BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION ) CAUSE NO. 449
AND ESTABLISHMENT OF FIELD RULES )
TO GOVERN OPERATIONS IN THE ARAPAHOE FIELD, ) ORDER NO. 449-34
CHEYENNE COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on February 23, 2009, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to vacate the 80-acre drilling and spacing units established in Order No. 449-7 for Section 33, Township 14 South, Range 42 West, 6th P.M., place the lands under Rule 318.a., for the production of gas and associated hydrocarbons from the Morrow Formation, and lift the production restriction imposed on each well of 100 MCF per day per 80-acre unit for said Section 33.
FINDINGS
The Commission finds as follows:
1. Direct Petroleum Exploration (“Direct Petroleum”), 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 April 18, 1988, the Commission issued Order No. 449-7, which among other things, established 80-acre drilling and spacing units for certain lands, including Section 33, Township 14 South, Range 42 West, 6th P.M., for the production of gas and associated hydrocarbons from the Morrow Formation, and imposed on each well a 100 MCF per day per 80-acre unit production restriction for said Section 33.
5. On November 24, 2008, Direct Petroleum, by its representative, filed with the Commission a verified application to vacate the 80-acre drilling and spacing units established in Order No. 449-7 for Section 33, Township 14 South, Range 42 West, 6th P.M. and place the lands under the provisions of the Rules and Regulations of the Oil and Gas Conservation Commission, including Rule 318.a., which 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, for the production of gas and associated hydrocarbons from the Morrow Formation.
6. On December 31, 2008, Direct Petroleum, by its representative, made a verbal request to the Commission to continue this matter to the February hearing to amend the application to lift the production restriction previously imposed on the application lands, and the hearing in this matter was continued.
7. On January 14, 2009, Direct Petroleum, by its representative, filed with the Commission a verified amended application to vacate the 80-acre drilling and spacing units established in Order No. 449-7 for Section 33, Township 14 South, Range 42 West, 6th P.M., place the lands under the provisions of the Rules and Regulations of the Oil and Gas Conservation Commission, including Rule 318.a., which 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, for the production of gas and associated hydrocarbons from the Morrow Formation, and lift the production restriction imposed on each well of 100 MCF per day per 80-acre unit for said Section 33.
8. On February 10, 2009, Direct Petroleum, by its representative, filed with the Commission a written request to approve the amended application based on the merits of the verified amended application and the supporting exhibits. Sworn written testimony and exhibits were submitted in support of the amended application.
9. Testimony and exhibits submitted in support of the application showed that the application lands have established 80-acre drilling and spacing units under Order No. 449-7, for the production of gas and associated hydrocarbons from the Morrow Formation, and that the application lands are subject to a production restriction on each well a 100 MCF per day per 80-acre unit. Additional testimony showed that Direct Petroleum is the operator for the application lands.
10. Testimony and exhibits submitted in support of the application indicated that gas production associated with the Morrow Formation underlying the application lands is distinct from the oil production associated with the Morrow Formation in the Arapahoe Field, located in Section 27, Township 14 South, Range 42 West, 6th P.M., which is from a major incised valley. Additional testimony showed by cross section analysis that the productive sandstones in the Arapahoe Field, found in said Section 27 are deeper and stratigraphically separate from the sandstone found in the Shirley Rother #1 Well located in said Section 33. Further testimony showed that numerous dry holes are consistent with the geological model for the application lands.
11. Testimony and exhibits submitted in support of the application showed that gas produced from the Shirley Rother #1 Well located in Section 33, Township 14 South, Range 42 West, 6th P.M. has a low heating value of approximately 370 BTU, which requires a high rate of production to produce said well economically. Additional testimony showed that wells underlying the application lands completed in the Morrow Formation will be capable of producing at a rate of 1,600 MCF per day without adversely affecting the reservoir. Further testimony revealed that restricting production to a rate of 100 MCF per day results in a negative cash flow, and that, to the contrary, by lifting the existing production restriction and allowing production at an initial rate of 1,600 MCF per day, payout may be realized in less than one year.
12. The above-referenced testimony and exhibits show that the proposed spacing, coupled with the lifting of the production restriction presently encumbering the application lands, will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.
13. Direct Petroleum Exploration agreed to be bound by oral order of the Commission.
14. Based on the facts stated in the verified amended 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: (1) vacating the 80-acre drilling and spacing units established in Order No. 449-7 for Section 33, Township 14 South, Range 42 West, 6th P.M., (2) placing the lands under Rule 318.a., for the production of gas and associated hydrocarbons from the Morrow Formation, and (3) lifting the production restriction imposed on each well of 100 MCF per day per 80-acre unit for said Section 33.
ORDER
NOW, THEREFORE IT IS ORDERED, that the 80-acre drilling and spacing units established in Order No. 449-7 for Section 33, Township 14 South, Range 42 West, 6th P.M. are hereby vacated and that said lands are placed under the provisions of the Rules and Regulations of the Oil and Gas Conservation Commission, including Rule 318.a., which 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, for the production of gas and associated hydrocarbons from the Morrow Formation.
IT IS FURTHER ORDERED, that the production restrictions in Order No. 449-7 are hereby rescinded as to Section 33, Township 14 South, Range 42 West, 6th P.M., for the production of gas and associated hydrocarbons from the Morrow Formation.
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 March, 2009, as of February 23, 2009.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert A. Willis, Acting Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
March 12, 2009