BEFORE THE OIL AND GAS
CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
ORDER NO. 407-359
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REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on April 29, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish an approximate 160-acre drilling and spacing unit for the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell and Niobrara Formations, and to pool all nonconsenting interests within the unit, for the development and operation of the Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Synergy Resources Corporation (“Synergy”), 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 in accordance with Order No. 407-17, entered November 18, 1985), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands, including Section 21, Township 5 North, Range 66 West, 6th P.M., with the drilling and spacing unit to be designated by the operator drilling the first well in the quarter section, (or the Director, if the operator fails to designate). The permitted well shall be located in the center of either 40-acre tract within the drilling and spacing 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 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas from the Codell and Niobrara Formations underlying certain lands, including Section 21, Township 5 North, Range 66 West, 6th P.M., with the permitted well locations 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. Section 21, Township 5 North, Range 66 West, 6th P.M. is subject to this Rule for the Codell and Niobrara Formations.
7. On March 10, 2010, Synergy, by its attorney, filed with the Commission a verified application to:
(1) Establish an approximate 160-acre drilling and spacing unit consisting of the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., for production of oil and gas and associated hydrocarbons from the Codell and Niobrara Formations, with well locations and commingling of production being authorized and determined in accordance with Rule 318A.
(2) Pool all nonconsenting owners in the 160-acre drilling and spacing unit consisting of the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., for the development and operation of the Codell and Niobrara Formations from the following wells and any future wells that may be drilled in said unit:
Meyer #5 Well, with a planned bottomhole location 1,400 feet FNL and 1,400 feet FWL of Section 21;
Meyer #6 Well, with a planned bottomhole location 500 feet FNL and 2,150 feet FWL of Section 21;
Meyer #3 Well, with a planned bottomhole location 2,115 feet FNL and 660 feet FWL of Section 21;
Meyer #8 Well, with a planned bottomhole location 853 feet FNL and 470 feet FWL of Section 21;
Further, it is alleged that said wells have been completed.
8. On April 16, 2010, Synergy, 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 as is provided for by Rule 511. Sworn written testimony and exhibits were submitted in support of the application.
9. Testimony and exhibits submitted in support of the application showed that Synergy is a mineral leaseholder of lands underlying the application lands, and that Synergy has drilled the Meyer #5, #6, #3, and #8 Wells (the “Wells”) at bottomhole locations within the proposed drilling and spacing unit for the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., with the intent of producing the Wells from the Codell and Niobrara Formations. Additional testimony indicated that by establishing the proposed drilling and spacing unit, the Wells will utilize common production equipment which will minimize the impact on the surface and provide for more efficient and economic development. Further testimony and exhibits showed a list of nonconsenting owners for the proposed pooled drilling and spacing unit, and indicated that offers to lease or to participate were sent to the nonconsenting owners and that said offers were sent via U.S. Mail, at least 30 days prior to the April 29, 2010 hearing. Testimony showed that the offers to lease/participate and the Authorizations for Expenditures are fair and reasonable, and similar to those prevailing in the area, and that Noble has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.
10. The above-referenced testimony and exhibits showed that the granting of the application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of oil/gas, and will not violate correlative rights.
11. Synergy agreed to be bound by oral order of this Commission.
12. Based on the facts stated in the verified application, having received no protests, and based on the Hearing Officer review of the application under Rule 511, the Commission should enter an order to establish an approximate 160-acre drilling and spacing unit for the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell and Niobrara Formations, and to pool all nonconsenting interests within the unit, for the development and operation of the Codell and Niobrara Formations.
ORDER
NOW, THEREFORE IT IS ORDERED, that an approximate 160-acre drilling and spacing unit is hereby established for the NW¼ of Section 21, Township 5 North, Range 66 West, 6th P.M., for the production of gas and associated hydrocarbons 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, the nonconsenting owners in the above established 160-acre drilling and spacing unit, are hereby pooled for the development and operation of the Codell and Niobrara Formations.
2. The production obtained from the drilling and spacing 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 drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
3. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the wells (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.
4. The unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.
5. Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each 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, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the wells as if it had originally agreed to the drilling.
6. The operator of the wells drilled on the above-described drilling and spacing unit shall furnish the 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.
7. Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended. Any conflict that may arise shall be resolved in favor of the statute.
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 May, 2010, as of April 29, 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
May 18, 2010