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. 407-698
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REPORT OF THE COMMISSION
The
Commission heard this matter on August 20, 2012, at the offices of the Colorado
Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon
application for an order to
pool all interests in an approximate 320-acre designated wellbore spacing unit
established for
Section 2,
Township 5 North, Range 66 West, 6th P.M., to accommodate the
Bestway 12-2 Well, for the
development and operation of the
Niobrara Formation.
FINDINGS
The
Commission finds as follows:
1.
Mineral Resources, Inc. (“Mineral” 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 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. Section 2, Township 5 North, Range 66
West, 6th P.M. is subject to Rule 318A
for the Niobrara 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. Section 2, Township 5 North, Range 66
West, 6th P.M. is subject to this Order for the Niobrara Formation.
6. On May 10, 2012,
Mineral, by its attorneys, filed with the
Commission a verified application (“Application”) for an order to pool
all interests in an approximate 320-acre designated wellbore spacing unit for
the below-described lands, to accommodate the Bestway 12-2 Well (API No.
05-123-34649)
(“Well”), for the development and operation
of the Niobrara Formation,
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 5 North, Range 66 West, 6th P.M.
Section 2: N½
Applicant did not request the change of any established 80-acre drilling and
spacing units or the established distribution of proceeds from any existing
vertical Niobrara formation well.
Applicant will allocate and distribute proceeds from the horizontal well on a
320-acre basis.
7.
On June 29, 2012, Mineral requested, by its attorneys, and Commission
Staff granted, a continuance to the August 20, 2012 hearing.
8.
On July 11, 2012, pursuant to Rule 511.b. an Administrative Hearing was
held at the offices of the COGCC to determine the sufficiency of the Notices of
Hearing, which omitted Minerals request to establish a drilling and spacing
unit. Mineral, by its attorneys, set
forth its position in support of the sufficiency of the Notices.
9.
On July 13, 2012, the Report of the Hearings Officer issued a finding
affirming the sufficiency of the Notices of Hearing, and recommended to the
Commission that it approve the Application as part of the consent agenda at the
August 20, 2012 hearing.
10. On July 13, 2012,
Mineral,
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. Land
testimony and exhibits submitted in support of the Application by Logan
Richardson, Vice President for Mineral, 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 and operation and was received at
least 30 days prior to the August 20, 2012 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.
Mineral
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 to
pool all interests in the
approximate 320-acre designated wellbore spacing unit established for
Section 2,
Township 5 North, Range 66 West, 6th P.M., to accommodate the
Bestway 12-2 Well, for the
development and operation of the Niobrara Formation.
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 320-acre designated wellbore unit established for
the below-described lands, are hereby pooled, to accommodate the
Bestway 12-2 Well, for the
development and operation of the
Niobrara Formation, 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 5 North, Range
66 West, 6th P.M.
Section 2: N½
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 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 August, 2012, as of
August 20, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary
Dated August
30, 2012