BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ) CAUSE NO. 520
ESTABLISHMENT OF FIELD RULES TO GOVERN )
OPERATIONS IN THE OAKDALE FIELD, ) ORDER NO. 520-4
HUERFANO COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 9:00 a.m. on January 9, 2006, Suite 801, in The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order pooling all nonconsenting owners in the 160-acre drilling and spacing unit consisting of the NEĽ of Section 4, Township 29 South, Range 69 West, 6th P.M., for the development and operation of the Dakota and Entrada Formations.
FINDINGS
The Commission finds as follows:
1. Spoon Valley Energy, LLC ("Spoon Valley"), 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 December 17, 1999, the Commission issued Order No. 520-1 which established 160-acre drilling and spacing units for the production of oil, gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations underlying certain lands in the below-listed lands, with the permitted well to be located no closer than 600 feet from the outer boundaries of the drilling unit.
Township 28 South, Range 69 West, 6th P.M.
Section 33: All
Township 29 South, Range 69 West, 6th P.M.
Section 4: All
Section 5: S˝
Sections 8 and 9: All
Section 16: N˝
Section 17: NEĽ
5. On November 18, 2005, Spoon Valley, by its attorney, filed with the Commission a verified application for an order to pool all nonconsenting owners in the 160-acre drilling and spacing unit consisting of the NEĽ of Section 4, Township 29 South, Range 69 West, 6th P.M. for the development and operation of the Dakota and Entrada Formations. The applicant drilled the Harry Willis No. 1 Well in February 1997 for the production of gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations and the well has been shut-in since it was drilled because it was uneconomic to make the gas suitable for marketing.
6. Testimony and exhibits presented at the administrative hearing showed that the Harry Willis No. 1 Well, drilled in February 1997, was perforated in the Dakota Formation and has been shut-in. Testimony indicated that the well will produce both CO2 and natural gas that must be separated prior to the well being capable of production. Additional testimony indicated that a gas plant is currently being constructed, along with CO2 and natural gas lines, with an estimated date of operation scheduled for March or April of 2006.
7. Testimony and exhibits presented at the administrative hearing showed a plat of the subdivision in which the 160-acre drilling and spacing unit proposed to be pooled is located. Additional testimony described a letter sent to all unleased mineral owners offering mineral leases, opportunities to participate in the well, or mineral purchases. At the time of the administrative hearing, testimony indicated that thirteen (13) mineral owners had leased, eight (8) mineral owners had been sent leases, and one (1) mineral owner had agreed to participate, and that the lease terms offered of three (3) years paid up, thirty-five dollars ($35) per acre bonus and ⅛ royalty are at least competitive if not better that other lease terms in the area. Subsequent to the administrative hearing, a total of forty-one (41) mineral owners were leased, with a total of eighty-two percent (82%) of the 160-acre drilling and spacing unit leased.
9. Testimony and exhibits presented at the administrative hearing described an Authorization for Expenditure submitted to the unleased mineral owners showing the actual costs to date, the estimated future costs for the Harry Willis No. 1 Well, that the costs are just and reasonable, and similar to those for other wells drilled in the area.
10. Testimony and exhibits presented at the administrative hearing showed a model form operating agreement, that one person has elected to participate and has executed this agreement.
11. Testimony and exhibits presented at the administrative hearing showed that reasonable attempts to lease or seek consent to participate in this well from all of the unleased mineral owners have not been successful, however, Spoon Valley intends to continue these attempts.
12. Spoon Valley Energy, LLC agreed to be bound by oral order of the Commission.
13. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order pooling all nonconsenting owners in the 160-acre drilling and spacing unit consisting of the NEĽ of Section 4, Township 29 South, Range 69 West, 6th P.M., for the development and operation of the Dakota and Entrada Formations.
ORDER
NOW, THEREFORE IT IS 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 interests in the 160-acre drilling and spacing unit consisting of the NEĽ of Section 4, Township 29 South, Range 69 West, 6th P.M. are hereby pooled for the development of gas (including CO2) and associated hydrocarbons from the Dakota and Entrada 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 non-consenting 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 non-consenting 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 non-consenting 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 February, 2006, as of January 9, 2006.
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
February 8, 2006