BEFORE
THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
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IN THE MATTER OF THE APPLICATION OF WPX ENERGY ROCKY MOUNTAIN, LLC, FOR AN ORDER TO ESTABLISH AN APPROXIMATE 40-ACRE DRILLING AND SPACING UNIT FOR SECTION 23, TOWNSHIP 2 SOUTH, RANGE 98 WEST, 6TH P.M., AND TO POOL ALL INTERESTS WITHIN THE UNIT, FOR THE WILLIAMS FORK AND ILES FORMATION, SULPHUR CREEK FIELD, RIO BLANCO COUNTY, COLORADO |
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CAUSE NO. 527
DOCKET NO. 1401-UP-25
ORDER NO. 527-13 |
REPORT OF THE COMMISSION
The Commission heard this matter on January 27, 2014, at the Centennial Building, 1313 Sherman Street, Room 318, Denver, Colorado, upon application for an order to: 1) establish an approximate 40-acre drilling and spacing unit with the equivalent of one well per 10 acres well density for Section 23, Township 2 South, Range 98 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations; and 2) pool all interests within the unit, and to subject any nonconsenting interests to the cost recovery provisions of § 34-60-116(7), C.R.S. for the Federal RG 331-23-298 Well and the Federal RG 531-23-298 Well, for the development and operation of the Williams Fork and Iles Formations.
FINDINGS
The Commission finds as follows:
1. WPX Energy Rocky Mountain, LLC (“WPX” or “Applicant”), 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 Oil and Gas Conservation 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 23, Township 2 South, Range 98 West, 6th P.M. is subject to Rule 318.a. for the Williams Fork and Iles Formation.
5. On May 16, 2011, the Commission entered Order No. 527-9 which, among other things, approved the equivalent of one well per 10 acres for certain lands within Township 2 South, Range 98 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations. Section 23, Township 2 South, Range 98 West, 6th P.M. is subject to this Order for the Williams Fork and Iles Formation.
6. On November 27, 2013, WPX, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) establish an approximate 40-acre drilling and spacing unit with the equivalent of one well per 10 acres well density for the below-described lands (“Application Lands”), for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, with the bottomhole location of any permitted well located anywhere on the Application Lands but no closer than 100 feet from the lease or unit boundaries; however, in cases where the lands abut or corner lands for which the Commission has not at the time of permit application granted the right to drill 10-acre density Williams Fork Formation and Iles Formation wells, the permitted well should be located downhole no closer than 200 feet from the lease or unit boundaries, without exception being granted by the Director and: 2) pool all interests within the unit for the development and operation of the Williams Fork and Iles Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. §34-60-116(7)(b) were first incurred for the drilling of a Williams Fork Formation or Iles Formation Well or any authorized wells (“Wells”) and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):
Township 2 South, Range 98 West, 6th P.M.
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7. Applicant states that authorized wells shall to be drilled from the surface either vertically or directionally using an existing surface location in adjacent lands or from no more than one pad per quarter quarter section (or lots or parcels approximately equivalent thereto).
8. On January 14, 2013, WPX, 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 for the Williams Fork and Iles Formations. Sworn written testimony and exhibits were submitted in support of the Application.
9. Applicant requested that staff take administrative notice of geologic and engineering testimony and exhibits filed in support of Order No. 527-9 wherein the Commission ordered that 10-acre well density for the Williams Fork and Iles Formations underlying the Application Lands promoted efficient reservoir drainage and greater ultimate recovery of gas, while preventing waste and protecting correlative rights.
10. Land testimony and exhibits submitted in support of the Application by Maxwell G. Faith, Senior Landman for WPX, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the and offer to participate in the Federal RG 331-23-298 Well and the Federal RG 531-23-298 Well (“Wells”). Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 30 days prior to the January 27, 2014 hearing date.
11. Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to § 34-60-116(7), C.R.S., for the drilling of the Federal RG 331-23-298 Well and the Federal RG 531-23-298 Well, but did not provide testimony for any subsequent wells.
12. 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 hydrocarbons, and will not violate correlative rights.
13. WPX 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., the Commission should enter an order to: 1) establish an approximate 40-acre drilling and spacing unit with the equivalent of one well per 10 acres well density for Section 23, Township 2 South, Range 98 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations; and 2) pool all interests within the unit, and to subject any nonconsenting interests to the cost recovery provisions of § 34-60-116(7), C.R.S. for the Federal RG 331-23-298 Well and the Federal RG 531-23-298 Well, for the development and operation of the Williams Fork and Iles Formations.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 40-acre drilling and spacing unit with the equivalent of one well per 10 acres well density, for the below-described lands, is hereby established, for the production of gas and associated hydrocarbons from the Williams Form and Iles Formations, without exception being granted by the Director:
Township 2 South, Range 98 West, 6th P.M.
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2. The bottomhole location of any permitted well shall be located anywhere on the drilling and spacing unit but no closer than 100 feet from the lease or unit boundaries; however, in cases where the lands abut or corner lands for which the Commission has not at the time of permit application granted the right to drill 10-acre density Williams Fork Formation and Iles Formation wells, the permitted well should be located downhole no closer than 200 feet from the lease or unit boundaries, without exception being granted by the Director.
3. All authorized wells shall to be drilled from the surface either vertically or directionally using an existing surface location in adjacent lands or from no more than one pad per quarter quarter section (or lots or parcels approximately equivalent thereto).
4. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all interests in an approximate 40-acre drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Williams Fork and Iles Formations, effective as of the earlier of the date of the Application, or the date that any of the costs specified in C.R.S. §34-60-116(7)(b) are first incurred for the drilling of the Federal RG 331-23-298 Well and the Federal RG 531-23-298 Well:
Township 2 South, Range 98 West, 6th P.M.
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5. The production obtained from the drilling and spacing 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 the drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
6. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Wells (including penalties as provided by § 34-60-116(7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by § 34-60-116(7)(a), C.R.S.
7. Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Wells and be subject to the penalties as provided for by §34-60-116 (7), C.R.S. Any party seeking the cost recovery provisions of §34-60-116 (7), C.R.S., shall first comply with subsection (d) for any subsequent well(s).
8. Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each 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, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the Wells, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Well as if it had originally agreed to the drilling.
9. The operator of the well drilled on the above-described drilling and spacing unit shall furnish the 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.
10. Nothing in this order is intended to conflict with § 34-60-116, C.R.S., as amended. Any conflict that may arise shall be resolved in favor of the statute.
IT IS FURTHER ORDERED:
1. The provisions contained in the above order shall become effective immediately.
2. The Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.
3. Under the State Administrative Procedure Act the Commission considers this Order to be final agency action for purposes of judicial review within 35 days after the date this Order is mailed by the Commission.
4. An application for reconsideration by the Commission of this Order is not required prior to the filing for judicial review.
ENTERED this 21st day of February, 2014, as of January 27, 2014.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary