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. 407-663
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REPORT OF THE COMMISSION
The Commission heard this matter on July 9, 2012, in Suite 801, The Chancery
Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order
to pool all interests in two approximate 200-acre designated wellbore spacing
units and four approximate 400-acre designated wellbore spacing units, for
Sections 3, 4, 9 and10, Township 2 North, Range 65 West, 6th P.M., to
accommodate the Thomason 15C-4HZ, Thomason 15N-4HZ, Thomason 37N-E4HZ, Thomason
37N-W4HZ, Thomason 38N-4HZ and Haymaker 36N-4HZ Wells, 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, gas
and associated hydrocarbons from the Codell Formation, 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 3, 4, 9 and 10, Township 2 North, Range 65 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, gas and associated hydrocarbons from
the Codell and Niobrara Formations, with the permitted well locations in
accordance with the provisions of Order No. 407-1. Sections 3, 4, 9 and 10, Township 2
North, Range 65 West, 6th P.M. are subject to this Order for the
Codell and Niobrara Formations.
6.
On April 27, 1988, 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 Cretaceous
Age Formations from the base of the Dakota Formation to the surface. Rule 318A.
supersedes all prior Commission drilling and spacing orders affecting well
location and density requirements of Greater Wattenberg Area wells.
On December 5, 2005, Rule 318A was amended, among other things, to allow
interior infill and boundary wells to be drilled and wellbore spacing units to
be established. On August 8, 2011, Rule 318A was again amended, among
other things, to address drilling of horizontal wells. Sections 3, 4, 9 and 10, Township 2
North, Range 65 West, 6th P.M.
are
subject to Rule 318A for the Codell and Niobrara Formations.
7.
On May 8, 2012 (Amended May 23, 2012), Kerr-McGee, by its attorneys,
filed with the Commission a verified amended application (“Amended
Application”), for an order to pool all interests in two approximate 200-acre
and four approximate 400-acre designated wellbore spacing units (“WSU”), for the
below-described lands (“Application Lands”), to accommodate the Thomason 15C-4HZ
(API No.
05-123-35658), Thomason 15N-4HZ (API No.
05-123-35657), Thomason 37N-E4HZ (No
API), Thomason 37N-W4HZ (API No. 05-123-35659), Thomason 38N-4HZ (No API) and the
Haymaker 36N-4HZ Wells (API No. 05-123-35608) (“Wells”),
for the development and operation of the Codell and Niobrara Formations,
effective as of the earlier of the date 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 each respective horizontal Well, and to subject any nonconsenting
interests to the cost recovery provisions of C.R.S. § 34-60-116(7):
Township 2 North, Range 65 West, 6th P.M.
Section 4: SW¼ SE¼
Section 9: W½ E½
(“WSU #1” 200-acres; Thomason 15C-4HZ)
Township 2 North, Range 65 West, 6th P.M.
Section 4:
SW¼ SE¼
Section 9:
W½ E½
(“WSU #2” 200-acres; Thomason 15N-4HZ)
Township 2 North, Range 65 West, 6th P.M.
Section 4:
S½ SE¼
Section 9:
E½
(“WSU #3” 400-acres; Thomason 37N-E4HZ)
Township 2 North, Range 65 West, 6th P.M.
Section 4:
S½ SE¼
Section 9:
E½
(“WSU #4”400-acres; Thomason 37N-W4HZ)
Township 2 North, Range 65 West, 6th P.M.
Section 3:
SW¼ SW¼
Section 4:
SE¼ SE¼
Section 9:
E½ E½
Section 10:
W½ W½
(“WSU #5” 400-acres; Thomason 38N-4HZ)
Township 2 North, Range 65 West, 6th P.M.
Section 4:
SE¼ SW¼, SW¼ SE¼
Section 9:
E½ W½, W½ E½
(“WSU #6” 400-acres; Haymaker 36N-4HZ)
8.
On June 26, 2012, Kerr-McGee,
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.
9.
Testimony and exhibits submitted in support of the Application by Jay
Errebo, Senior Staff Landman for Kerr-McGee, 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 July 9, 2012 hearing
date.
10. 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.
11.
Kerr-McGee agreed to be bound by
oral order of the 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 pool all interests in two
approximate 200-acre designated wellbore spacing units and four approximate
400-acre designated wellbore spacing units, for Sections 3, 4, 9 and 10,
Township 2 North, Range 65 West, 6th P.M., to accommodate the
Thomason 15C-4NZ, Thomason 15N-4HZ, Thomason 37N-E4HZ, Thomason 37N-W4HZ,
Thomason 38N-4HZ and Haymaker 36N-4HZ Wells, 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 two approximate 200-acre designated
wellbore spacing units 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 drilling of the
well for each designated wellbore spacing
unit:
Township 2 North, Range 65 West, 6th P.M.
(WSU # 1)
Section 4:
SW¼ SE¼
Section 9:
W½ E½
Township 2 North, Range 65 West, 6th P.M. (WSU # 2)
Section 4:
SW¼ SE¼
Section 9:
W½ E½
2.
Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil
and Gas Conservation Act, all interests in four approximate 400-acre designated
wellbore spacing units 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 drilling of the
well for each designated wellbore spacing
unit:
Township 2 North, Range 65 West, 6th P.M. (WSU # 3)
Section 4:
S½ SE¼
Section 9:
E½
Township 2 North, Range 65 West, 6th P.M. (WSU # 4)
Section 4:
S½ SE¼
Section 9:
E½
Township 2 North, Range 65 West, 6th P.M. (WSU # 5)
Section 3:
SW¼ SW¼
Section 4:
SE¼ SE¼
Section 9:
E½ E½
Section 10:
W½ W½
Township 2 North, Range 65 West, 6th P.M.
(WSU #6)
Section 4:
SE¼ SW¼, SW¼ SE¼
Section 9:
E½ W½, W½ E½
3.
The production obtained from each 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.
4.
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 each 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.
5.
Any unleased owners are hereby deemed to have elected not to participate
and shall therefore be deemed to be nonconsenting as to each Well and be subject
to the penalties as provided for by §34-60-116 (7), C.R.S.
6.
Each nonconsenting unleased owner within each 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.
7.
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.
8.
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 units 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
day of July, 2012, as of July
9, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
July 12, 2012