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. 161200485

 

TYPE: POOLING

 

ORDER NO. 535-758

REPORT OF THE COMMISSION

 

The Commission heard this matter on January 30, 2017, 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 640-acre drilling and spacing unit established for Section 25, Township 9 North, Range 60 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 Shull 2-25-9-60 Well, Shull 3-25-9-60 Well, and Shull 4-25-9-60 Well, for the development and operation of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         Carrizo (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 approximate 640-acre drilling and spacing units for certain lands, including the Section 25, Township 9 North, Range 60 West, 6th P.M., 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 February 11, 2013, the Commission entered Order No. 535-265 which approved up to six horizontal wells within certain exploratory drilling and spacing units, including the drilling and spacing unit comprising Section 25, Township 9 North, Range 60 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

 

6.         On February 11, 2013, the Commission entered Order No. 535-287 which pooled all interests in certain lands, including Section 25, Township 9 North, Range 60 West, 6th P.M., to accommodate the Shull 1-25-9-60 Well, for the development and operation of the Niobrara Formation.

 

7.         On December 16, 2013, the Commission entered Order No. 535-437 which approved an additional 8 horizontal wells, for a total of up to 14 horizontal wells in Section 25, Township 9 North, Range 60 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

8.         On December 15, 2014, the Commission entered Order No. 535-583 which approved an additional two horizontal wells, for a total of up to 16 horizontal wells in Section 25, Township 9 North, Range 60 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

 

9.         On October 11, 2016, Carrizo, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to pool all interests in an approximate 640-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., for the drilling of the Shull 2-25-9-60 Well (API No. 05-123-37245), Shull 3-25-9-60 Well (API No. 05-123-37244), and Shull 4-25-9-60 Well (API No. 05-123-37243) (“Wells”):

 

Township 9 North, Range 60 West, 6th P.M.

Section 25:      All 

 

10.       On January 4, 2017, Carrizo, through its attorney, and the Bureau of Land Management (“BLM”) agreed that the Application Lands contain federal minerals.   As such, Carrizo agreed to submit a Communitization Agreement (“CA”) to the BLM for any existing wells within 60 days of the date of the entry of this order.  Carrizo also agreed to submit a CA to the BLM at least 90 days before the anticipated date of first production (as defined in the Commission Rules) from the initial well drilled within the drilling and spacing unit.

 

11.       On January 9, 2017, amended January 23, 2019, Applicant, 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 Phillip Corey, District Landman for Carrizo, showed that all nonconsenting interest owners, those being Oil Purchase Association, Inc., and Wild Horse Reservoir & Land Co., were served with a  Summons by Publication pursuant to Commission Rule 507.a, Colorado Rule of Civil Procedure 4(g)(2), and §34-60-108(4), C.R.S.  All other interested parties were notified of the Application and have either leased their mineral interest or have agreed to participate in the Wells. 

                                                 

13.       Land testimony showed the Applicant could not comply with the requirements of Rule 530 because it had no addresses for the two non-consenting parties but is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the Shull 2-25-9-60 Well, Shull 3-25-9-60 Well, and Shull 4-25-9-60 Well.  Applicant 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 pool all interests in an approximate 640-acre drilling and spacing unit established for Section 25, Township 9 North, Range 60 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 Shull 2-25-9-60 Well, Shull 3-25-9-60 Well, and Shull 4-25-9-60 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 an approximate 640-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 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 the drilling of the Shull 2-25-9-60 Well (API No. 05-123-37245), Shull 3-25-9-60 Well (API No. 05-123-37244), and Shull 4-25-9-60 Well (API No. 05-123-37243):

 

Township 9 North, Range 60 West, 6th P.M.

Section 25:      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 working interest owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating each of 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 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 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.

 

8.         Carrizo shall submit a Communitization Agreement to the BLM for any existing wells within 60 days of the date of entry of this order. Carrizo shall also submit a Communitization Agreement to the BLM at least 90 days before the anticipated date of first production (as defined in the Commission Rules) from the initial well drilled within the drilling and spacing unit.

 

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 February, 2017, as of January 30, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Julie Murphy, Secretary