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

 

IN THE MATTER OF THE PROMULGATION                                 )           CAUSE NO. 520

AND ESTABLISHMENT OF FIELD RULES TO                              )          

GOVERN OPERATIONS IN THE OAKDALE FIELD,                     )           ORDER NO. 520-6

HUERFANO COUNTY, COLORADO                                              )

           

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 9:00 a.m. on June 11, 2009, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to allow an exception to the permitted location for the Cougar No. 1 Well located 565 feet FNL and 2,059 feet FWL in the NW¼ of Section 9, Township 29 South, Range 69 West, 6th P.M., for the production of gas and associated hydrocarbons from 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 2, 1999, the Commission issued Order No. 520-1, which among other things, established 160-acre drilling and spacing units for certain lands including Section 9, Township 29 South, Range 69 West, 6th P.M, for the production of oil, gas and associated hydrocarbons from the Dakota and Entrada Formations, with the bottom hole location no closer than 600 feet from the outer boundaries of the unit and the Director given authority, based on topographic conditions, to grant exceptions to the well location requirement without prior notice or hearing, based upon an adequate showing by the operator that topography makes it unreasonable to drill a well within the 600 foot setback, and provided that the bottom hole for the exception location is no closer than 350 feet from the boundary of the unit.

 

5.     On July 11, 2008, Spoon Valley was issued an Application for Permit to Drill (“APD”) for the Cougar #1 Well located in the NE¼ NW¼ of Section 9, Township 29 South, Range 69 West, P.M., with a proposed location of 1218 feet FNL and 1472 feet FWL, for the production of gas and associated hydrocarbons from the Dakota and Entrada Formations.  

 

6.     On April 24, 2009, Spoon Valley, by its attorneys, filed with the Commission a verified application for an order to allow an exception location to the permitted location. Spoon Valley states that it originally intended to drill a vertical well at a location of 600 feet FNL and 2033 feet FWL of Section 9, Township 29 South, Range 69 West, P.M., however, Spoon Valley elected to move the surface location south and west due to topographic and subsurface concerns associated with the abandoned Oakview Coal Mine, and in particular to avoid the area of the old mine shafts, which resulted in the permitted surface location of 1218 feet FNL and 1472 feet FWL of said Section 9, knowing that a vertical wellbore at said location would encounter the Dakota Formation at a lower and less desirable structural position.  For reasons beyond Spoon Valley’s control, the bottomhole location of the Cougar #1 Well terminated at approximately 565 feet FNL and 2059 feet FWL of said Section 9, which is approximately 35 feet inside the 600 foot setback from the adjacent 160-acre drilling and spacing unit to the north (the SW¼ of Section 4) and approximately 26 feet inside the 600 foot setback from the adjacent 160-acre drilling and spacing unit to the east (the NE¼ of said Section 9).  The bottom hole location of the Cougar #1 Well is approximately 800 feet from the cornering drilling and spacing unit (the SE¼ of Section 4).

 

7.     On May 27, 2009, Spoon Valley, 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 as is provided for by Rule 511.c.  Sworn written testimony and exhibits were submitted in support of the application.

 

8.     Testimony and exhibits submitted in support of the application showed that 92 mineral interest owners were sent waiver letters, and that as of May 27, 2009, 50 mineral interest owners, comprising 94.80% of the mineral ownership, had elected to execute waivers.  Additional testimony indicated that the remaining 42 mineral interest owners had not responded to the waiver request and had not responded to this application or associated Corrected Notice of Hearing.

 

9.     Testimony and exhibits submitted in support of the application showed that Spoon Valley originally intended to drill a vertical well at a location of 600 feet FNL and 2033 feet FWL of Section 9, Township 29 South, Range 69 West, P.M., which was a legal location.  Additional testimony showed that Spoon Valley elected to move the surface location south and west due to topographic and subsurface concerns associated with the abandoned Oakview Coal Mine, and, in particular, to avoid the area of the old mine shafts, which would result in a vertical wellbore encountering the Dakota formation at a lower structural position.  Further testimony indicated that Spoon Valley permitted the well as a vertical well at a location of 1218 feet FNL and 1472 feet FWL of said Section 9.  Testimony showed that the Cougar No. 1 Well was spud on September 29, 2008, and that, due to the undesirable anticipated structural position, Spoon Valley decided to drill directionally to a more desirable bottomhole location.  Further testimony showed that directional drilling operations proceeded until, after encountering an intrusive dike or sill from 4485 feet to 4710 feet, the well walked to the north and east, and that numerous partially successful attempts were made from 4800 feet to 6200 feet to correct the wellbore deviation; however, these attempts resulted in a severe dog-leg in the wellbore which substantially decreased the drilling penetration rates and severe sticking problems.  Testimony indicated that the bottomhole location of the Cougar #1 Well terminated at approximately 565 feet FNL and 2059 feet FWL of said Section 9, which is approximately 35 feet inside the 600 foot setback from the adjacent 160-acre drilling and spacing unit to the north (the SW¼ of Section 4) and approximately 26 feet inside the 600 foot setback from the adjacent 160-acre drilling and spacing unit to the east (the NE¼ of said Section 9), and that this setback infringement will have a negligible impact on correlative rights.

 

10.   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.

 

11.   Spoon Valley Energy, LLC agreed to be bound by oral order of the Commission. 

 

12.   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.c., the Commission should enter an order to allow an exception to the permitted location for the Cougar No. 1 Well located 565 feet FNL and 2,059 feet FWL in the NW¼ of Section 9, Township 29 South, Range 69 West, 6th P.M., for the production of gas and associated hydrocarbons from the Dakota and Entrada Formations. 

 

ORDER

 

                        NOW, THEREFORE IT IS ORDERED, that an exception to the permitted location for the Cougar No. 1 Well is hereby approved, with a bottomhole location of 565 feet FNL and 2,059 feet FWL in the NW¼ of Section 9, Township 29 South, Range 69 West, 6th P.M., for the production of gas and associated hydrocarbons from the Dakota and Entrada Formations.

 

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 June, 2009, as of June 11, 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

June 18, 2009