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

REPORT OF THE COMMISSION

The Commission heard this matter on July 29, 2013, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests within an approximate 960-acre drilling and spacing unit and an approximate 320-acre drilling and spacing unit established for Sections 27 and 28, Township 10 North, Range 59 West, 6^th P.M., to accommodate the Nelson Ranches 1-27-10-59 Well, and Section 33, Township 10 North, Range 59 West, 6^th P.M., to accommodate the Nelson Ranches 1-33-10-59 Well, for the development and operation of the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Carrizo Oil & Gas, Inc. (“Carrizo” 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 December 12, 2011, the Commission entered Order No. 535-99 which, among other things, established one approximate 640-acre drilling and spacing unit and approved two horizontal wells within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation.  Section 27, Township 10 North, Range 59 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On May 29, 2012, the Commission entered Order No. 535-159 which pooled all interests in an approximate 640-acre drilling and spacing unit, to accommodate the Nelson Ranches 27-11-10-59 Well, for the development and operation of the Niobrara Formation.  Section 27, Township 10 North, Range 59 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

6.         On February 11, 2013, the Commission entered Order No. 535-272 which, among other things, established three approximate 640-acre exploratory drilling and spacing units, and approved one horizontal well within the unit, for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation.  Sections 28 and 33, Township 10 North, Range 59 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

7.         On February 11, 2013, the Commission entered Order No. 535-264 which, among other things, approved up to six horizontal wells within each of three approximate 640-acre exploratory drilling and spacing units, for the production of oil, gas, and other hydrocarbons underlying the Niobrara Formation.  Sections 28 and 33, Township 10 North, Range 59 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

8.         On May 6, 2013, the Commission entered Order No. 535-329 which, among other things, 1) vacated the approximate 640-acre drilling and spacing unit established by Order No. 535-99 and pooled by Order No. 535-159 for Section 27, Township 10 North, Range 59 West, 6^th P.M.; 2) vacated two approximate 640-acre exploratory drilling and spacing units established by Order Nos. 535-272 and 535-264 for Sections 28 and 33, Township 10 North, Range 59 West, 6^th P.M.; and 3) established one approximate 960-acre exploratory drilling and spacing unit and one approximate 320-acre exploratory drilling and spacing unit and approved one horizontal well within each unit.  Sections 27, 28 and 33, Township 10 North, Range 59 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

9.         On June 17, 2013, the Commission entered Order No. 535-342 which, among other things, approved up to thirteen horizontal wells within an approximate 960-acre drilling and spacing unit established for Sections 27 and 28, Township 10 North, Range 59 West, 6^th P.M., and up to six horizontal wells within an approximate 320-acre drilling and spacing unit established for Section 33, Township 10 North, Range 59 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

10.       On April 18, 2013, Carrizo, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Application”) for an order to pool all interests in one approximate 960-acre drilling and spacing unit and one approximate 320-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the development and operation the Niobrara Formation, effective as of the earlier of the date of this Application, or the date of the costs specified in C.R.S. §34-60-116(7)(b)(II) were first incurred for the drilling of the Nelson Ranches 1-27-10-59 Well and the Nelson Ranches 1-33-10-59 Well (“Wells”) , and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7) for the initial well:

            Township 10 North, Range 59 West, 6^th P.M.

Section 27:      All

Section 28:      E½      (“DSU #1” approx. 960 acres)

(Nelson Ranches 1-27-10-59 Well)

Township 10 North, Range 59 West, 6^th P.M.

Section 33:      E½      (“DSU #2” approx. 320 acres)

                                                                        (Nelson Ranches 1-33-10-59 Well)   

11.       On May 22, 2013, Carrizo requested, and the Commission staff granted, a continuance to the July hearing.

12.       On June 11, 2013, the Bureau of Land Management (“BLM”) filed a protest to the Application.

13.       On July 16, 2013, Carrizo, 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.

14.       On July 19, 2013, the BLM withdrew its protest to the Application.

15.       Land testimony and exhibits submitted in support of the Application by Craig Wiest, Land Manager for Carrizo, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the 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 July 29, 2013 hearing date.

16.       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 Nelson Ranches 1-27-10-59 Well and Nelson Ranches 1-33-10-59 Well, but did not provide testimony for any subsequent wells.

17.       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.

18.       Carrizo agreed to be bound by oral order of the Commission. 

19.       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 pool all interests within an approximate 960-acre drilling and spacing unit and an approximate 320-acre drilling and spacing unit established for Sections 27 and 28, Township 10 North, Range 59 West, 6^th P.M., to accommodate the Nelson Ranches 1-27-10-59 Well, and Section 33, Township 10 North, Range 59 West, 6^th P.M., to accommodate the Nelson Ranches 1-33-10-59 Well, for the development and operation of the Niobrara Formation.

ORDER

IT IS HEREBY ORDERED:

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 960-acre and 320-acre drilling and spacing units 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 any of the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred for the drilling of the Nelson Ranches 1-27-10-59 Well and Nelson Ranches 1-33-10-59 Well:

Township 10 North, Range 59 West, 6^th P.M.

Section 27:      All

Section 28:      E½      (“DSU #1” approx. 960 acres)

(Nelson Ranches 1-27-10-59 Well)

Township 10 North, Range 59 West, 6^th P.M.

Section 33:      E½      (“DSU #2” approx. 320 acres)

                                                                        (Nelson Ranches 1-33-10-59 Well)   

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.  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).

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,

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 30 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   27   day of August, 2013, as of July 29, 2013.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary