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

REPORT OF THE COMMISSION

The Commission heard this matter on January 7, 2013, at the Sheraton Denver Downtown Hotel, 1550 Court Place, Denver, Colorado, upon application for an order to: 1) vacate an approximate 640-acre drilling and spacing unit established by Order No. 535-3 for Section 13, Township 9 North, Range 59 West, 6^th P.M.; 2) establish the Timbro Exploratory State Unit pursuant to C.R.S. §34-60-116(2), an approximate 640-acre exploratory drilling and spacing unit located in Section 13, Township 9 North, Range 59 West, 6^th P.M., with the intent to initially drill up to eight wells within the unit, for the production of gas, oil and associated hydrocarbons from the Codell-Niobrara Formation; and 3) approve the unit operation of the Timbro Exploratory State Unit, pursuant to C.R.S. §34-60-118, for the development and operation of the Codell-Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Noble Energy, LLC (“Noble” 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 February 22, 2011, the Commission entered Order No. 535-3 which, among other things, established 160 approximate 640-acre drilling and spacing units, and approved one horizontal well within each the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Section 13, Township 9 North, Range 59 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On November 2, 2012, Noble, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Application”) for an order to: 1) vacate an approximate 640-acre drilling and spacing unit established by Order No. 535-3 for Section 13, Township 9 North, Range 59 West, 6^th P.M.; and 2) establish the Timbro Exploratory State Unit (“Unit”) pursuant to C.R.S. §34-60-116(2), an approximate 640-acre exploratory drilling and spacing unit for the below-described lands (“Application Lands”), with the intent to initially drill up to eight wells within the unit, for the production of gas, oil and associated hydrocarbons from the Codell-Niobrara Formation, with the treated interval of the wellbore for the permitted wells to be no closer than 600 feet from unit boundaries and no closer than 150 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director; and 3) approve the unit operation of the Timbro Exploratory State Unit, pursuant to C.R.S. §34-60-118, for the development and operation of the Codell-Niobrara Formation, effective upon approval of the Application by the Commission:

                                    Township 9 North, Range 59 West, 6^th P.M.

                                    Section 13:    All       (“Timbro Exploratory State Unit”)

            6.         On December 18, 2012, an Administrative Hearing was held with Noble's Land, Geologic, and Engineering experts providing testimony to COGCC technical staff in support of the Application.  Testimony showed the Unitized lands will be operated by a private Unit Agreement and Unit Operating Agreement for all future development and operations.  Testimony was presented to Commission staff to consider the need for the operation of the Timbro Exploratory State Unit as a unit of one or more pools or parts thereof in a field.  C.R.S. §34-60-118(2).  COGCC technical staff had no objections, and the Hearings Officer recommended the matter be placed on the Commission’s consent agenda.

            7.         On December 19, 2012, Noble, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified application and supporting exhibits.  Sworn written testimony and exhibits were submitted in support of the Application.

8.         Land testimony and exhibits submitted in support of the Application by Julie T. Jenkins, Land Manager for Noble, showed that the Applicant owns 100% of the leasehold interests with the right to drill wells in the Application Lands, and has entered into surface use agreements with the surface owners for the locations of oil and gas well within the unit.  Testimony stated the Applicant will comply with mitigation measures requested by any approved permit for a well within the unit.  Further testimony affirmed that, per the requirements of C.R.S. §34-60-118(5), the plan for operations of the Unit has been approved in writing by 100% of those persons who will be required to pay the costs of the unit operation, and that within six months of approval of the Unit, Noble will obtain and submit to the Commission notification and affirmation that it has obtained written approval by the non-cost-bearing owners of at least eighty percent of the production or proceeds of the Unit.

9.         Additional Land testimony and exhibits submitted in support of the Application by Julie T. Jenkins, Land Manager for Noble, further showed Applicant currently allocates and distributes proceeds for production from the Codell-Niobrara formation for the existing horizontal well on a 640-acre basis, and proposes to allocate and distribute proceeds for production from the Codell-Niobrara formation on all future wells in the same manner.

10.       Geologic testimony and exhibits submitted in support of the Application by Alicia Branch, Senior Geologist for Noble, included cross-sections from nearby Codell-Niobrara type wells, demonstrating the Codell-Niobrara Formation underlies, and is generally of uniform thickness throughout the Application Lands.  Further testimony showed structural relief at the Top Niobrara is one degree up-dip to the East with some minor faulting.  Microseismic results showed events across the entire Codell-Niobrara Formation.  Testimony concluded the hydraulic fracture stimulation effectively covers both zones and is expected to produce as a single flow unit.

11.       Engineering testimony and exhibits submitted in support of the Application by Chandler Newhall, Senior Production Engineer for Noble, indicated that the use of horizontal wells in the Application Lands is necessary to increase the recovery of hydrocarbons from the reservoir and the economics utilized for the project are economic and efficient.  Testimony showed a single horizontal well in a 640-acre unit has an estimated recovery factor of approximately 0.5%.  Performing an exploratory infill drilling test will help determine how additional reserves can be recovered with new horizontal well technology.  Volumetric calculations of original oil in place (“OOIP”), indicate that if the infill drilling and completion results are successful the hydrocarbon recovery factor could be increased to approximately 4% if all eight horizontal wells are drilled.

