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 AN
APPROXIMATE 640-ACRE DESIGNATED WELLBORE SPACING UNIT ESTABLISHED FOR SECTIONS
17 AND 20, TOWNSHIP 1 NORTH, RANGE 67 WEST, 6TH P.M. FOR THE CODELL
FORMATION, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 407
DOCKET NO. 1306-UP-100
ORDER NO. 407-802 |
REPORT OF THE COMMISSION
The Commission heard this matter on June 17, 2013, at the Two Rivers Convention
Center, 159 Main Street, Grand Junction, Colorado, upon application for an order
to pool all interests in an approximate 640-acre designated wellbore spacing
unit established for Sections 17 and 20,
Township 1 North, Range 67 West, 6th P.M., to accommodate the
Griffiths 36C-20HZ Well for the development and operation of the Codell
Formation.
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 17 and 20, Township 1 North, Range
67 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 17 and 20, Township 1 North, Range 67 West, 6th P.M. are
subject to this Order for the Codell Formation.
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 17 and 20, Township 1 North, Range
67 West, 6th P.M. are subject to Rule 318A for the Codell Formation.
7.
On April 18, 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 an
approximate 640-acre designated wellbore spacing unit established for the
below-described lands (“Application Lands”), for the development and operation
of the Codell 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 Griffiths
36C-20HZ Well (API No. 05-123-36622)
(“Well”), and to subject any nonconsenting interests to the cost recovery
provisions of C.R.S. §34-60-116(7):
Township 1 North, Range 67 West, 6th
P.M.
Section 17: E½ W½, W½ E½
Section 20: E½ W½, W½ E½
8.
On June 4, 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
Jason Rayburn, Landman for Kerr-McGee, showed that all 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 June 17, 2013 hearing
date.
10.
Further land testimony stated that certain royalty owners’ oil and gas lease
pre-dates the widespread use of horizontal drilling and did not contemplate
formation of large spacing units to accommodate long lateral wellbores. Kerr-McGee contacted each of its
royalty owners, or has made diligent efforts to do so, to obtain their consent
in the wellbore spacing unit for purposes of royalty payments. Despite such diligent efforts,
Kerr-Gee has not been able to contact some of these individuals, or has received
no response from them. None of the
royalty owners protested Kerr-McGee's Application.
11.
Land testimony showed the Applicant complied with the requirements of Rule 530,
and is entitled to the cost recovery provisions pursuant to §34-60-116(7),
C.R.S., for the Griffiths 36C-20HZ Well, only.
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.
Kerr-McGee 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 an
approximate 640-acre designated wellbore spacing unit established for
Sections 17 and 20, Township 1 North, Range
67 West, 6th P.M., to accommodate the Griffiths 36C-20HZ Well
for the development and operation of the Codell Formation.
ORDER
IT IS HEREBY ORDERED:
1.
Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil
and Gas Conservation Act, all interests in the approximate 640-acre designated
wellbore spacing unit established
for the below-described lands, are hereby pooled, for the development and
operation of the Codell 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) are first incurred for the drilling of the Griffiths
36C-20HZ Well:
Township 1 North, Range 67 West, 6th
P.M.
Section 17: E½ W½, W½ E½
Section 20: E½ W½, W½ 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.
8.
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:
1.
The provisions contained in the above order shall become effective
immediately.
2.
The Commission expressly reserves its right, after notice and hearing, to
alter, amend or repeal any and/or all of the above orders.
3.
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.
4.
An application for reconsideration by the Commission of this Order is not
required prior to the filing for judicial review.
ENTERED THIS
8th
day of July, 2013, as of June 17, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary