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 THE NIOBRARA FORMATION, unnamed field, WELD County, Colorado |
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CAUSE NO. 535 DOCKET NO. 150900527 TYPE: POOLING
ORDER NO. 535-697
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REPORT OF THE COMMISSION
The Commission heard this matter on September 14, 2015, at the Western State Colorado University, 600 North Adams Street, Gunnison, Colorado, upon application for an order to affirm and apply Order Nos. 535-254 and 535-650 and the cost recovery provisions of §34-60-116(7), C.R.S., to a nonconsenting owner who has failed to agree to bear its proportionate share of the costs and risks of drilling and operating the drilled Bringelson 1-32-9-58 Well and the drilled Bringelson 2-32-9-58 Well, 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)(II), C.R.S., were first incurred, for the development and operation of the Niobrara Formation.
FINDINGS
The Commission finds as follows:
1. Carrizo Oil (Niobrara), LLC (Operator No. 10439), a subsidiary of 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 February 22, 2011, the Commission entered Order No. 535-3 which established various approximate 640-acre drilling and spacing units, including the Application Lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, and approved one horizontal well within each unit, with the initial perforation of Niobrara Formation and ultimate bottom hole location no closer than 600 feet from the boundaries of the unit.
5. On January 7, 2013, the Commission entered Order No. 535-238 which approved up to six horizontal wells in various approximate 640-acre drilling and spacing units, including the Application Lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore to be located no closer than 600 feet from the unit boundaries and no closer than 600 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director.
6. On January 7, 2013, the Commission entered Order No. 535-254 which pooled all interests in the approximate 640-acre drilling and spacing unit established for the Application Lands, for the development and operation of the Niobrara Formation, to accommodate the Bringelson 1-32-9-58 Well.
7. On December 16, 2013, the Commission entered Order No. 535-446 which approved up to 15 horizontal wells in the approximate 640-acre drilling and spacing unit established for the Application Lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the productive interval of the wellbore to be located no closer than 600 feet from the north, west, and south section lines which are adjacent to a section containing federal minerals and no closer than 300 feet from the east section line, and no closer than 300 feet from the productive interval of any other wellbore located in the unit, without exception being granted by the Director, with the wells located on no more than one well pad per quarter section within the drilling and spacing unit.
8. On December 15, 2014, the Commission entered Order No. 535-586 which approved up to 16 horizontal wells in the approximate 640-acre drilling and spacing unit established for the Application Lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the productive interval of the wellbore to be located no closer than 300 feet from the unit boundaries, and no closer than 300 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director, with the wells located on no more than four well pads within the drilling and spacing unit, without exception being granted by the Director.
9. On April 13, 2015, the Commission entered Order No. 535-650 which pooled all interests in the approximate 640-acre drilling and spacing unit established for the Application Lands, for the development and operation of the Niobrara Formation, to accommodate the Bringelson 2-32-9-58, Bringelson 3-32-9-58, Bringelson 4-32-9-58, Bringelson 5-32-9-58, and Bringelson 6-32-9-58 Wells.
10. On May 21, 2015 (Amended July 17, 2015), Carrizo, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to affirm and apply Order Nos. 535-254 and 535-650 and the cost recovery provisions of § 34-60-116(7), C.R.S., to a nonconsenting owner who has failed to agree to bear its proportionate share of the costs and risks of drilling and operating the drilled Bringelson 1-32-9-58 Well (API No. 05-123-33960) and the drilled Bringelson 2-32-9-58 Well (API No. 05-123-36625)(“Wells”), 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)(II), C.R.S., were first incurred for the drilling of the Wells with the below-described lands (“Application Lands”), for the development and operation of the Niobrara Formation:
Township 9 North, Range 58 West, 6th P.M.
Section 32: All
11. On August 24, 2015, 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.
12. Land testimony and exhibits submitted in support of the Application by Ross D. Wardlaw, Senior Landman for Carrizo, showed that SKV, LLC (“SKV”), was a nonconsenting interest owner and was notified of the Application and received and 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 35 days prior to the September 14, 2015 hearing date.
13. 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., from SKV for the drilled Bringelson 1-32-9-58 Well and the drilled Bringelson 2-32-9-58 Well, but did not provide testimony for any subsequent wells.
14. 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.
15. Carrizo 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 affirm and apply Order Nos. 535-254 and 535-650 and the cost recovery provisions of §34-60-116(7), C.R.S., to a nonconsenting owner who has failed to agree to bear its proportionate share of the costs and risks of drilling and operating the drilled Bringelson 1-32-9-58 Well and the drilled Bringelson 2-32-9-58 Well, 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)(II), C.R.S., were first incurred, 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, Order Nos. 535-254 and 535-650 are hereby affirmed and applied to SKV, a nonconsenting owner, 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)(II), C.R.S., are first incurred for Bringelson 1-32-9-58 Well (API No. 05-123-33960) and the Bringelson 2-32-9-58 Well (API No. 05-123-36625) within the unit established for the below-described lands, for the development and operation of the Niobrara Formation:
Township 9 North, Range 58 West, 6th P.M.
Section 32: 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 Wells located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.
3. The nonconsenting leased (working interest) owner must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Wells (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 Wells 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 Wells, 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 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 18th day of September, 2015, as of September 14, 2015.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Julie Murphy, Secretary