12.       Noble stated that previously existing wells will become part of the Unit, subject to the terms of the Unit Agreement, Unit Operating Agreement, or other agreement between the Applicant and other interested parties, unless such wells are specifically excepted from the Unit.

13.       Noble stated the operation of the Timbro Exploratory State Unit is reasonably necessary to increase the ultimate recovery of oil or gas, C.R.S. §34-60-118(3)(a), and the value of the estimated additional recovery of oil or gas exceeds the estimated additional cost incident to conducting such operations.  C.R.S. §34-60-118(3)(b).

14.       Noble has entered into a Unit Agreement and a Unit Operating Agreement (“Unit Agreements”), the terms and conditions of which are just and reasonable and prescribe a plan for unit operations.  The Unit Agreements comply with C.R.S. §34-60-118(4)(a-e, h).

15.       The plan for unit operations has been approved in writing by those persons who, under the Commission's order, will be required to pay at least eighty percent of the costs of the unit operation, and also by the owners of at least eighty percent of the production or proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments.  C.R.S. §34-60-118(5).

16.       All operations, including, but not limited to, the commencement, drilling, or operation of the wells upon any portion of the Timbro Exploratory State Unit area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the unit area by the several owners thereof. The portion of the unit production allocated to a separately owned tract in a unit area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled thereon. Operations conducted pursuant to an order of the Commission providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that compliance with such obligations cannot be had because of the order of the Commission. C.R.S. §34-60-118(9).

17.       The portion of production in the Timbro Exploratory State Unit will be allocated to any tract, and the proceeds from the sale thereof, shall be the property and income of the several persons to whom, or to whose credit, the same are allocated or payable under the order providing for unit operations. C.R.S. §34-60-118(10).

18.       No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by the order providing for unit operations, but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions thereof. C.R.S. §34-60-118(11).

19.       Based upon the testimony and exhibits, the Commission finds that Noble has complied with the requirements of C.R.S. §34-60-118, providing for the unit operation of the Timbro Exploratory State Unit.

20.       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.

21.       Noble agreed to be bound by oral order of the Commission. 

22.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearings Officer review of the Application under Rule 511., the Commission should enter an order to: 1) vacate an approximate 640-acre drilling and spacing unit established by Order No. 535-3 for Section 13, Township 9 North, Range 59 West, 6^th P.M.; 2) establish the Timbro Exploratory State Unit pursuant to C.R.S. §34-60-116(2), an approximate 640-acre exploratory drilling and spacing unit located in Section 13, Township 9 North, Range 59 West, 6^th P.M., with the intent to initially drill up to eight wells within the unit, for the production of gas, oil and associated hydrocarbons from the Codell-Niobrara Formation; and 3) approve the unit operation of the Timbro Exploratory State Unit, pursuant to C.R.S. §34-60-118, for the development and operation of the Codell-Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that:

1)  an approximate 640-acre drilling and spacing unit established by Order No. 535-3 for Section 13, Township 9 North, Range 59 West, 6^th P.M., is hereby vacated.

2) pursuant to C.R.S. §34-60-116(2), the Timbro Exploratory State Unit, an approximate 640-acre exploratory drilling and spacing unit, is hereby established, for the below-described lands, for the production of gas, oil and associated hydrocarbons from the Codell-Niobrara Formation, with the treated interval of the wellbore for the permitted wells shall be no closer than 600 feet from unit boundaries and shall be no closer than 150 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

                                    Township 9 North, Range 59 West, 6^th P.M.

                                    Section 13:    All       (“Timbro Exploratory State Unit”)

3) pursuant to C.R.S. §34-60-118, the unit operation of the Timbro Exploratory State Unit, is hereby approved, for the development and operation of the Codell-Niobrara Formation.

IT IS FURTHER ORDERED, that the number of wells drilled within the Unit shall be determined by the Unit Operator and supported by engineering data establishing the appropriate number of wells to efficiently drain the reservoir.

IT IS FURTHER ORDERED, all wells shall be drilled from no more than one wellpad located within each quarter quarter section, without exception being granted by the Director.

IT IS FURTHER ORDERED, all previously existing wells shall become part of the Unit, subject to the terms of the Unit Agreement, Unit Operating Agreement, or other agreement between the Applicant and other interested parties, unless such wells are specifically excepted from the Unit.

            IT IS FURTHER ORDERED, that the provisions contained in the above order, except to the extent that the parties affected so agree, shall not be construed to result in a transfer of all, or any part of, the title of any person to the oil and gas rights in any tract in the unit area. All property, whether real or personal, that may be acquired in the conduct of unit operations under this article, shall be acquired for the account of the owners within the unit area, and shall be the property of such owners in the proportion that the expenses of unit operations are charged. C.R.S. §34-60-118(12).

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 _____ day of January, 2013, as of January 7, 2013.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary