for an order to pool all nonconsenting interests in the 80-acre drilling and spacing unit consisting of the W½ NE¼ of Section 12, Township 3 North, Range 68 West, 6th P.M. Blue Chip plans to drill the Morales 31-12 Well in the NW¼ NE¼ and the Morales 32-12 Well in the SW¼ NE¼, both in said Section 12.
7. On March 19, 2007, Blue Chip, 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.
8. Testimony and exhibits submitted in support of the application indicated that Ronald D. Smith (“Smith”) owns an undivided 25% interest in that certain oil and gas lease dated July 12, 1979 and recorded on July 24, 1979 in Book 876 at Reception No. 1797645 of the records of Weld County, Colorado from B. Ann Swiers to Ronald D. Smith. The Swiers lease covers a total of approximately 7.726032 mineral acres in the Unit and Smith’s 25% interest represents 1.931508 mineral acres.
9. Testimony and exhibits submitted in support of the application indicated that Blue Chip sent Smith a letter dated January 26, 2007 offering Smith the opportunity to participate as a working interest owner in the well(s) for his proportionate working interest share in the Unit. The letter included an AFE for the Morales 31-12 Well in the amount of Smith’s proportionate share in that well. More than thirty (30) days has elapsed Smith received the letter, and therefore, Smith is a nonconsenting owner as defined by Commission Rule 530.
10. Testimony and exhibits submitted in support of the application showed that entering an Order pooling Smith’s interest in the Unit will facilitate drilling and producing multiple formations underlying the Unit, thereby preventing waste, while protecting correlative rights.
11. The testimony and exhibits submitted indicate that Blue Chip has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.
12. Blue Chip Oil, Inc. agreed to be bound by an oral order of the Commission.
13. Based on the facts stated in the verified application, having received no protests or interventions to the application and based on the Hearing Officer review of the application under Rule 511.b., the Commission should approve an order pooling all interests in the 80-acre drilling and spacing unit consisting of the W½ NE¼ of Section 12, Township 3 North, Range 68 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations.
ORDER
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 of the State of Colorado, all nonconsenting interests in the 80-acre drilling and spacing unit consisting of the W½ NE¼ of Section 12, Township 3 North, Range 68 West, 6th P.M. are hereby pooled for the development and operation of the Codell and Niobrara Formations.
2. The production obtained from the 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 Unit; each owner of an interest in the Unit shall be entitled to receive his/her share of the production of the well located on the Unit applicable to his interest in the Unit.
3. Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34‑60‑116 (7).
4. Any nonconsenting unleased mineral owner within the Unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the 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, the non-consenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.
5. The operator of any well drilled on the above-described Unit shall furnish all 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.
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 April, 2007, as of March 26, 2007.
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
April 11, 2007