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

 

IN THE MATTER OF THE APPLICATION OF NOBLE ENERGY, INC. FOR AN ORDER TO POOL ALL INTERESTS IN AN APPROXIMATE 3,200-ACRE UNCONVENTIONAL RESOURCE UNIT ESTABLISHED FOR SECTIONS 3, 4, 9, 10 AND 16, TOWNSHIP 9 NORTH, RANGE 58 WEST, 6TH P.M., FOR THE CODELL-NIOBRARA FORMATION, UNNAMED FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 535

 

DOCKET NO. 1310-UP-235

 

ORDER NO. 535-435

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on October 28, 2013, at the Limon Community Center, 477 D Avenue, Limon, Colorado, upon application for an order to pool all interests in an approximate 3,200-acre unconventional resource unit, to accommodate three Initial Wells, for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Noble Energy, Inc. (“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 unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Sections 3, 4, 9 and 10, Township 9 North, Range 58 West, 6th P.M. are subject to this Order for the Codell-Niobrara Formation.

 

5.         On December 12, 2011, the Commission entered Order No. 535-110 which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit established for Section 10, Township 9 North, Range 58 West, 6th P.M. for the Niobrara Formation.  Section 10, Township 9 North, Range 58 West, 6th P.M. is subject to this Order for the Codell-Niobrara Formation.

 

6.         On January 23, 2013, the Commission entered Order No. 535-125 which, among other things, established an approximate 640-acre drilling and spacing unit for Section 16, Township 9 North, Range 58 West, 6th P.M., and approved one or more horizontal and one or more vertical wells for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.  Section 16, Township 9 North, Range 58 West, 6th P.M. is subject to this Order for the Codell-Niobrara Formation.

 

7.         On March 25, 2013, the Commission entered Order No. 535-302 which, among other things, 1) vacated the approximate 640-acre drilling and spacing unit established by Order No. 535-3 for Sections 3, 4, 9 and 10, Township 9 North, Range 58 West, 6th P.M.; 2) vacated pooling Order No. 535-110 for Section 10, Township 9 North, Range 58 West, 6th P.M.; 3) vacated the approximate 640-acre drilling and spacing unit established by Order No. 535-125 for Section 16, Township 9 North, Range 58 West, 6th P.M.; and 4) established an approximate 3,200-acre unconventional resource unit (“URU”) consisting of Sections 3, 4, 9, 10 and 16, Township 9 North, Range 58 West, 6th P.M., and approved the request for an unlimited number of wells within the boundaries of the 3,200-acre URU, subject to engineering testimony establishing the appropriate number of wells to efficiently and economically drain the reservoir, for the production of oil, gas and associated hydrocarbons from the Codell-Niobrara Formation.  Sections 3, 4, 9, 10, and 16, Township 8 North, Range 59 West, 6th P.M. are subject to this Order for the Codell-Niobrara Formation.

 

            8.         On August 29, 2013 Noble, 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 an approximate 3,200-acre unconventional resource unit established for the below-described lands (“Application Lands”), for the development and operation of the Codell-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) were first incurred for the drilling of the three Initial Wells (“Initial Wells”), and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):

 

                                    Township 9 North, Range 58 West, 6th P.M.

                                    Section 3:        All

                                    Section 4:        All

                                    Section 9:        All

                                    Section 10:      All

                                    Section 16:      All

 

Applicant stated the 3,200-acre URU is subject to a Unit Agreement (“UA”) and Unit Operating Agreement (“UOA”) whereby Noble was designated operator.  Over 80 percent of the working interest owners have signed the UA and UOA.

 

9.         On October 15, 2013, Noble, 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.       Land testimony and exhibits submitted in support of the Application by Joseph H. Lorenzo, Senior Land Manager for Noble, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Initial 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 October 28, 2013 hearing date.

 

11.       Land testimony stated the Applicant is requesting the Commission approve the cost recovery penalties set forth in §34-60-116(7) C.R.S. for the three Initial Wells drilled within the unit.  If Applicant elects to drill more than three wells, Applicant will notify nonconsenting parties and give them an opportunity to participate pursuant to Rule 530.

 

12.       For purposes of pooling and cost recovery pursuant to C.R.S. §§34 60-116(6), (7), Applicant requested the Commission:


                        a.    require each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in the three Initial Wells collectively, rather than in each Initial Well individually; and


                        b.     for each nonconsenting owner, apply the cost recovery provisions of C.R.S. §34-60-116(7) to each of the three Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and


                        c.     require Applicant to re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and


                        d.     require Applicant to re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the unconventional resource unit.

 

13.       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.

 

14.       The Commission requested that this matter be set for review by the Commission in one year and annually thereafter, without exception being granted by the Commission.

 

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

 

16.       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 in an approximate 3,200-acre unconventional resource unit, to accommodate three Initial Wells, for the production of oil, gas and associated hydrocarbons from the Codell-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 3,200-acre unconventional resource unit established for the below-described lands, are hereby pooled, for the development and operation of the Codell-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 drilling each of the three Initial Wells:

 

                                    Township 9 North, Range 58 West, 6th P.M.

                                    Section 3:        All

                                    Section 4:        All

                                    Section 9:        All

                                    Section 10:      All

                                    Section 16:      All

 

2.         The production obtained from the 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 unit; each owner of an interest in the unit shall be entitled to receive its share of the production of the Well located on the unit applicable to its interest in the 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 unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

 

4.         Each nonconsenting unleased owner within the 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.

 

5.         The operator of the well drilled on the above-described 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.

 

6.         For purposes of pooling and cost recovery pursuant to C.R.S. §§34 60-116(6), (7):


                        a.    Each interest owner who is not pooled voluntarily shall make an election to participate or be pooled by statute in the three Initial Wells collectively, rather than in each Initial Well individually; and


                        b.     for each nonconsenting owner, the cost recovery provisions of C.R.S. § 34-60-116(7) shall apply to each of the three Initial Wells that Applicant (or a successor in interest) drills and completes (or abandons) within two years of the date of this Order; and


                        c.     Applicant shall re-comply with Rule 530 and allow each nonconsenting owner to make a new election to participate or be pooled by statute in each Initial Well, if any, that is not drilled to total depth (or abandoned) within two years of the date of this Order; and


                        d.     Applicant shall re-comply with Rule 530 and allow each interest owner who is not pooled voluntarily to make an election to participate or be pooled by statute in any subsequently drilled well(s) within the unconventional resource unit.

 

7.         During the period of cost recovery provided for in §34-60-116(7), C.R.S. the Commission shall retain jurisdiction to determine the reasonableness of costs of operation of the well attributable to the interest of such nonconsenting owner. 

 

8.         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.

 

9.         The unconventional resource unit described above, shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.

 

10.       This matter shall be set for review by the Commission in one year and annually thereafter, without exception being granted by the Commission.

 

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   8th   day of November, 2013, as of October 28, 2013.

           

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary