BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF THE COMMISSION

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests in an approximate 466.99-acre designated wellbore spacing unit for Sections 1, 2, 11, and 12, Township 4 North, Range 64 West, 6^th P.M., and Sections 6 and 7, Township 4 North, Range 63 West, 6^th P.M., to accommodate the drilled Bobcat C12-69HN Well, for the development and operation of the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.         Noble Energy, Inc. (“Noble” 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 1, 2, 11, and 12, Township 4 North, Range 64 West, 6^th P.M., and Sections 6 and 7, Township 4 North, Range 63 West, 6^th 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 1, 2, 11, and 12, Township 4 North, Range 64 West, 6^th P.M., and Sections 6 and 7, Township 4 North, Range 63 West, 6^th 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 1, 2, 11, and 12, Township 4 North, Range 64 West, 6^th P.M., and Sections 6 and 7, Township 4 North, Range 63 West, 6^th P.M. are subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

7.         On October 31, 2011, the Commission issued Order No. 407-486, which among other things established an approximate 480-acre wellbore spacing unit consisting of the below-described lands, and approved one horizontal well within the unit, for the production of oil, gas and related hydrocarbons from the Niobrara Formation:

Township 4 North, Range 64 West, 6^th P.M.

Section 1:      S½ S½

Section 2:      SE¼ SE¼

Section 11:    NE¼ NE¼

Section 12:    N½ N½

Township 4 North, Range 63 West, 6^th P.M.

Section 6       SW¼ SW¼

Section 7:      NW¼ NW¼

8.         On November 23, 2011, Noble, by its attorneys, filed with the Commission a verified application (“Application”) for an order to pool all interests in an approximate 466.99-acre designated wellbore spacing unit for the below-described lands (“Application Lands”), to accommodate the drilled Bobcat C12-69HN Well (API No. 05-123-34432) (“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 well, and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):

Township 4 North, Range 64 West, 6^th P.M.

Section 1:      S½ S½

Section 2:      SE¼ SE¼

Section 11:    NE¼ NE¼

Section 12:    N½ N½

Township 4 North, Range 63 West, 6^th P.M.

Section 6:      SW¼ SW¼

Section 7:      NW¼ NW¼

9.         On January 9, 2012, Noble, by its attorneys, requested, and Commission Staff granted, a continuance of the Application to the March 5, 2012 hearing.

10.       On February 16, 2012, Noble, by its attorneys, requested, and Commission Staff granted, a continuance of the Application to the April 16, 2012 hearing.

11.       On February 17, 2012, Merit Management Partners I, L.P. and Merit Energy Partners III, L.P. (collectively “Merit”), by its attorneys, filed a Protest of the Application. Merit  challenged Applicant’s request for retroactive application of the pooling order to a time prior to the Application date, alleging that such a request is inconsistent with Commission Rule 530(a).  Merit further challenged the ability to have a pooling order apply to all future wells drilled in the unit.

12.       On March 21, 2012, Noble, by its attorneys, requested, and Commission Staff granted, a continuance of the Application to the May 29, 2012 hearing.

13.       On May 15, 2012, Noble, 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.

14.       Land testimony and exhibits submitted in support of the Application by Joseph H. Lorenzo, Senior Land Manager for Noble, stated that Merit and Noble had reached agreement on the Merit Protest, and Noble was therefore withdrawing its request that the pooling order apply to “any future wells drilled to said Formations” and requested that the Order issued with respect to this Application indicate that the Order does not apply to future wells drilled in the unit. Thus this Order is only intended to apply the drilled Bobcat C12-69HN Well.

15.       Further land testimony showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure (“AFE”) and an offer to participate in the Well.  Further testimony concluded 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 May 29, 2012 hearing date. 

16.       On May 18, 2012 Merit withdrew it Protest in this matter.

17.       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.

18.       Noble agreed to be bound by oral order of the Commission. 

19.       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 pool all interests in an approximate 466.99-acre designate wellbore spacing unit for Sections 1, 2, 11, and 12, Township 4 North, Range 64 West, 6^th P.M., and Sections 6 and 7, Township 4 North, Range 63 West, 6^th P.M., to accommodate the drilled Bobcat C12-69HN Well, 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, all interests in the approximate 466.99-acre designated wellbore spacing unit 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 Well:

Township 4 North, Range 64 West, 6^th P.M.

Section 1:      S½ S½

Section 2:      SE¼ SE¼

Section 11:    NE¼ NE¼

Section 12:    N½ N½

Township 4 North, Range 63 West, 6^th P.M.

Section 6:      SW¼ SW¼

Section 7:      NW¼ NW¼

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 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 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   4^th  day of June, 2012, as of May 29, 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

June 4, 2012