BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ) CAUSE NO. 521
ESTABLISHMENT OF FIELD RULES TO GOVERN )
OPERATIONS IN THE LITTLE CREEK FIELD, ) ORDER NO. 521-1
HUERFANO COUNTY, COLORADO )
REPORT OF THE COMMISSION
This cause came on for hearing before the Commission at 8:30 a.m. on October 31, 2000, in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of hearing as required by law, on the application of Petroglyph Energy, Inc. for an order establishing a unit for the production of coalbed methane gas from the Vermejo and Raton Formations for certain lands in Townships 28 and 29 South, Range 67 West, 6th P.M.
The Commission finds as follows:
1. Petroglyph Energy, Inc. (“Petroglyph”), 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.
4. On March 7, 2000, Petroglyph, by its attorney, filed with the Commission a verified application for an order to establish a unit for the production of coalbed methane gas and associated hydrocarbons from the Vermejo and Raton Formations for the below listed lands. Petroglyph has heretofore drilled and completed certain wells located within the proposed unit that are capable of producing gas and associated hydrocarbons in commercial quantities. However, water influx into the proposed unitized area from lands located to the northeast thereof is causing a high volume of water to be produced from said wells, with little measurable drop in reservoir pressure from the present production.
Township 28 South, Range 67 West, 6th P.M.
Section 34: S½ SE¼
Section 35: S½ NE¼, S½
Section 36: All
Township 29 South, Range 67 West, 6th P.M.
Section 2: Lots 1, 2, 3, 4, S½ N½, N½ S½, S½ SW¼
Section 3: Lots 1, 2, 3, 4, S½ NE¼, SE¼
Section 4: S½ NE¼, SE¼
Section 9: NE¼, N½ SE¼
Section 10: N½ NW¼
5. Petroglyph has proposed a Water Block Project designed to optimize the ability of the existing wells to dewater the coalbed methane reservoirs. It requires the drilling of approximately eleven (11) water-block wells. The water-block wells would be placed up-dip of the existing wells, and would greatly enhance the dewatering process for production from producing wells in the application lands.
6. On April 10, 2000, Petroglyph filed with the Commission a Motion for Continuance and the hearing in this matter was continued to June. On June 2, 2000, Commission staff continued the matter to the October hearing due to the Commission’s full docket and the location of the June hearing.
7. On May 18, 2000, Mull Drilling Company, Inc. (“Mull”), filed a protest to the application and on May 19, 2000, Mark Martin Lively (“Lively”) filed a protest as a working interest owner and an intervention as a surface owner. On October 30, 2000, Mull withdrew its protest of the application.
8. On October 6, 2000 the Commission commenced a prehearing conference with the Applicant and Protestants to clarify the nature and scope of the hearing. At the conclusion of the prehearing conference it was determined that a meeting should be held to discuss the technical issues related to the application. A technical meeting was held with the parties on October 12, 2000.
9. At the time of the hearing, Lively’s attorney raised the issue of whether the Commission has jurisdiction to establish a unit since there is no current production in the field. After hearing brief arguments from the attorneys representing the Applicant and Protestant, the Commission unanimously approved hearing the matter.
10. Geologic testimony and exhibits presented at the hearing described the geology in the application area and the locations of the proposed water-block wells.
11. Testimony and exhibits presented at the hearing indicated the coals in the area constitute a reservoir of gas that can be recovered once the coals are dewatered and described that the economic viability of the unit will allow recovery of gas in quantities greater than the cost to recover.
12. Engineering testimony and exhibits presented at the hearing indicated that gas production in the area is primarily through faults, that approximately 35,000 to 40,000 barrels of water are produced daily and that the proposed eleven (11) water-block wells are necessary to adequately dewater the gas wells.
13. Hydrology testimony and exhibits presented at the hearing indicated that the water-block wells will not adversely effect adjacent lands or domestic water wells. In addition, testimony indicated the quality of the produced water is such that treatment is not required prior to surface discharge.
