BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE APPLICATION OF KERR-MCGEE OIL & GAS ONSHORE LP FOR AN
ORDER MODIFYING ORDER NO. 407-543 AND POOLING ALL INTERESTS IN THE NIOBRARA
FORMATION, WATTENBERG FIELD, IN A DESIGNATED 320-ACRE WELLBORE SPACING UNIT
LOCATED IN SECTION 25, TOWNSHIP 3 NORTH, RANGE 66 WEST, 6TH P.M.,
WELD COUNTY, COLORADO |
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CAUSE NO. 407
ORDER NO. 407-724
DOCKET NO. 1210-UP-256 |
REPORT OF THE COMMISSION
The Commission heard this matter on November 15, 2012, at the office of the
Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver,
Colorado, upon application for an order to
modify Order No. 407-543 to add the Niobrara Formation to the Order, and to pool
all interests within an approximate 320-acre designated wellbore spacing unit
established for Section 25, Township
3 North, Range 66 West, 6th P.M. to accommodate the Camp
27C-25HZ 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 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, with the permitted well locations in accordance with the provisions
of Order No. 407-1. Section 25,
Township 3 North, Range 66 West, 6th P.M. is subject to this Order
for the Niobrara Formation.
5.
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. On December 5, 2005, Rule 318A was
amended 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 to, among other things, address
drilling of horizontal wells.
Section 25, Township 3 North, Range 66 West, 6th P.M. is subject to
this Order for the Niobrara Formation.
6.
On January 23, 2012, the Commission issued Order No. 407-543 which, among
other things, pooled all interests in an approximate 320-acre wellbore spacing
unit for the development and operation of the Codell Formation, effective as of
the earlier of the date of the Application (November 21, 2011) or the date that
the costs specified in C.R.S. §34-60-116(7)(b)(II) were first incurred for the
drilling of the Camp 27C-25HZ well on the Application Lands. Subsequent to the
issuance of Order No. 407-543, Applicant completed the Camp 27C-25HZ Well to the
Codell and Niobrara Formations.
7.
On July 31, 2012, Kerr-McGee, by its attorneys, filed with the Commission
pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to modify Order No. 407-543 to add
the Niobrara Formation to the Order, and to pool all interests within an
approximate 320-acre designated wellbore spacing unit established 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 Camp 27C-25HZ Well (API
No. 05-123-34481) (“Well”), 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 25: E½
8.
On September 18, 2012, Kerr-McGee requested, and Commission Staff
granted, a continuance to the November 15, 2012 hearing.
9.
On November 2, 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.
10.
Land Testimony and exhibits submitted in support of the Application by David
Verity, Project Land Advisor for Kerr-McGee, showed that all nonconsenting
interest owners were notified of the Application and received and Authority for
Expenditure ("AFE") and 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 November 15, 2012 hearing date.
11. 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.
12.
Kerr-McGee agreed to be bound by oral order of the Commission.
13.
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 amend Order No. 407-543 to include the Niobrara
Formation and pool all interests in the modified 320-acre designated wellbore
spacing unit for Section 25, Township 3 North, Range 66 West, 6th P.M. to
accommodate the Camp 27C-25HZ Well for the development and operation of the
Codell and Niobrara Formations.
ORDER
NOW, THEREFORE IT IS ORDERED, that pursuant to the provisions of §34-60-116,
C.R.S., as amended, of the Oil and Gas Conservation Act, Order No. 407-543 is
amended to include the Niobrara Formation.
IT IS FURTHER 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 an approximate 320-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 Camp 27C-25HZ Well.
Township 3 North, Range 66 West, 6th P.M.
Section 25: E½
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 _____ day of
November, 2012, as of November 15, 2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary