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 ) ORDER NO. 407-308
FIELD, WELD COUNTY, COLORADO )
This cause came on for hearing before the Commission at 9:00 a.m. on December 12, 2007, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish a 160-acre drilling and spacing unit consisting of the NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M., in accordance with Rule 318.a.(4)B., for production from the Codell and Niobrara Formations, and to pool all nonconsenting interests in two drilling and spacing units for the development and operation of said formations.
The Commission finds as follows:
1. Great Western Oil and Gas Company LLC (“Great Western”), 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 December 19, 1983, the Commission issued Order No. 407-1 (amended on March 29, 2000), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons for the Codell Formation underlying certain lands, including Section 26, Township 6 North, Range 67 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 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 February 18, 1985, the Commission issued Order No. 407-10, which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons for the Niobrara Formation underlying certain lands, including Section 26, Township 6 North, Range 67 West, 6th P.M. Said units and permitted well locations shall be in accordance with the provisions of Order No. 407-1.
6. 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. On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established. The NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M. is subject to this Rule.
7. On July 6, 2007, Great Western, by its attorney, filed with the Commission a verified application for an order to establish a 160-acre drilling and spacing unit consisting of the NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M., in accordance with Rule 318.a.(4)B., for production from the Codell and Niobrara Formations and to pool all nonconsenting interests in the 160-acre drilling and spacing unit for the development and operation of said formations. Great Western proposes to drill the Great Western 26-51 Well in the center of the NEĽ of said Section 26. Parties have been offered the option to participate in the drilling of the well in the unit, but to date one or more of such parties have refused to participate by bearing their proportionate shares of the costs and risks of drilling or operating the wells. In addition, attempts have been made to enter into leases with unleased mineral owners but have been unsuccessful to date.
Further, Great Western requested that the Commission enter an order to pool all nonconsenting interests in the 80-acre drilling and spacing unit consisting of W˝ NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M., for production from the Great Western 26-31 and Great Western 26-32 Wells, for the development and operation of the Codell and Niobrara Formations.
8. On August 13, 2007, Penne Powers filed with the Commission a protest to the application. On August 13, 2007, Judith P. Jenny, by her attorney, filed with the Commission a protest to the application. On August 15, 2007, Great Western, by its attorney, filed with the Commission a written request to continue the matter to the October hearing and the hearing was continued. On September 24, 2007, Great Western, by its attorney, filed with the Commission a written request to continue the matter to the November hearing and the hearing was continued. On October 24, 2007, Great Western, by its attorney, filed with the Commission a written request to continue the matter to the December hearing, and the hearing was continued. On November 27, 2007, Ms. Jenny filed with the Commission a written withdrawal of her protest. On November 30, 2007, Ms. Powers filed with the Commission a statement that she has no intention of producing additional information at a hearing, in addition to her written protest, and that she does not intend to participate in such hearing.
9. On December 4, 2007, Great Western, 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.
10. Testimony and exhibits submitted in support of the application showed that Great Western owns all of the oil and gas leasehold in the E˝ NEĽ and one-half of the oil and gas leasehold interest in the W˝ NEĽ, all in Section 26, Township 6 North, Range 67 West, 6th P.M. Additional testimony indicated that Great Western has drilled the Great Western #26-51 Well in the proposed160-acre drilling and spacing unit consisting of the NEĽ of said Section 26, and that Great Western has drilled the Great Western 26-31 and Great Western 26-32 Wells in the 80-acre drilling and spacing unit consisting of the W˝ NEĽ of said Section 26.
11. Testimony and exhibits submitted in support of the application showed that establishing a 160-acre drilling and spacing unit will facilitate drilling and producing multiple formations while protecting correlative rights, and that waste will be prevented and production accounting will be simplified.
12. Testimony and exhibits submitted in support of the application indicated that all mineral owners in the NEĽ and the W˝ NEĽ of Section 26 have been contacted with offers to either lease or participate. Additional testimony and exhibits demonstrated that there is one unleased mineral owner at this time. Further testimony submitted indicated that Great Western continues to work toward obtaining a lease or participation from such unleased mineral owner.
13. Testimony and exhibits submitted in support of the application showed that letters were sent between June 29, 2007 and October 26, 2007 to the unleased mineral owner, offering a lease at $100 per acre with a 18.75% royalty interest and a one-year term; or offering an opportunity to participate as a working interest in the well. Additional testimony showed that these terms were similar to those prevailing in the area. To date, the unleased mineral owner has not agreed to lease or to participate as a working interest owner.
14. Testimony and exhibits submitted in support of the application showed that Great Western has complied with the provisions of §34-60-116, C.R.S. and Rule 530.
15. Great Western Oil and Gas Company LLC agreed to be bound by an oral order of the Commission.
16. Based on the facts stated in the verified application, having received no valid protests, and based on the Hearing Officer review of the application under Rule 511.b., the Commission should enter an order to establish a 160-acre drilling and spacing unit consisting of the NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M., as a wellbore spacing unit for production from the Codell and Niobrara Formations, and to pool all non-consenting interests in the 160-acre drilling and spacing unit consisting of the NEĽ and in the 80-acre drilling and spacing unit consisting of the W˝ NEĽ, both in said Section 26, for the development and operation of the Codell and Niobrara Formations.
ORDER
NOW, THEREFORE IT IS ORDERED, that the NEĽ of Section 26, Township 6 North, Range 67 West, 6th P.M. is hereby established as a 160-acre drilling and spacing unit for production from the Codell and Niobrara Formations.
IT IS FURTHER 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 160-acre drilling and spacing unit consisting of the NEĽ and in the 80-acre drilling and spacing unit consisting of the W˝ NEĽ, both in Section 26, Township 6 North, Range 67 West, 6th P.M., are hereby pooled for the development and operation of the Codell and Niobrara Formations.
2. The production obtained from the drilling units shall be allocated to each owner in the units on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within each drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling 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), C.R.S.
4. Any nonconsenting unleased mineral owner within the spacing 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 nonconsenting 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 units 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 December, 2007, as of December 12, 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
December 27, 2007