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 TO POOL ALL INTERESTS IN EIGHT APPROXIMATE 160 TO 320-ACRE DESIGNATED
WELLBORE SPACING UNITS ESTABLISHED FOR SECTIONS 14 AND 15, TOWNSHIP 2 NORTH,
RANGE 66 WEST, 6TH P.M., FOR THE CODELL AND/OR NIOBRARA FORMATIONS,
WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1303-UP-64
ORDER NO. 407-775 |
REPORT OF THE COMMISSION
The Commission heard this matter on March 25, 2013, 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 eight
approximate 160 to 320-acre designated wellbore spacing units established for
Sections 14 and 15, Township 2 North, Range 66 West, 6th P.M., to
accommodate the Turkey Springs 4C-14HZ Well, the Turkey Springs 4N-14HZ Well,
the Turkey Springs 30N-14HZ Well, the Turkey Springs 29N-14HZ Well, the Turkey
Springs 3C-14HZ Well, the Turkey Springs 3N-14HZ Well, the Turkey Springs
28C-14HZ Well, and the Turkey Springs 28N-14HZ Well, for the development and
operation of the Codell and/or 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 entered 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 14 and
15, Township 2 North, Range 66 West, 6th P.M. are subject to this
Order for the Codell Formation.
5.
On February 19, 1992, the Commission entered 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-Niobrara Formation, with the permitted well locations in accordance
with the provisions of Order No. 407-1.
Sections 14 and 15, Township 2 North, Range 66 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 14 and 15, Township 2
North, Range 66 West, 6th P.M. are subject to Rule 318A for the
Codell and Niobrara Formations.
7.
On January 24, 2013, 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 pool all interests in eight
approximate 160 to 320-acre designated wellbore spacing units established for
the below-described lands (“Application Lands”), for the development and
operation of the Codell and/or 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 Turkey
Springs 4C-14HZ Well (API No. 05-123-36698), the Turkey Springs 4N-14HZ Well
(API No. 05-123-36697), the Turkey Springs 30N-14HZ Well (API No. 05-123-36699),
the Turkey Springs 29N-14HZ Well (API No. 05-123-36690), the Turkey Springs
3C-14HZ Well (API No. 05-123-36692), the Turkey Springs 3N-14HZ Well (API No.
05-123-36691), the Turkey Springs 28C-14HZ Well (API No. 05-123-36815), and the
Turkey Springs 28N-14HZ Well (API No. 05-123-36810) (“Wells”), and to subject
any nonconsenting interests to the cost recovery provisions of C.R.S.
§34-60-116(7):
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
Section 15: E½ E½
(WSU #1, 320-acres, Turkey Springs 4C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
(WSU #2, 160-acres, Turkey Springs 4N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
Section 15: E½ E½
(WSU #3, 320-acres, Turkey Springs 30N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½
(WSU #4, 320-acres, Turkey Springs 29N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½
(WSU #5, 320-acres, Turkey Springs 3C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½
(WSU #6, 160-acres, Turkey Springs 3N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½,
W½ E½ (WSU #7, 320-acres, Turkey Springs 28C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½,
W½ E½ (WSU #8, 320-acres, Turkey Springs 28N-14HZ).
8.
On March 12, 2013, 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.
Land testimony and exhibits submitted in support of the Application by
Thomas Yaley, Landman for KM, showed that all nonconsenting interest owners were
notified of the Application and received an 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 March 25, 2013
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 eight
approximate 160 to 320-acre designated wellbore spacing units established for
Sections 14 and 15, Township 2 North, Range 66 West, 6th P.M., to
accommodate the Turkey Springs 4C-14HZ Well, the Turkey Springs 4N-14HZ Well,
the Turkey Springs 30N-14HZ Well, the Turkey Springs 29N-14HZ Well, the Turkey
Springs 3C-14HZ Well, the Turkey Springs 3N-14HZ Well, the Turkey Springs
28C-14HZ Well, and the Turkey Springs 28N-14HZ Well, for the development and
operation of the Codell and/or 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 eight approximate 160 to 320-acre
designated wellbore spacing units established for the below-described lands, are
hereby pooled, for the development and operation of the Codell and/or 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) are first
incurred for the drilling of the Turkey Springs 4C-14HZ Well, the Turkey Springs
4N-14HZ Well, the Turkey Springs 30N-14HZ Well, the Turkey Springs 29N-14HZ
Well, the Turkey Springs 3C-14HZ Well, the Turkey Springs 3N-14HZ Well, the
Turkey Springs 28C-14HZ Well, and the Turkey Springs 28N-14HZ Well:
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
Section 15: E½ E½
(WSU #1, 320-acres, Turkey Springs 4C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
(WSU #2, 160-acres, Turkey Springs 4N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½ W½
Section 15: E½ E½
(WSU #3, 320-acres, Turkey Springs 30N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½
(WSU #4, 320-acres, Turkey Springs 29N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: W½
(WSU #5, 320-acres, Turkey Springs 3C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½
(WSU #6, 160-acres, Turkey Springs 3N-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½,
W½ E½ (WSU #7, 320-acres, Turkey Springs 28C-14HZ);
Township 2 North, Range 66 West, 6th P.M.
Section 14: E½ W½,
W½ E½ (WSU #8, 320-acres, Turkey Springs 28N-14HZ).
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
5th day
of April, 2013, as of March 25, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary