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,
WELD COUNTY, COLORADO

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CAUSE NO. 407

ORDER NO. 407-561

REPORT OF THE COMMISSION

The Commission heard this matter on March 5, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests in five approximate 320-acre designated horizontal wellbore spacing units for Sections 25 and 26, Township 3 North, Range 66 West, 6th P.M., to accommodate the planned Camp 36N-26HZ Well, the Camp 15N-26HZ Well, the Camp 37N-26HZ Well, the Camp 38N-26HZ Well, and the Camp 38C-26HZ Well, for the development and operation of the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.         Kerr-McGee Oil & Gas Onshore LP (“Kerr-McGee” 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 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 25 and 26, Township 3 North, Range 66 West, 6th P.M. are subject to this order for the Codell Formation.

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, with the permitted well locations in accordance with the provisions of Order No. 407-1.  Sections 25 and 26, Township 3 North, Range 66 West, 6th P.M. are subject to this order for the Codell and Niobrara Formations.

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.  Pursuant to Rule 318A.j., Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.  Rule 318A.d. provides that an operator may allocate production to any drilling and spacing unit with respect to a particular Cretaceous Age Formation consistent with the provisions of Rule 318A.  Sections 25 and 26, Township 3 North, Range 66 West, 6th P.M. is subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

7.         On November 23, 2011, Kerr-McGee, by its attorneys, filed with the Commission a verified application for an order to pool all interests in five approximate 320-acre horizontal wellbore spacing units for certain lands in Sections 25 and 26, Township 3 North, Range 68 West, 6th P.M., to accommodate the planned Camp 36N-26HZ Well, the Camp 15N-26HZ Well, the Camp 37N-26HZ Well, the Camp 38N-26HZ Well, and the Camp 38C-26HZ Well.

8.         On January 6, 2012, Kerr-McGee, by its attorneys, requested, and Commission Staff granted, that this Application be continued to the March hearing. 

9.         On January 31, 2012, Kerr-McGee, by its attorneys, filed with the Commission a verified amended application (“Amended Application”) for an order to pool all interests in five approximate 320-acre designated horizontal wellbore spacing units for the below-described lands (“Application Lands”), to accommodate the planned Camp 36N-26HZ Well, the Camp 15N-26HZ Well, the Camp 37N-26HZ Well, the Camp 38N-26HZ Well, and the Camp 38C-26HZ Well, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. § 34-60-116(7)(b)(II) were first incurred for the drilling of the Camp Wells, and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):

Township 3 North, Range 66 West, 6th P.M.
Section 26:       W½ E½, E½ W½          
(“Horizontal Wellbore Spacing Unit #1”, Camp 36N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 26:       E½                              
(“Horizontal Wellbore Spacing Unit #2”, Camp 15N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 26:       E½                              
(“Horizontal Wellbore Spacing Unit #3”, Camp 37N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 25:       W½ W½                       
Section 26:       E½ E½            
(“Horizontal Wellbore Spacing Unit #4”, Camp 38N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 25:       W½ W½                       
Section 26:       E½ E½
(“Horizontal Wellbore Spacing Unit #5”, Camp 38C-26HZ)

10.        On February 21, 2012, Kerr-McGee, by its attorneys, filed with the Commission a written request to approve the Amended 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 Amended Application by Dave Sullivan, Senior Landman for Kerr-McGee, showed that Kerr-McGee has attempted to contact all nonconsenting royalty owners to obtain their consent to participate in the spacing unit for purposes of royalty payments.  Further testimony indicates that there are no working interest owners or unleased mineral interest owners subject to the Application. The Application seeks to pool royalty interest owners. All materials have been provided to the interested parties at least 30 days prior to the March 5, 2012 hearing date.

12.        The above-referenced testimony and exhibits show that granting the Amended 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.        Kerr-McGee agreed to be bound by oral order of the Commission. 

14.        Based on the facts stated in the verified Amended Application, having received no protests, and based on the Hearing Officer review of the Amended Application under Rule 511., the Commission should enter an order to pool all interests in five approximate 320-acre designated horizontal wellbore spacing units for Sections 25 and 26, Township 3 North, Range 66 West, 6th P.M., to accommodate the planned Camp 36N-26HZ Well, the Camp 15N-26HZ Well, the Camp 37N-26HZ Well, the Camp 38N-26HZ Well, and the Camp 38C-26HZ Well, for the development and operation of the Codell and Niobrara Formations.

15.        On March 5, 2012, Kerr-McGee attorney, Jamie Jost of Beatty & Wozniak, during the hearing of this matter, explained that Docket No. 1201-UP-31 requests a pooling order for, among other things, a wellbore spacing unit to accommodate the Camp 38N-26HZ Well.  However, because of casing issues, the Camp 38N-26HZ Well had to be plugged and abandoned, and the Permitting Group has allowed Kerr-McGee to drill the Camp 38N-26HZR Well on the same pad with the same downhole location but with a 20 foot difference in the surface location.  Kerr-McGee requested that the Commission’s Order substitute the Camp 38N-26HZR Well for the Camp 38N-26HZ Well that had been included in the application.  The Commission agreed to this substitution.

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 interests in the five approximate 320-acre designated horizontal wellbore spacing units established for the below-described lands, are hereby pooled, for the development and operation of the Codell and Niobrara Formations, effective as of the earlier of the date of the Application, or the date that the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred for the drilling of the horizontal well:

Township 3 North, Range 66 West, 6th P.M.
Section 26:       W½ E½, E½ W½          
(“Horizontal Wellbore Spacing Unit #1”, Camp 36N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 26:       E½                              
(“Horizontal Wellbore Spacing Unit #2”, Camp 15N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 26:       E½                              
(“Horizontal Wellbore Spacing Unit #3”, Camp 37N-26HZ)

Township 3 North, Range 66 West, 6th P.M.
Section 25:       W½ W½                       
Section 26:       E½ E½            
(“Horizontal Wellbore Spacing Unit #4”, Camp 38N-26HZR)

Township 3 North, Range 66 West, 6th P.M.
Section 25:       W½ W½                       
Section 26:       E½ E½
(“Horizontal Wellbore Spacing Unit #5”, Camp 38C-26HZ)

2.         The production obtained from the horizontal wellbore spacing units 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 horizontal wellbore spacing units; each owner of an interest in the horizontal wellbore spacing units shall be entitled to receive its share of the production of the Well located on the horizontal wellbore spacing units applicable to its interest in the horizontal wellbore spacing units.

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 horizontal wellbore spacing units 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 horizontal wellbore spacing units 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 horizontal wellbore spacing units 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 horizontal wellbore spacing unit described above, shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.

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   8th  day of March, 2012, as of March 5, 2012.
           
                                                                        OIL AND GAS CONSERVATION COMMISSION
                                                                        OF THE STATE OF COLORADO

 

                                                                        By____________________________________    
                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
March 8, 2012