14. Testimony and exhibits presented at the hearing indicated that those persons having 94% of the cost-bearing interests (the remaining 6% are Lively’s) and those persons having 77.5% of non-cost-bearing interests have approved in writing the plan for unit operations. Petroglyph indicated they anticipate obtaining written approval from at least eighty percent (80%) of the non-cost bearing interests.
15. Testimony was presented in support of Lively’s position on the large amount of water that must be dewatered from the lands before methane gas can be produced.
16. A sworn statement was made by Pat McConnell, a mineral and surface owner, in accordance with Rule 510., who expressed his concern about maintaining an adequate domestic water supply now and in the future.
17. The terms and conditions provided by the Unit Agreement and the Unit Operating Agreement for the Little Creek Field meet the requirements of the statute and are just and reasonable to all interests contained within said unit area. The plan for unit operations as presented by the Applicant, as described herein is necessary to increase the ultimate recovery of gas and the value of the estimated additional recovery of gas exceeds the estimated additional cost incident to conducting such operations.
18. The provisions contained in said Unit Agreement are just and reasonable and include the following:
a. The description of the pool to be so operated;
b. The nature of said operation;
c. The allocation to the separately owned tracts in the application area of all the gas that is produced from said Unit Area and is saved;
d. The provision for the credits and charges to be made in the adjustment among the owners in the Unit Area for their respective investments in wells, tanks, pumps, machinery, materials, and equipment contributed to the unit operations;
e. The provision providing how the costs of unit operations, including capital investments, shall be determined and charged to the separately owned tracts, and how said costs shall be paid, including the provision providing when, how, and by whom the unit production allocated to an owner who does not pay the share of the cost of the unit operations charged to such owner, or the interest of such owners, may be sold and the proceeds applied to the payment of such costs;
f. The provision for the supervision and conduct of the unit operations, in respect to which person shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such person; and
g. The time when the unit operations shall commence, and the manner in which, and the circumstances under which the unit operations shall terminate.
19. At the time of the administrative hearing, Petroglyph Energy, Inc. agreed to be bound by oral order of the Commission.
20. Based on the facts stated in the verified application and the testimony and exhibits presented by the Applicant at the hearing, the Commission should enter an order establishing a unit for the production of coalbed methane gas and associated hydrocarbons from the Vermejo and Raton Formations for the lands described in Finding No. 4.
NOW, THEREFORE IT IS ORDERED that :
1. The Unit Agreement and Unit Operating Agreement, covering the below-listed lands in the Little Creek Field, which agreements are attached to, and made a part of the original order of this Commission on file in the office of the Commission, are approved as being in the public interest for conservation.
Township 28 South, Range 67 West, 6th P.M.
Section 34: S½ SE¼
Section 35: S½ NE¼, S½
Section 36: All
Township 29 South, Range 67 West, 6th P.M.
Section 2: Lots 1, 2, 3, 4, S½ N½, N½ S½, S½ SW¼
Section 3: Lots 1, 2, 3, 4, S½ NE¼, SE¼
Section 4: S½ NE¼, SE¼
Section 9: NE¼, N½ SE¼
Section 10: N½ NW¼
2. The provisions contained in said Unit Agreement and Unit Operating Agreement as they pertain to §34-60-118, C.R.S., as amended, of the Oil and Gas Conservation Act are just and reasonable, and are incorporated herein as the Commission’s plan of involuntary operations for such lands.
IT IS FURTHER ORDERED, that the persons owning the required percentage of interest in the unit area shall have six (6) months from the date the order is entered to approve the plan.
IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective on the first day of the month following the date on which those persons having 80% of non-cost-bearing interests have approved in writing the plan for unit operations. Proof of such approvals shall be submitted to the Commission.
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.
ENTERED this day of November, 2000, as of October 31, 2000.
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
November 21, 2000