BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE APPLICATION OF KERR-MCGEE OIL & GAS ONSHORE LP FOR AN
ORDER TO POOL ALL INTERESTS IN THREE APPROXIMATE 280-ACRE TO 560-ACRE DESIGNATED
WELLBORE SPACING UNITS ESTABLISHED FOR SECTIONS 20, 29 AND 32, TOWNSHIP 1 NORTH,
RANGE 67 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. 1306-UP-110
ORDER NO. 407-810 |
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 each of three
approximate 280-acre to 560-acre designated
wellbore spacing units established for Sections 20, 29 and 32, Township 1
North, Range 67 West, 6th P.M., to accommodate
the Howard 29C-29HZ Well, the Howard 3C-29HZ
Well, and the Howard 28N-29HZ 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 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 20, 29 and 32, 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 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 20, 29 and 32, Township 1 North, Range 67 West, 6th
P.M. are subject to this Order for the Codell and Niobrara Formations.
7.
On April 17, 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
each of five approximate 280-acre to
560-acre designated wellbore spacing units established for the below-described
lands (“Application Lands”), for the development and operation of the Codell and
Niobrara Formations, as applicable, 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 Howard 29N-29HZ
Well, the Howard 29C-29HZ Well, the Howard 3N-29HZ Well, the Howard 3C-29HZ
Well, and the Howard 28N-29HZ Well (“Wells”) and any subsequent operations to
develop the Codell and/or Niobrara Formations, and to subject any nonconsenting
interests to the cost recovery provisions of C.R.S. §34-60-116(7):
Howard 29N-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
S½ SW¼
(WSU#1 – 560-acres)
Section 29:
W½
Section 32:
NW¼
Howard 29C-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Codell Formation
Section 20:
S½ SW¼
(WSU#2 – 560-acres)
Section 29:
W½
Section 32:
NW¼
Howard 3N-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
SE¼ SW¼
(WSU#3 – 280-acres)
Section 29:
E½ W½
Section 32:
E½ NW¼
Howard 3C-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Codell Formation
Section 20:
SE¼ SW¼
(WSU#4 – 280-acres)
Section 29:
E½ W½
Section 32:
E½ NW¼
Howard 28N-29HZ
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
SW¼ SE¼, SE¼ SW¼
(WSU#5 – 560-acres)
Section 29:
W½ E½, E½ W½
Section 32:
W½ NE¼, E½ NW¼
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.
On June 4, 2013, Kerr-McGee, by its Rule 511 testimony, withdrew the two
below-described Wellbore Spacing Units from the Application Lands:
Howard 29N-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
S½ SW¼
(WSU#1 – 560-acres)
Section 29:
W½
Section 32:
NW¼
Howard 3N-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
SE¼ SW¼
(WSU#3 – 280-acres)
Section 29:
E½ W½
Section 32:
E½ NW¼
10.
Land testimony and exhibits submitted in support of the Application by Gordon
Palmer, Staff Landman for Kerr-McGee, showed that all owners were notified of
the Application at least 30 days prior to the June 17, 2013 hearing date.
11.
Further land testimony stated that certain royalty owners have not agreed
to participate in the Wells. These
parties' 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 these royalty owners, or has made diligent efforts to do so,
to obtain their consent to participate in the wellbore spacing units 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 identified
above has protested Kerr-McGee's Application or objected to participating in the
Wells.
12.
Commission Rule 530 does not apply as there are no working interest owners or
unleased mineral interest owners subject to Kerr-McGee's pending Application.
13. 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.
14.
Kerr-McGee agreed to be bound by oral
order of the Commission.
15.
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 each of three approximate
280-acre to 560-acre designated wellbore spacing units established for
Sections 20, 29 and 32, Township 1 North, Range 67 West, 6th P.M., to
accommodate the Howard 29C-29HZ Well, the
Howard 3C-29HZ Well, and the Howard 28N-29HZ Well, for the development and
operation of the Codell and Niobrara Formations.
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 three approximate 280-acre to
560-acre designated wellbore spacing units 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 any of the costs specified in C.R.S. §34-60-116(7)(b)(II) are
first incurred for the drilling of the
Howard 29C-29HZ Well, the Howard 3C-29HZ Well, and the Howard 28N-29HZ Well:
Howard 29C-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Codell Formation
Section 20:
S½ SW¼
(WSU#2 – 560-acres)
Section 29:
W½
Section 32:
NW¼
Howard 3C-29HZ:
Township 1 North, Range 67 West, 6th P.M.
Codell Formation
Section 20:
SE¼ SW¼
(WSU#4 – 280-acres)
Section 29:
E½ W½
Section 32:
E½ NW¼
Howard 28N-29HZ
Township 1 North, Range 67 West, 6th P.M.
Niobrara Formation
Section 20:
SW¼ SE¼, SE¼ SW¼
(WSU#5 – 560-acres)
Section 29:
W½ E½, E½ W½
Section 32:
W½ NE¼, E½ NW¼
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. Any party seeking the cost recovery
provisions of §34-60-116 (7), C.R.S., shall first comply with subsection (d) for
any subsequent well(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.
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