BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION ) CAUSE NO. 427
AND ESTABLISHMENT OF FIELD RULES TO )
GOVERN OPERATIONS IN A WILDCAT FIELD, ) ORDER NO. 427-4
MOFFAT COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 8:00 a.m. on July 15, 2008, in Ballroom B of the Brown Palace Hotel, 321 Seventeenth Street, Denver, Colorado, for an order to establish an 80-acre exploratory drilling and spacing unit consisting of the S½ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M., for the production of gas and associated hydrocarbons from the Lewis and Mesaverde Formations, and to pool all nonconsenting interests in said unit for the development and operation of said formations.
FINDINGS
The Commission finds as follows:
1. Yates Petroleum Corporation (“Yates”), 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 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. Section 31, Township 12 North, Range 90 West, 6th P.M. is subject to this Rule.
5. On April 23, 2008, Yates, by its attorney, filed with the Commission a verified application for an order to establish an 80-acre exploratory drilling and spacing unit for the below-listed lands for the production of gas and associated hydrocarbons from the Lewis and Mesaverde Formations, and to pool all nonconsenting interests in said lands for the development and operation of said formations:
Township 12 North, Range 90 West, 6th P.M.
Section 31: Lot 9 (41.19 acres), Lot 10 (39.59 acres) (Lots 9 and 10 being the approximate S½ NW¼)
6. On June 20, 2008, Yates, 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.
7. Testimony and exhibits submitted in support of the application showed that Yates intends to drill an exploratory well from a surface location in the SW¼ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M.
8. Testimony and exhibits submitted in support of the application showed a list of all consenting and nonconsenting parties within the proposed 80-acre exploratory drilling and spacing unit. Additional testimony indicated that there are approximately 41.19 acres for which a named mineral owner has elected not to sign a lease or to participate, such that 50.99% of the approximate 80.78 acres consisting of the S½ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M. remain unleased. Further testimony showed that the offers and the Authorizations for Expenditures were fair and reasonable, and similar to those prevailing in the area. Testimony showed the offers were sent via mail and all were received at least thirty (30) days prior to the July 15, 2008 hearing date.
9. Testimony and exhibits submitted in support of the application showed that the Lewis and Mesaverde Formations underlying the application lands are common sources of supply of gas and associated hydrocarbons.
10. Testimony and exhibits submitted in support of the application showed that, based on analysis of area wells and their associated production, the drainage areas may be between 45 to 50 acres. Additional testimony showed that estimated ultimate recovery is approximately 550 MMCF.
11. Testimony and exhibits submitted in support of the application showed that Yates has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.
12. The above-referenced testimony and exhibits show that the granting of 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.
13. Yates Petroleum Corporation 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.b., the Commission should enter an order to establish an 80-acre exploratory drilling and spacing unit consisting of the S½ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M., for the production of gas and associated hydrocarbons from the Lewis and Mesaverde Formations, and to pool all nonconsenting interests in said unit for the development and operation of the Lewis and Mesaverde Formations.
ORDER
NOW, THEREFORE IT IS ORDERED, that an 80-acre exploratory drilling and spacing unit consisting of the S½ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M., is hereby established for the production of gas and associated hydrocarbons from the Lewis and Mesaverde Formations.
IT IS FURTHER ORDERED, that, 1. Pursuant to the provisions of §34-60-116 C.R.S. as amended, of the Oil and Gas Conservation Act of the State of Colorado, all nonconsenting interests in the 80-acre exploratory drilling and spacing unit consisting of the S½ NW¼ of Section 31, Township 12 North, Range 90 West, 6th P.M. are hereby pooled for the development and operation of the Lewis and Mesaverde Formations.
2. The production obtained from each drilling 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 each drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling unit.
3. Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34‑60‑116 (7), C.R.S.
4. Any nonconsenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the 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, the nonconsenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.
5. The operator of any well drilled on the above-described unit shall furnish all 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.
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 July, 2008, as of July 15, 2008.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Patricia C. Beaver, Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
July 21, 2008