BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN HEREFORD FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 421

 

ORDER NO. 421-3

 

 

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on October 21, 2010, West Garfield Campus, Colorado Mountain College, 3695 Airport Road, Rifle, Colorado, for an order to establish 83 approximate 640-acre drilling and spacing units for certain lands in Townships 10, 11, and 12 North, Ranges 61, 62, 63, and 64 West, 6th P.M. (more particularly described below), for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, and allow one horizontal well in each of the units, with the horizontal leg and terminus of the wellbore located not closer than 600 feet from the boundaries of the unit. 

 

FINDINGS

 

The Commission finds as follows:

 

1.  EOG Resources, Inc. (“EOG” 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.  Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  The below-listed lands are subject to this Rule:

 

Township 10 North, Range 62 West, 6th P.M.

Sections 2 through 9:   All

 

Township 10 North, Range 63 West, 6th P.M.

Sections 1 through 5, 10, 11, 14 through 16:   All

 

Township 11 North, Range 62 West, 6th P.M.

Sections 1 through 4, 9 through 16, 21 through 28, 31 through 36:   All

 

Township 11 North, Range 63 West, 6th P.M.

Sections 6, 7, 18, 19, 30 through 36:   All

 

Township 11 North, Range 64 West, 6th P.M.

Sections 1, 11 through 16, 22 through 25, 35, 36:   All

 

Township 12 North, Range 61 West, 6th P.M.

Section 31:   All

 

Township 12 North, Range 62 West, 6th P.M.

Sections 23 through 25, 33 through 36:   All

 

Township 12 North, Range 63 West, 6th P.M.

Sections 19, 20, 29 through 32:   All

 

Township 12 North, Range 64 West, 6th P.M.

Sections 23 through 25:   All

 

Weld County, Colorado

 

5.  On September 1, 2010, EOG, by its attorney, filed with the Commission a verified application to establish 85 approximate 640-acre drilling and spacing units for the below-listed lands, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, and allow one horizontal well in each of the units, with a bottomhole location no closer than 600 feet from the boundaries of the unit:

 

Township 10 North, Range 62 West, 6th P.M.

Sections 2 through 9:   All

 

Township 10 North, Range 63 West, 6th P.M.

Sections 1 through 5, 10, 11, 14 through 16:   All

 

Township 11 North, Range 62 West, 6th P.M.

Sections 1 through 4, 9 through 16, 21 through 28, 31 through 36:   All

 

Township 11 North, Range 63 West, 6th P.M.

Sections 6, 7, 18, 19, 30 through 36:   All

 

Township 11 North, Range 64 West, 6th P.M.

Sections 1, 11 through 16, 22 through 25, 35, 36:   All

 

Township 12 North, Range 61 West, 6th P.M.

Section 31:   All

 

Township 12 North, Range 62 West, 6th P.M.

Sections 23 through 25, 33 through 36:   All

 

Township 12 North, Range 63 West, 6th P.M.

Sections 19, 20, 29 through 32:   All

 

Township 12 North, Range 64 West, 6th P.M.

Sections 23 through 25:   All

 

Weld County, Colorado

 

6.  On October 5, 2010, Foree Oil Company submitted a protest requesting that Section 1, Township 10 North, Range 63 West, 6th P.M., Weld County, Colorado be excluded from the application.  On October 6, 2010, Energy Oil & Gas, Inc. and Cindy McCollum (through Energy Oil & Gas, Inc.), submitted a protest also requesting that Section 1, Township 10 North, Range 63 West, 6th P.M., Weld County, Colorado be excluded from the application.  On October 6, 2010, EOG, through its counsel, informed the Commission and the aforementioned parties that it agreed to withdraw Section 1, Township 10 North, Range 63 West, 6th P.M., Weld County, Colorado from the application and requested that the protests be immediately withdrawn.  The protests were withdrawn on October 6, 2010. 

 

7.  Further, on October 14, 2010, Applicant also withdrew and excluded from the application Section 1, Township 11 North, Range 64 West, 6th P.M.

 

                        8.  EOG’s amended application includes the below-listed lands (“Application Lands,” 83 approximate 640-acre sections):

 

Township 10 North, Range 62 West, 6th P.M.

Sections 2 through 9:   All

 

Township 10 North, Range 63 West, 6th P.M.

Sections 2 through 5, 10, 11, 14 through 16:   All

 

Township 11 North, Range 62 West, 6th P.M.

Sections 1 through 4, 9 through 16, 21 through 28, 31 through 36:   All

 

Township 11 North, Range 63 West, 6th P.M.

Sections 6, 7, 18, 19, 30 through 36:   All

 

Township 11 North, Range 64 West, 6th P.M.

Sections 11 through 16, 22 through 25, 35, 36:   All

 

Township 12 North, Range 61 West, 6th P.M.

Section 31:   All

 

Township 12 North, Range 62 West, 6th P.M.

Sections 23 through 25, 33 through 36:   All

 

Township 12 North, Range 63 West, 6th P.M.

Sections 19, 20, 29 through 32:   All

 

Township 12 North, Range 64 West, 6th P.M.

Sections 23 through 25:   All

 

Weld County, Colorado

 

9.  EOG’s verified application stated that its request was for an order to expand Order No. 421-1 to include the above-described lands. By Order No. 421-1 (issued February 22, 2010), the Commission established 58 approximate 640-acre drilling and spacing units in Townships 11 and 12 North, Ranges 62 and 62 West, 6th P.M. for the production of oil, gas and associated hydrocarbons from the Niobrara Formation with no more than one horizontal well to be drilled in each unit.  Order No. 421-1 further ordered that the surface location for each horizontal well shall be located anywhere within the unit, provided that the horizontal leg into the Niobrara Formation shall not be closer than 600 feet to the outside boundary of the drilling unit and the terminus of the horizontal leg shall not be any closer than 600 feet to the outside boundary of the drilling and spacing unit without exception being granted by the Director of the Commission.

 

10.  On October 7, 2010, EOG, by its attorney, 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.

 

11.  On October 14, 2010, EOG participated in an administrative hearing with Commission staff and presented live testimony regarding the application and exhibits submitted in support of the application. 

 

12.  Testimony and exhibits submitted by Steve Smith, Landman for EOG, in support of the application showed that EOG has either fully or partially leased the mineral interests in the Application Lands with the exception of eight tracts.  The leasehold interests in six sections (Sections 35 and 36, Township 12 North, Range 62 West, 6th P.M. and Sections 1, 2, 13, and 24 of Township 11 North, Range 62 West, 6th P.M.) are held by Noble Energy, Inc (“Noble”).  By letter dated October 6, 2010, Noble filed a letter in support of and consent to the application.  Applicant does not hold a leasehold interest in the remaining two sections in the Application Lands (Sections 20 and 32, Township 12 North, Range 63 West, 6th P.M.)  However, EOG requests approval of 640-acre drilling and spacing units for these lands adjacent to lands in which it has a mineral interest, similar to Rubicon’s approved application (Docket No. 1007-SP-20) for drilling and spacing units in lands where Rubicon did not have a mineral interest.  A majority of the surface and mineral ownership in the Application Lands is owned in fee.

 

13.  Geological testimony and exhibits submitted by John H. Melby, Petroleum Geologist for EOG, in support of the application indicated that the Niobrara Formation in this area is defined as the stratigraphic equivalent of the interval between 7,200 feet and 7,492 feet as found in the LaMotta 5-01 M Well located in the SW¼ NE¼ of Section 1, Township 11 North, Range  63 West, 6th P.M. and that the Niobrara Formation is a common source of supply underlying the Application Lands.  The Niobrara Formation is a sequence of chalks, marls and limestones that were deposited in the Western Interior Seaway during Cretaceous time. The seaway was vast in extent and covered much of North America from the Gulf of Mexico to the Arctic Ocean. The rocks were deposited as deep-water sediments and underlie most of the Denver-Julesberg Basin in parts of northeastern Colorado, southeastern Wyoming and southwestern Nebraska.  A subsea structure map constructed on the top of the Niobrara Formation indicated regional dip is approximately 40-50 feet/mile (.5 degrees) to the west.  An isopach map of the total Niobrara Formation showed total thickness ranges from approximately 265 feet to 315 feet under the Application Lands with the thickest area in the southern portion of the Application Lands.  The type log for the Niobrara Formation (using an array induction tool (“AIT”)) shows that it consists of two members, the Smoky Hill Chalk and the Ft. Hayes Limestone.  A stratigraphic cross-section, zig-zagging across the Application Lands, showed the Niobrara Formation to be consistent, continuous, and underlying all of the Application Lands as a common source of supply.

 

14.  Testimony and exhibits submitted by Osman Apaydin, Reservoir Engineer for EOG, in support of the application showed that EOG has drilled and completed several horizontal wells on lands near the Application Lands.  EOG drilled and stimulated the first exploratory well near the Application Lands, the Jake 2-01H, in the 3rd quarter of 2009 with a 3,800-foot lateral.  It delivered a maximum rate of 1,588 barrels of oil per day (“bbl/d”) and has flowed over 81,000 barrels to date.  Since the Jake 2-01H Well, EOG has drilled or is drilling approximately 20 additional wells. Twelve wells are completed and producing, including the Jake 2-01H Well.  The second horizontal well in the area of the Application Lands was the Elmer 8-31H, which had a maximum rate of 730 bbl/d. The Elmer has a 2,000-foot lateral and began producing in March 2010 and has produced 34,000 barrels of oil to date.  The third horizontal well, the Red Poll 10-16H, was tested as an unstimulated open-hole. This well came on flowing at a maximum rate of 1,100 bbl/d and has produced 38,000 barrels of oil to date.  The fourth horizontal well, the Critter Creek 2-3H, began producing in May 2010, delivered a maximum rate of 570 bbl/d at managed restricted rates, and has produced 48,500 barrels of oil to date.  In June 2010, the initial production of the Critter Creek 4-09H Well was measured at a maximum of 600 bb/d at managed restricted rate, and has produced 59,500 barrels of oil to date.

 

15.  Testimony and exhibits submitted by Mr. Apaydin further show that oil production from vertical wells in the Niobrara Formation is highly variable.  Besides much poorer wells, the only vertical well that has significant production in the area is the Kern 43-33 Well. Applicant’s studies reflect that the estimated ultimate recovery (“EUR”) is approximately 38,450 barrels of oil for this well and the original oil in place is 769,000 barrels.  The corresponding drainage area for the vertical well is 23 acres.  The EUR estimate for EOG’s currently drilled horizontal wells, with limited production history, varies between 155,000 to 245,000 barrels of oil. The estimated original oil in place is between 3,100,000 and 4,900,000 barrels.  This range yields estimated drainage areas between 110 acres to 174 acres.  EOG also examined original oil in place, EUR and porosity and calculated the drainage area for a number of wells from the Silo Field, an analogous major field producing from Niobrara Formation, 25 miles north.  Approximately 10,000,000 barrels of oil have been produced from the Silo Field since the early 1980’s from vertical and horizontal wells.  EUR and drainage area estimates for some of the high and low productive wells are also included in the Applicant’s analysis.  Drainage area in the Silo Field varies from 35 to 492 Acres.

 

16.  The Commission took administrative notice of the testimony and exhibits presented in support of Order No. 421-1.

 

17.  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 gas, and will not violate correlative rights.

 

18.  EOG agreed to be bound by oral order of the Commission. 

 

19.  Based on the facts stated in the verified application, the protests having been withdrawn, and testimony and exhibits having been considered by the Hearing Officer pursuant to Rule 511.c., the Commission should enter an order to establish 83 approximate 640-acre drilling and spacing units for the Application Lands, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, with no more than one horizontal well to be drilled in each unit from a surface location anywhere in the unit with the horizontal leg and bottom-hole location to be not closer than 600 feet from the boundaries of each unit. 

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that the following 83 approximate 640-acre drilling and spacing units for the production of oil, gas and associate hydrocarbons from the Niobrara Formation are hereby established with no more than one (1) horizontal well to be located in each of the units:

 

Township 10 North, Range 62 West, 6th P.M.

Sections 2 through 9:   All

 

Township 10 North, Range 63 West, 6th P.M.

Sections 2 through 5, 10, 11, 14 through 16:   All

 

Township 11 North, Range 62 West, 6th P.M.

Sections 1 through 4, 9 through 16, 21 through 28, 31 through 36:   All

 

Township 11 North, Range 63 West, 6th P.M.

Sections 6, 7, 18, 19, 30 through 36:   All

 

Township 11 North, Range 64 West, 6th P.M.

Sections 11 through 16, 22 through 25, 35, 36:   All

 

Township 12 North, Range 61 West, 6th P.M.

Section 31:   All

 

Township 12 North, Range 62 West, 6th P.M.

Sections 23 through 25, 33 through 36:   All

 

Township 12 North, Range 63 West, 6th P.M.

Sections 19, 20, 29 through 32:   All

 

Township 12 North, Range 64 West, 6th P.M.

Sections 23 through 25:   All

 

Weld County, Colorado

 

The well location rules of Order No. 421-1 shall apply to the above-described drilling and spacing units, i.e., the surface location for each horizontal well shall be located anywhere upon the drilling and spacing unit, provided that the horizontal leg into the Niobrara Formation shall not be closer than 600 feet to the outside boundary of the drilling unit and the terminus of the horizontal leg shall not be any closer than 600 feet to the outside boundary of the drilling and spacing unit without exception being granted by the Director of the Oil and Gas Conservation Commission.  

 

IT IS FURTHER ORDERED, that the provisions contained in the above order, shall become effective forthwith.

           

                        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 thirty (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 2010, as of October 21, 2010.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Carol Harmon, Secretary

 

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

November 22, 2010