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 FOR THE CODELL AND NIOBRARA FORMATIONS, HEREFORD FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 421

 

DOCKET NO. 170100078

 

TYPE: POOLING

 

ORDER NO. 421-87

REPORT OF THE COMMISSION

 

The Commission heard this matter on March 20, 2017, at the Larimer County Conference Center at The Ranch, First National Bank Building, 5280 Arena Circle, Loveland, Colorado, upon application for an order to pool all interests within an approximate 1,280-acre drilling and spacing unit established for Sections 22 and 27, Township 12 North, Range 63 West, 6th P.M., for the development and operation of the Codell Formation, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Fox Creek 223-3422H Well.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Fifth Creek Energy Operating Company, LLC (Operator No. 10629) (“Fifth Creek” 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 February 22, 2010, the Commission entered Order 421-1 which, among other things, established 58 approximate 640-acre drilling and spacing units, including the Application Lands, approving no more than one horizontal well within each of the units, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

5.         On January 7, 2013, the Commission entered Order No. 421-17 which, among other things, vacated two approximate 640-acre drilling and spacing units established by Order No. 421-1 for Sections 22 and 27, Township 12 North, Range 63 West, 6th P.M., and establish an approximate 1265-acre stand-up exploratory drilling and spacing unit for Sections 22 and 27, Township 12 North, Range 63 West, 6th P.M., and approve up to ten wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

6.         On January 26, 2015 (amended April 13, 2015), the Commission entered Order No. 421-57 which, among other things, established 11 approximate 1280-acre drilling and spacing units, including the Application Lands, approving one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Codell Formation.

 

5.         On July 20, 2015, the Commission entered Order No. 421-64 which, among other things, modified Order No. 421-57 to allow for a total of up to six horizontal wells within each unit, including the Application Lands, for the production of oil, gas and associated hydrocarbons from the Codell Formation, with the productive interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director.

 

6.         On December 1, 2016 (Amended January 19, 2017), Fifth Creek, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 1,280-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation of the Codell and Niobrara Formations, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that the costs specified in § 34-60-116(7)(b), C.R.S., are first incurred for the drilling of the Fox Creek 223-3422H Well (API No. 05-123-42580) (“Well”):

 

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

Section 22:      All

Section 27:      All

 

7.         On January 9, 2017, Applicant, 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.

 

8.         On January 13, 2017, Kaiser-Francis Oil Company, (“Kaiser-Francis”), by its attorneys, filed a protest to the Application.  The protest was withdrawn by Kaiser-Francis on February 14, 2017.

9.         Land testimony and exhibits submitted in support of the Application by Tricia Di Grappa, Land Manager for Fifth Creek, 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 35 days prior to the March 20, 2017 hearing date.

                                                 

10.       Land testimony also showed that 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 Fox Creek 223-3422H Well, but did not provide testimony for any subsequent wells.

 

11.       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.

 

12.       Fifth Creek agreed to be bound by oral order of the Commission.

 

13.       Based on the facts stated in the verified Application, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all interests within an approximate 1,280-acre drilling and spacing unit established for Sections 22 and 27, Township 12 North, Range 63 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Fox Creek 223-3422H 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 an approximate 1,280-acre drilling and spacing unit 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 §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the Fox Creek 223-3422H Well (API No. 05-123-42580)(“Well”):

 

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

Section 22:      All

Section 27:      All

 

2.         The production obtained from the drilling and 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 drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

 

3.         The nonconsenting 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 drilling and 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 drilling and 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 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 drilling and 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:

 

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 35 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 27th day of March, 2017, as of March 20, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Peter Gowen, Acting Secretary