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
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CAUSE
NO. 535
DOCKET
NO. 160800348
ORDER
NO. 535-737
TYPE:
POOLING
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REPORT
OF THE COMMISSION
The
Commission heard this matter on August 29, 2016, at the Colorado Oil and Gas
Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon
application for an order to pool all interests within an approximate 960-acre
drilling and spacing unit established for Section 27 and the E˝ of Section 28,
Township 10 North, Range 59 West, 6th P.M., for the drilling of the Nelson
Ranches 2-27-10-59 Well, Nelson Ranches 3-27-10-59 Well, Nelson Ranches
4-27-10-59 Well, and Nelson Ranches 5-27-10-59 Well, for the development and operation
of the Niobrara Formation.
FINDINGS
The
Commission finds as follows:
1.
Carrizo
(Niobrara) LLC, (“Carrizo” or “Applicant”), Operator No. 10439, 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 established an
approximate 640-acre drilling and spacing unit for Section 27, Township 10
North, Range 59 West, 6th P.M., and approved up to two horizontal
wells within the unit, for the production of oil, gas and associated
hydrocarbons from the Niobrara Formation, with the treated interval of the
permitted wellbore to be located no closer than 600 feet from the boundary of
the unit and no closer than 1200 feet from the treated interval of any other
wellbore completed in the Niobrara, without exception being granted by the
Director.
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 established for
Section 27, Township 10 North, Range 59 West, 6th P.M., to
accommodate the Nelson Ranches 27-11-10-59 Well, for the development and
operation of the Niobrara Formation.
6.
On
February 11, 2013, the Commission entered Order No. 535-264 which approved up
to six horizontal wells within certain lands, including Section 28, Township 10
North, Range 59 West, 6th P.M., for the production of oil, gas and
associated hydrocarbons from the Niobrara Formation.
7.
On
February 11, 2013, the Commission entered Order No. 535-272 which approved four
approximate 640-acre exploratory drilling and spacing units for certain lands,
including Section 28, Township 10 North, Range 59 West, 6th P.M., and
approved one horizontal well within each unit, for the production of oil, gas
and associated hydrocarbons from the Niobrara Formation.
8.
On
May 6, 2013, the Commission entered Order No. 535-329 which, among other
things, vacated the approximate 640-acre exploratory drilling and spacing unit
established by Order No. 535-272 for a portion of the Application Lands and
established a 960-acre exploratory drilling and spacing unit for the
Application Lands, for the production of oil, gas and associated hydrocarbons
from the Niobrara Formation.
9.
On
June 17, 2013, the Commission entered Order No. 535-342 which approved up to 13
horizontal wells within the Application Lands and established unit-boundary
setbacks with internal wellbores offset by 300 feet and unit boundary setbacks
of 600 feet, for the production of oil, gas and associated hydrocarbons from
the Niobrara Formation.
10.
On
July 29, 2013, the Commission entered Order No. 535-364 which pooled all
interests in the Application Lands for the drilling of the Nelson Ranches
1-27-10-59 Well, for the development and operation the Niobrara Formation.
11.
On
December 15, 2014, the Commission entered Order No. 535-584 which approved an
additional 19 horizontal wells, for a total of up to 32 horizontal wells in the
Application Lands, for the production of oil, gas and associated hydrocarbons
from the Niobrara Formation.
12.
On
June 30, 2016, 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 an approximate 960-acre drilling and spacing unit established
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 C.R.S. §34-60-116(7)(b) were first incurred for the drilling of
the Nelson Ranches 2-27-10-59 Well (API No. 05-123-39158), Nelson Ranches
3-27-10-59 Well (API No. 05-123-39159), Nelson Ranches 4-27-10-59 Well (API No.
05-123-38239) and Nelson Ranches 5-27-10-59 Well (API No. 05-123-39170)
(“Wells”):
Township 10 North,
Range 59 West, 6th P.M.
Section
27: All
Section 28: E˝
13.
On
August 8, 2016, 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.
Land
testimony and exhibits submitted in support of the Application by Damian Katz, Landman
for Carrizo, showed that all nonconsenting interest owners were notified of the
Application and received and 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 35 days
prior to the August 29, 2016 hearing date.
15.
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 2-27-10-59 Well, Nelson Ranches 3-27-10-59 Well,
Nelson Ranches 4-27-10-59 Well and Nelson Ranches 5-27-10-59 Well, but did not
provide testimony for any subsequent wells.
16.
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.
17.
Carrizo
agreed to be bound by oral order of the Commission.
18.
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 established for Section 27 and the E˝ of Section 28,
Township 10 North, Range 59 West, 6th P.M., for the drilling of the Nelson
Ranches 2-27-10-59 Well, Nelson Ranches 3-27-10-59 Well, Nelson Ranches
4-27-10-59 Well and Nelson Ranches 5-27-10-59 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 within an approximate 960-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 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 Nelson Ranches 2-27-10-59 Well, Nelson Ranches
3-27-10-59 Well, Nelson Ranches 4-27-10-59 Well, and Nelson Ranches 5-27-10-59
Well (“Wells”):
Township 10 North,
Range 59 West, 6th P.M.
Section
27: All
Section 28: E˝
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) owners 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 wells 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 1st day of September 2016, as of August 29, 2016.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Julie Murphy,
Secretary