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 FOR THE NIOBRARA  FORMATION, UNNAMED FIELD, WELD  COUNTY, COLORADO

)

)

)

)

)

CAUSE NO. 535

 

DOCKET NO. 1406-UP-147

 

ORDER NO. 535-503

 

REPORT OF THE COMMISSION

 

The Commission heard this matter on June 17, 2014, at the Rifle Branch Library, Garfield County Public Library District, 207 East Avenue, Rifle, Colorado, upon an application for an order to pool all interests within an approximate 1,280-acre drilling and spacing unit established for Sections 26 and 35, Township 8 North, Range 62 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the drilling of the Cass 26-1H Well, for the development and operation of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Red Hawk Petroleum, LLC (“Red Hawk” 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 April 4, 2011, the Commission entered Order No. 535-8 which established an approximate 1,280-acre drilling and spacing unit for Sections 26 and 35, Township 8 North, Range 62 West, 6th P.M., and approved one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

            5.         On January 23, 2012, the Commission entered Order No. 535-136 which pooled all interests within the approximate 1,280-acre unit.  Sections 26 and 35, Township 8 North, Range 62 West, 6th P.M. are subject to this Order for the Niobrara Formation.

 

            6.         On April 17, 2014, Red Hawk filed a concurrent application, Docket No. 1406-AW-13, pursuant to §34-60-116(4), C.R.S. for an order to approve up to 16 horizontal wells within the unit.  This concurrent application is set for hearing on June 16-17, 2014.

 

            7.         On April 17, 2014, Red Hawk, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S. for an order to pool all interests, including previously unnoticed interests, in an approximate 1,280-acre drilling and spacing unit established by Order No. 535-8 for the below-described lands (“Application Lands”) for the development and operation of the Niobrara Formation; and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of any well for which cost recovery is granted by the Commission at the June 16-17, 2014 hearing:

 

                                    Township 8 North, Range 62 West, 6th P.M.

                                    Section 26:      All

                                    Section 35:      All

 

            8.         On June 5, 2014, a prehearing conference (“PHC”) was held in this matter.  Hearing Officer, Roger Allbrandt presided over the PHC. James Parrot, Attorney for Red Hawk, Angie Galvan, Regulatory Analyst for South Texas Reservoir Alliance for Red Hawk, Michael Rozenfeld, Geosciences President for the South Texas Reservoir Alliance for Red Hawk, Lee Fanyo, Attorney for Red Hawk, Jenna Keller, Attorney for the Songer Family, and Britta Becksted, Associate Enforcement Officer for the COGCC were present.

 

            9.         At the PHC, Red Hawk agreed it would provide a new Election/AFE (“Second Election”) to the Songer Family, and would allow the Songer Family 30 days from the date received by their attorney to execute a lease or to participate as a working interest owner.  The Songer Family agreed they had 30 days from receipt of the Second Election materials to execute a lease, or to advise Red Hawk and COGCC Hearings Unit staff of their objection to the Second Election proffered by Red Hawk as unreasonable.

 

            10.       On June 6, 2014 the Hearing Officer issued a Hearing Officer Order bifurcating the Songer Family interests subject to the pending Protest from Docket No. 1406-UP-147, as to the request for cost recovery, §34-60-116(7), C.R.S., only.

 

11.       All interests in the unit, including those Songer Family intersts, shall be pooled by this Order.  Those Songer Family interests subject to the pending Protest shall not be subject to any cost recovery provision approved by this Order.

 

12.       On June 6, 2014, Red Hawk, 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.

 

13.       Land testimony and exhibits submitted in support of the Application by Matt Skinner, Land Contractor for Red Hawk, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and 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 June 17, 2014 hearing date.

 

14.       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 Cass 26-1H Well, but did not provide testimony for any subsequent wells.

 

15.       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.

 

16.       Red Hawk agreed to be bound by oral order of the Commission. 

 

17.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to pool all interests within an approximate 1,280-acre drilling and spacing unit established for Sections 26 and 35, Township 8 North, Range 62 West, 6th P.M. ,and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S. for the drilling of the Cass 26-1H 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, including previously unnoticed interests, in the approximate 1,280-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 November 23, 2011, the date of application for Order No. 535-136

 

                                    Township 8 North, Range 62 West, 6th P.M.

                                    Section 26:      All

                                    Section 35:      All

 

2.         Those Songer Family interests subject to the pending bifurcated Protest shall not be subject to the cost recovery provisions approved by this Order.  Issues regarding the applicability of §34-60-116(7), C.R.S. and Rule 530 are continued to the July 28-29, 2014 hearing.

 

3.         Cost recovery granted pursuant to §34-60-116(7) for the Otswald 1-26H Well (API No. 05-123-33647) by Order No. 535-136 applies only to those nonconsenting parties given legal notice of the original Application (Docket No. 1201-UP-23), effective as of the date of the original Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Otswald 1-26H Well.

 

4.         Cost recovery granted pursuant to §34-60-116(7) for the Cass 26-1H Well, effective as of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Cass 26-1H Well.

 

5.         The production obtained from the wellbore 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 wellbore spacing unit; each owner of an interest in the wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the wellbore spacing unit applicable to its interest in the wellbore spacing unit.

 

6.         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 wellbore spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

 

7.         Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Cass 26-1H Well and are subject to the penalties as provided for by §34-60-116(7), C.R.S., effective as of the earlier of the date of this Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S. were first incurred for the drilling of the Cass 26-1H Well.  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).

 

8.         Each nonconsenting unleased owner within the wellbore 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.

 

9.         The operator of the well drilled on the above-described wellbore 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.

 

10.       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 35 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 July, 2014, as of June 17, 2014.         

 

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary