BEFORE THE OIL AND
GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE APPLICATION OF ENCANA OIL & GAS (USA) INC. FOR AN ORDER TO POOL ALL INTERESTS IN AN APPROXIMATE 160-ACRE DESIGNATED WELLBORE SPACING UNIT ESTABLISHED FOR SECTION 4, TOWNSHIP 3 NORTH, RANGE 68 WEST, 6TH P.M., FOR THE J SAND, CODELL AND NIOBRARA FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO |
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CAUSE NO. 232 & 407
DOCKET NO. 1303-UP-65
ORDER NO. 232-349 & 407-849 |
REPORT OF THE COMMISSION
The Commission heard this matter on September 16, 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 an approximate 160-acre designated wellbore spacing unit established for Section 4, Township 3 North, Range 68 West, 6th P.M., to accommodate the Peppler Farms 6-4-4 Well, for the development and operation of the J Sand, Codell and Niobrara Formations.
FINDINGS
The Commission finds as follows:
1. Encana Oil and Gas (USA) Inc. (“Encana” 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 October 19, 1981, the Commission entered Order No. 232-23 which, among other things, amended and made subject to Order No. 232-20, multiple 320-acre drilling and spacing units. Additionally, Order No. 232-23 approved up to two wells within each unit, for the production of oil, gas and associated hydrocarbons from the J Sand Formation. Section 4, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the J Sand Formation.
5. 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. Section 4, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the Codell Formation.
6. 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. Section 4, Township 3 North, Range 68 West, 6th P.M. is subject to this Order for the Codell and Niobrara Formations.
7. 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. Section 4, Township 3 North, Range 68 West, 6th P.M. is subject to Rule 318A for the J Sand, Codell and Niobrara Formations.
8. On January 24, 2013, Encana, 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 160-acre designated wellbore spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the J Sand, 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) were first incurred for the drilling of the Peppler Farms 6-4-4 Well (API No. 05-123-34620) (“Well”), and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):
Township 3 North, Range 68 West, 6th P.M.
Section 4: S½ NE¼, N½ SE¼
9. On February 7, 2013, Joe Freeman, LLC (“Freeman”) filed a letter with supporting documentation, requesting that both Joe Freeman, LLC and Triton Energy Holdings, LLC not be considered non-consenting parties.
10. On February 19, 2013 WYOTEX Oil Company (“WYOTEX”) filed a statement objecting to the Application.
11. On March 6, 2013, Triton Energy Holdings (”TEH”) filed a Protest in the matter alleging that waste will be caused, correlative rights will be adversely affected, or that the operator is not an “owner”.
12. On March 8, 2013, Apollo Operating (“Apollo”), filed a Protest in the matter alleging that Apollo and Encana were engaged in good faith negotiations regarding the election to participate, and requested a continuance to allow more time to reach an agreement.
13. On March 11, 2013, Encana requested and Commission staff granted, a continuance to the May 6, 2013 hearing.
14. On April 23, 2013, Encana requested and Commission staff granted, a continuance to the June 17, 2013 hearing.
15. On June 7, 2013, Encana requested and Commission staff granted, a continuance to the July 29, 2013 hearing.
16. On July 16, 2013, Encana, 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.
17. On July 24, 2013, Encana requested and Commission staff granted, a continuance to the September 16, 2013 hearing.
18. On September 3, 2013, a Prehearing Conference was scheduled for September 9, 2013 at 10:00 a.m. because the COGCC did not have documentation of a withdrawal or other correspondence indicating resolution of the above referenced four protests or letters of objection.
19. On September 3, 2013, a Notice of Prehearing Conference was sent via certified mail and by e-mail to Freeman, WYOTEX, TEH and Apollo. The parties were notified that in accordance with Rule 527.f., “Failure of any person to attend the prehearing conference, after being notified of the date, time, and place shall be a waiver of any objection and shall be deemed to be a concurrence to any agreement reached, or to any order or ruling made at the prehearing conference.” Freeman and WYOTEX did not respond. TEH did not respond, but did affirmatively decline to attend the PHC.
20. On September 3, 2013, Jesse L. White, Operations Manager for Apollo, withdrew its Protest in the matter.
21. On Monday, September 9, 2013 a prehearing conference (“PHC”) was held in the matter. Attorneys for Encana were present. Freeman, WYOTEX and TEH did not attend the PHC and made no contact with the Hearing Officer prior to the PHC. In accordance with Rule 527.f., the protests and/or letters of objection filed by Freeman, WYOTEX and TEH were considered Rule 510 statements for inclusion into the record.
22. Land testimony and exhibits submitted in support of the Application by Jack Croom, Land Negotiator for Encana, 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 September 16, 2013 hearing date.
23. 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 Peppler Farms 6-4-4 Well, but did not provide testimony for any subsequent wells.
24. 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.
25. Encana agreed to be bound by oral order of the Commission.
26. Based on the facts stated in the verified Application, having resolved all 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 160-acre designated wellbore spacing unit established for Section 4, Township 3 North, Range 68 West, 6th P.M., to accommodate the Peppler Farms 6-4-4 Well, for the development and operation of the J Sand, 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 the approximate 160-acre designated wellbore spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the J Sand, 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 Peppler Farms 6-4-4 Well:
Township 3 North, Range 68 West, 6th P.M.
Section 4: S½ NE¼, N½ SE¼
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 11th day of October, 2013, as of September 16, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary