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 WATTENBERG FIELD, BOULDER COUNTY, COLORADO

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CAUSE NOS. 232 & 407

 

ORDER NOS. 232-288 & 407-472

 

REPORT OF COMMISSION

 

                        This cause came on for hearing before the Commission on August 8, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to pool all nonconsenting interests in the approximate 160-acre wellbore spacing unit designated for the SE¼ SW¼ and SW¼ SE¼ of Section 1 and the NE¼ NW¼ and NW¼ NE¼ of Section 12, Township 1 North, Range 69 West, 6th P.M., to accommodate the Bailey #4-0-12 Well, for the development and operation of the Codell, Niobrara and J-Sand Formations.

 

FINDINGS

 

The Commission finds as follows:

 

1.    EnCana Oil & Gas (USA) Inc., (“EnCana” 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.    On October 19, 1981, the Commission issued Order No. 232-23, which among other things, established 320-acre drilling and spacing units for certain lands, for the production of gas and associated hydrocarbons from the “J” Sand Formation.  Sections 1 and 12 of Township 1 North, Range 69 West, 6th P.M. are subject to the provisions of this Order for the “J” Sand Formation.

 

5.    On December 19, 1983, the Commission issued Order No. 407-1 (amended 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 from the Codell Formation underlying certain Lands with the unit to be designated by the operator 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.   Sections 1 and 12 of Township 1 North, Range 69 West, 6th P.M. are subject to this Order for the Codell Formation.

 

6.    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, with the permitted well locations in accordance with the provisions of Order No. 407-1.  Sections 1 and 12 of Township 1 North, Range 69 West, 6th P.M. are subject to this Order for the Codell and Niobrara Formations.

 

7.    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 allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  Rules 318A.a.(4)C. and 318A.e. provide that if a well is located less than 460 feet from the governmental quarter-quarter section boundary, a wellbore spacing unit for such well shall be comprised of the four governmental quarter-quarter sections nearest to the wellbore regardless of section or quarter section lines.  Sections 1 and 12 of Township 1 North, Range 69 West, 6th P.M. are subject to this Rule for the Codell, Niobrara and “J” Sand Formations.

 

8.    On April 4, 2011, the Commission issued Order No. 407-392, which among other things, established an approximate 160-acre drilling and spacing unit for certain lands located in Sections 1 and 12 of Township 1 North, Range 69 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Codell, Niobrara, and “J” Sand Formations. 

 

9.    On June 8, 2011, EnCana, by its attorneys, filed with the Commission a verified application (the “Application”) for an order to pool all nonconsenting interests in the approximate 160-acre wellbore spacing unit designated for the below-described lands, to accommodate the Bailey #4-0-12 Well (the “Well”) (API No. 05-013-06626), for the development and operation of the Codell, Niobrara and J-Sand Formations, retroactive to the earliest date costs are incurred for the Well, or the date of the Application, whichever is earlier:

 

Township 1 North, Range 69 West, 6th P.M.

Section 1:

Section 12:

SE¼ SW¼ and SW¼ SE¼

NE¼ NW¼ and NW¼ NE¼

 

10.  On July 27, 2011, EnCana, by its attorneys, 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.

 

11.  Testimony and exhibits submitted in support of the Application by Sheila Frazier, Land Negotiator for EnCana, showed that all non-consenting interest owners were notified of the Application and received an Authority for Expenditure (“AFE”) and a letter advising them of their rights to participate in the proposed operations within the subject spacing unit.  Further testimony showed that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 30 days prior to the August 8, 2011 hearing date.

 

12.  The above-referenced testimony and exhibits show that granting the Application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.

 

13.  EnCana agreed to be bound by oral order of the Commission. 

 

14.  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 pooling all nonconsenting interests in the approximate 160-acre wellbore spacing unit designated for the SE¼ SW¼ and SW¼ SE¼ of Section 1 and the NE¼ NW¼ and NW¼ NE¼ of Section 12, Township 1 North, Range 69 West, 6th P.M., to accommodate the Bailey #4-0-12 Well for the development and operation of the Codell, Niobrara and J-Sand 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, all nonconsenting interests in the approximate 160-acre wellbore spacing unit designated for the below-described lands, to accommodate the Bailey #4-0-12 Well (API No. 05-013-06626), for the development and operation of the Codell, Niobrara and J-Sand Formations, retroactive to the earliest date costs are incurred for the Well, or the date of the Application, whichever is earlier:

 

Township 1 North, Range 69 West, 6th P.M.

Section 1:

Section 12:

SE¼ SW¼ and SW¼ SE¼

NE¼ NW¼ and NW¼ NE¼

 

2.  The production obtained from the wellbore spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such owner’s tract bears to the total number of mineral acres within the wellbore spacing unit; each owner of an interest in the wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the wellbore spacing unit applicable to its interest in the wellbore 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 Well (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the wellbore 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.    Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

 

5.    Each nonconsenting unleased owner within the wellbore 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 Well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Well as if it had originally agreed to the drilling.

 

6.    The operator of the Well drilled on the above-described wellbore 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 provisions contained in the above order shall become effective immediately.

           

                        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 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   12th  day of August, 2011, as of August 8, 2011.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________         

                                                                                    Robert A. Willis, Acting Secretary

 

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

August 12, 2011