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

REPORT OF THE COMMISSION

                        The Commission heard oral arguments in this matter on January 23, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on a protestant’s motion to dismiss an application for an order to pool all nonconsenting interests in the approximate 640 acre drilling and spacing unit established for Section 7, Township 5 North, Range 60 West, 6th P.M., to accommodate the Wickstrom 7-11 Well (API # 05-087-08159) for the for development and production of oil, gas and related hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.     Upstream Innovations, Inc. (“Upstream” 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.

Procedural History

4.         On September 1, 2011, Upstream Innovations, Inc. (“Upstream”), filed with the Commission a verified application in Docket No. 1110-UP-137, for an order to pool all interests in the approximate 640-acre drilling and spacing unit in the below listed lands, to accommodate the Wickstrom 8-41 Well (API No. 05-087-08160), for the development and operation of the Niobrara Formation:

Township 5 North, Range 60 West, 6^th P.M.

Section 8:  All

5.         On September 1, 2011, Upstream also filed with the Commission a verified application in  Docket No. 1110-UP-138 for an order to pool all interests in the approximate 640-acre drilling and spacing unit to accommodate the drilled Wickstrom 7-11 Well (API No. 05-087-08159), for the development and operation of the Niobrara Formation, underlying below-listed lands:

Township 5 North, Range 60 West, 6^th P.M.

Section 7:  All

6.         On October 17, 2011, Carrizo Oil and Gas, Inc. (Carrizo) filed a Protest and Motion to Dismiss in both Upstream applications (“Consolidated Applications”).

7.         On October 19, 2011, a Prehearing Conference was held on the Consolidated Applications, presided over by Hearing Officer, Peter Gowen.  Appearances were as follows:

Blake Pickett, Attorney, representing Upstream Innovation

Jason Simmons, President, Upstream Innovation

James Murphy, V.P. Operations, Colorado Energy Minerals, Inc.

Doug Guion, Colorado Energy Minerals, Inc.

Ken Wonstolen, Attorney, representing Carrizo Oil & Gas

Matt Lepore, Attorney, representing Carrizo Oil & Gas

Peter Gowen, Acting Hearings Manager and Hearing Officer, COGCC

Roger Allbrandt, Hearing Officer, COGCC

8.         The Hearing Officer solicited summaries of the parties’ respective application and protest, along with positions regarding a Motion to Dismiss filed by Carrizo.  In summary, Carrizo moved for dismissal of the Consolidated Applications on the basis of: 1) mootness, because the interests that Upstream sought to pool had already been pooled by Order No. 535-22 and Order No. 535-23; and 2) lack of standing by Upstream to retroactively contest Order No.  535-22 and Order No. 535-23 dated May 23, 2011 because Upstream was not an owner of an interest in the Consolidated Application lands at the time that said orders were approved and issued by the Commission. Upstream objected to the Motion to Dismiss and requested time to respond. The Parties agreed to a briefing schedule for oral arguments before the Commission at its December 12, 2011 meeting on the limited issues of standing and mootness.

9.         On October 19, 2011, the Hearing Officer issued his (first) Prehearing Conference Report and Order.  This Order bifurcated the case for purposes of the December 12, 2011 Commission meeting. At the Commission December 12, 2011 hearing, the Commission would only hear oral arguments on the Carrizo Motion to Dismiss, on the issues of standing and mootness.  All other aspects of the case were continued until the Commission rules on the Motion to Dismiss.

10.       On November 17, 2011, Upstream, through its attorneys, filed a Response to Protestant’s Motion to Dismiss. Upstream’s Response claimed: 1) as Lessee, Upstream has standing to bring its application under § 34-60-116(6), C.R.S.; 2) Carrizo and Upstream’s predecessor-in-interest Esenjay, had obtained a voluntary agreement to pool that lease and, therefore, the Commission had no authority to pool interests in that lease under § 34-60-116(6), C.R.S.; 3) because Carrizo failed to provide proper notice to US AgBank, as required by Rule 507.b.2., Orders 535-22 and 535-23 do not apply, at a minimum, to US AgBank’s interest and the relief requested by Upstream cannot be moot; 4)  with regard to the facts of the Consolidated  Applications, the statutory requirement that each pooling order “shall be upon terms and conditions that are just and reasonable” requires the Commission to reject Carrizo’s argument that Upstream’s applications should be denied;  5) Commission Orders 381-15 and 381-16 do not establish any precedent in this matter; and 6) Upstream is not seeking judicial review of Commission Orders 535-22 and 535-23 and therefore §24-4-106(4) and §34-60-111, C.R.S. are not applicable.

11.       On November 23, 2011, Carrizo filed an application to be noticed for the January 23, 2012 Commission meeting (Docket No. 1201-UP-05) for an order vacating Order No. 535-22, which pooled all interests in Section 8, Township 5 North, Range 60 West, 6^th P.M.  If vacated by the Commission, Upstream would be relieved of the forced pooling provisions of C.R.S. § 34-60-116.7.b.

12.       On November 23, 2011, Carrizo also filed an application to be noticed for the January 23, 2012 Commission meeting (Docket No. 1201-UP-06) for an order modifying Order No. 535-13, which established the drilling unit, and Order No. 535-23, which pooled all interests in Section 7, Township 5 North, Range 60 West, 6^th P.M.  If approved by the Commission, the modified unit would exclude Upstream lands.

13.       On December 1, 2011, Carrizo, through its attorneys, filed a Reply Brief of Protestant, addressing Upstream’s Response to Protestant’s Motion to Dismiss. Carrizo’s Reply claimed: 1) Upstream’s applications are moot because the spacing unit has already been pooled; 2) Upstream did not have an interest at the time of the Carrizo pooling applications; 3) the Conservation Act has no provision for a retroactive challenge to a pooling order by a party after expiration of a lease; 4) Carrizo’s applications noticed for hearing in January 2012 make Upstream’s application regarding Section 8 moot, and cure Upstream’s problems with the prior pooling order regarding Section 7 of the Application Lands.

14.  On December 2, 2011, a prehearing conference was conducted which allocated 20 minutes per side for oral argument before the Commission on Carrizo’s Motion to Dismiss. Carrizo’s 20 minutes is inclusive of rebuttal time.

15.       On December 6, 2011, the Hearing Officer issued a Hearing Officer Recommendation and recommended, among other things continuance of the matter to the January 23, 2012 Commission meeting, so that the Consolidated Applications could be considered in the context of Carrizo’s November 23, 2011 applications (“Carrizo Applications”, Docket Nos. 1201-UP-05 and 1201-UP-06).

16.       On December 8, 2011, Carrizo and Upstream agreed to continue oral arguments on the Carrizo motion to dismiss until the January 23, 2012 Commission meeting.

17.       Carrizo’s application in Docket No. 1201-UP-06 was protested: 1) on January 5, 2012 by White River Royalties, LLC; 2) on January 6, 2012, by Colorado Energy Minerals, Inc.; Bulldog One Oil & Gas Inc.; Labrador One Oil & Gas Inc.; and Journey's End Inc.; and 3) on January 9, 2012 by Upstream and by Lowry Oil and Gas, LLC. 

18.       On January 11, 2012 Carrizo and Upstream participated in a telephonic prehearing conference with Hearing Officer, Peter Gowen. The purpose was to identify the impact that the Carrizo Applications had on the Consolidated Applications of Upstream, and establish hearing protocol for the January 23, 2012 hearing in the Consolidated Applications.

19.       On January 11, 2012, Carrizo withdrew Docket No. 1201-UP-06 from further Commission consideration.

20.       The actions by Carrizo and Upstream on January 11, 2012 left only one contested matter between them, Upstream’s application in Docket No. 1110-UP-138.

21.       Upstream and Carrizo agreed at the January 11, 2012 prehearing conference that Docket No. 1110-UP-138 remained ripe for oral arguments before the Commission on the Carrizo motion to dismiss.

22.       On January 19, 2012, the Hearing Officer issued a Second Prehearing Conference Report and Order. This order retained the bifurcation of the case, docketing only oral arguments on the Carrizo motion to dismiss for the January 23, 2012 Commission meeting and  allocating 20 minutes per side for oral argument, excluding questions from the Commissioners, and a statement of the background and procedural history of the case. 

23.       Carrizo’s application in Docket No. 1201-UP-05 has not been protested. It was  approved as an uncontested matter at the January 23, 2012 Commission meeting by Order No. 535-129. Approval of Order No. 535-129 renders Upsteam’s application in Docket No. 1110-UP-137 moot.  Upstream agreed to withdraw Docket No. 1110-UP-137 during the course of the January 11, 2012 prehearing conference in anticipation of Docket No. 1201-UP-05 being approved at the January 23, 2012 Commission meeting.

24.       On January 20, 2012, Colorado Energy Minerals, Inc. (CEM) filed a Rule 510 statement in this matter.

25.       On January 20, 2012, Carrizzo filed a response to the CEM Rule 510 statement which included a motion to strike the CEM Rule 510 statement.

26.       On January 23, 2012, the Commission heard oral arguments as laid out in the Second Prehearing Conference Report and Order issued January 19, 2012, by the Hearing Officer. As a preliminary matter, the Commission heard oral arguments on the Carrizzo motion to strike the CEM Rule 510 statement, by Carrizo, Upstream and CEM.

27.       Upon conclusion of oral arguments on the Carrizo motion to strike the CEM Rule 510 statement, the Commission ruled to deny the motion to strike. The Commission concluded that pursuant to Rule 510, any person may make a Rule 510 statement either before the hearing in writing or at the hearing, and there is no standing requirement to do so. A Rule 510 statement may include legal arguments, and such legal arguments are not bound by prehearing briefing scheduling orders, which are binding on the parties. 

Statement of Facts

28.       Upstream owns leasehold interests in the unit requested for pooling.

            Township 5 North, Range 60 West, 6^th P.M.

Section 7: All

Morgan County, Colorado

29.       On March 17, 2011, Carrizo filed with the Commission an application for an order pooling all nonconsenting interests in the approximate 640-acre drilling and spacing unit established for the Application Lands (Docket No. 1105-UP-43). 

30.       At the time Carrizo filed its application in Docket No. 1105-UP-43, Upstream had no interest in the Application Lands.  Upstream acquired its interests in the Application Lands on June 28, 2011.  At the time Carrizo filed its application in Docket No. 1105-UP-43, the interests later acquired by Upstream were subject to an oil and gas lease owned by Esenjay Oil & Gas, Ltd. (the “Esenjay Lease”).  The Esenjay Lease was set to expire on June 10, 2011.  The lease was of record with the Morgan County Clerk and Recorder.

31.       During the pendency of the Carrizo application in Docket No. 1105-UP-43, Carrizo provided notice of hearing to the working interest holder of the Esenjay Lease, but not the royalty owner (who would become the full mineral owner at the expiration of the lease on June 10, 2011).

32.       On May 16, 2011, the Commission issued Order No. 535-13 which established a 640-acre drilling and spacing unit for Application Lands. 

33.       On May 16, 2011, the Commission entered Order No. 535-22, pooling interests in the Application Lands. 

34.       Carrizo has drilled a well, the Wickstrom 7-11 well, on the Application Lands.  The well is not located on lands in which Upstream owns a leasehold interest.  The Wickstrom 7-11 well was drilled after the expiration of the Esenjay Lease.

35.       Esenjay’s interest in the Esenjay Lease terminated with the lease on June 10, 2011.

36.       On June 28, 2011, the Upstream obtained a lease from the mineral owner covering the interests formerly owned by Esenjay.   

37.       Upstream requested an opportunity to participate in the well which was declined by Carrizo. 

CONCLUSIONS OF LAW

Mootness

Carrizo argues that Upstream’s application that seeks to pool lands that are already subject to a pooling order is moot and should be dismissed.  The Commission agrees with this principle.  Pooling Orders 535-22 and 535-23 are valid and have not been set aside.  Unless and until those orders are set aside, they preclude a second pooling order affecting the Application Lands.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that: Carrizo’s motion to dismiss the Upstream application in this matter is granted. Upstream’s application in this matter is dismissed.

IT IS FURTHER ORDERED, that this order shall become effective immediately.

                        IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal the above order.

                        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 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  26^th  day of January 2012, as of January 23, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

January 26, 2012