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

 

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN AN UNNAMED FIELD,

WELD COUNTY, COLORADO

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CAUSE NO. 535

 

ORDER NO. 535-140

 

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on January 23, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests in an approximate 640-acre drilling and spacing unit for Section 1, Township 7 North, Range 60 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1. Continental Resources, Inc. (“Continental” 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. On October 24, 2011, Continental, by its attorneys, filed with the Commission a verified amended application, Docket No. 1112-SP-159, which among other things, sought to establish approximate 640-acre drilling and spacing units for certain lands, and allow the drilling of one horizontal well within each drilling and spacing unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. On December 12, 2011, the Commission entered Order Nos. 407-514 and 535-104, approving the amended application. Section 1, Township 7 North, Range 60 West, 6th P.M. is subject to these orders.

 

5. On November 23, 2011, Continental, by its attorneys, filed with the Commission a verified application (“Application”) for an order to pool all interests in an approximate 640-acre drilling and spacing unit for the below-listed lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, effective as of the earlier of the date of this Application, or the date that any of the costs specified in C.R.S. § 34-60-116(7)(b)(II) were first incurred for the drilling of the well to the Niobrara Formation on the Application Lands:

 

Township 7 North, Range 60 West, 6th P.M.

Section 1:    All

 

6. On January 5, 2012, HOBE Minerals, LLC (HOBE) filed a protest in this matter, stating that: 1) it owns unleased minerals in the Application Lands; and 2) it had not been given an opportunity to participate in the proposed well.

 

7. On January 5, 2012, Prima Exploration, Inc. (“Prima”) submitted a Rule 510 statement requesting the Commission order include that “(i) the proposal in writing to participate in the drilling of a well be made no sooner than one-hundred and twenty (120) days prior to the anticipated spud date and (ii) for a party to be involuntarily pooled, the proposed well must commence actual drilling within one hundred eighty (180) days from the notice to participate and be completed with due diligence.”

 

8.  On January 6, 2012, Markus Production, Inc. (Markus) filed a protest in this matter indicating that it had attempted to consent to participate in the subject well, but formal agreement would be contingent on execution of a mutually agreeable joint operating agreement.  Its protest was filed because it was not certain whether Continental would consider it a consenting or a nonconsenting owner.

 

9. On January 9, 2012, Continental, 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. Sworn written testimony and exhibits were submitted in support of the Application.

 

10. On January 11, 2012, a Prehearing Conference was held with all parties represented.  A Prehearing Conference Report was issued by the Hearing Officer, which established a plan for resolution of all protests. HOBE was ordered to confirm or disclaim its mineral ownership to the parties by no later than January 20, 2012 (preferably sooner).  If HOBE determines that it does not have a mineral interest in the Application Lands, it shall withdraw its protest no later than January 20, 2012.  If after further diligent inquiry, HOBE continues to claim a mineral interest in the Application Lands, it shall so inform the parties and the Hearing Officer without delay. Markus and Continental agreed to consummate their understanding of Markus participation in the proposed pooled unit in good faith, such that Markus can execute and deliver its withdrawal of its protest to the parties and Hearing Officer no later than January 20, 2012 (preferably sooner). In any case, these protests will be resolved prior to the January 23, 2012 hearing date in this matter or the matter will be pulled from the Consent Agenda and continued to the March 5, 2012 meeting.

 

11. Land Testimony and exhibits submitted in support of the Application by Michael D. Schooley, Emerging Plays Landman for Continental, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure “(AFE”) and an offer to participate in the Well.  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 23, 2012 hearing date.

 

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.  Continental agreed to be bound by oral order of the Commission. 

 

14.  Based on the facts stated in the verified Application, having resolved all protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all interests in one approximate 640-acre drilling and spacing unit for Section 1, Township 7 North, Range 60 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

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, all interests in the approximate 640-acre drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Niobrara Formation, effective as of the earlier of the date of the Application, or the date that the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred for the drilling of the horizontal well:

 

Township 7 North, Range 60 West, 6th P.M.

Section 1:    All

 

2.    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.

 

3.    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 Well (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.

 

4.    Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

 

5.    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 Well, 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.

 

6.    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.

 

7.    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, that the provisions contained in the above 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 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 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   26th  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