BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE APPLICATION BY MARATHON OIL AND GAS COMPANY, FOR AN ORDER
POOLING ALL NONCONSENTING INTERESTS IN A 1280-ACRE DRILLING AND SPACING UNIT
LOCATED IN SECTIONS 24 AND 25, TOWNSHIP 7 NORTH, RANGE 62 WEST, 6TH
P.M. FOR THE NIOBRARA FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
ORDER NO. 407-716
DOCKET NO. 1210-UP-244 |
REPORT OF THE COMMISSION
The Commission heard this matter on October 1, 2012, at the Routt County Justice
Center, 1955 Shield Drive, Steamboat Springs, Colorado, upon application for an
order to pool all
nonconsenting interests in a 1280-acre drilling and
spacing unit established for Sections 24 and 25, Township 7 North, Range 62
West, 6th P.M., to accommodate the horizontal Crow Valley 7-62-24-2H
Well, for the development and operation of the Niobrara Formation.
FINDINGS
The Commission finds as follows:
1.
Marathon Oil Company (“Marathon”
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. Sections 24 and 25,
Township 7 North, Range 62 West, 6th P.M. are
subject to Rule 318A for the Niobrara Formation.
5.
On May 29, 2012, the Commission entered Order Nos. 407-642 & 535-163
which, among other things, amended Commission Order No. 407-559 to vacate the
spacing for Section 24, Township 7 North, Range 62 West, 6th P.M. and
amended Commission Order No. 407-501 to vacate the spacing for Section 25,
Township 7 North, Range 62 West, 6th P.M. In Order Nos. 407-642 & 535-163, the
Commission also established a 1280-acre drilling and spacing unit and approved
up to four horizontal wells within the unit, for the production of oil, gas and
associated hydrocarbons from the Niobrara Formation, with the treated interval
of any horizontal well to be no closer than 460 feet from the boundaries of the
unit, without exception being granted by the Director.
Sections 24 and 25, Township 7 North, Range 62 West, 6th P.M. are
subject to this Order for the Niobrara Formation.
6.
On August 1, 2012, Marathon, by its
attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified
application (“Application”) for an order to pool all nonconsenting interests in
an approximate 1280-acre drilling and spacing unit for the below-described lands
(“Application Lands”), 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
Crow Valley
7-62-24-2H Well (API No. 05-123-35246) (“Well”), and to subject any nonconsenting interests to the cost recovery provisions of
C.R.S. § 34-60-116(7):
Township 7 North, Range 62 West, 6th P.M.
Section 24: All
Section 25: All
7.
On September 18, 2012, Marathon, 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.
8.
Land Testimony and exhibits submitted in support of the Application by
Collin Hoover, Landman for Marathon, 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 Wells. 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 October 1, 2012 hearing date.
9.
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.
10.
Noble agreed to be bound by oral order of the Commission.
11.
Based on the facts stated in the verified Application, having received no
protests, and based on the Hearings Officer review of the Application under Rule
511., the Commission should enter an order to pool all
nonconsenting interests in a 1280-acre drilling and
spacing unit established for Sections 24 and 25, Township 7 North, Range 62
West, 6th P.M., to accommodate the horizontal Crow Valley 7-62-24-2H
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 an approximate
1280-acre drilling and spacing unit established for the below-described lands,
are hereby pooled, 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
Crow Valley 7-62-24-2H Well:
Township 7 North, Range 62 West, 6th P.M.
Section 24: All
Section 25: All
2.
The production obtained from the drilling and 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 drilling and spacing unit; each owner of an interest in the drilling and
spacing unit shall be entitled to receive its share of the production of the
Well located on the drilling and spacing unit applicable to its interest in the
drilling and 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 drilling and 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 drilling and 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 drilling and
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 ____ day of October,
2012, as of October 1, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary