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, ARAPAHOE COUNTY,      COLORADO

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CAUSE NO. 535

 

DOCKET NO. 170300131

 

TYPE: POOLING

 

ORDER NO. 535-781

REPORT OF THE COMMISSION

 

The Commission heard this matter on May 1, 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 in an approximate 1,280-acre drilling and spacing unit established for Sections 4 and 5, Township 4 South, Range 64 West, 6th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the B&D Land 4-64 4-5 #4BH Well, for the development and operation of the Niobrara Formation.

 

FINDINGS

 

The Commission finds as follows:

 

1.         ConocoPhillips Company (Operator No. 19160) (“ConocoPhillips” 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 October 31, 2011, the Commission entered Order No. 535-97 which established 25 approximate 640-acre drilling and spacing units and approved two horizontal wells in each unit, for production of oil, gas, and other hydrocarbons from the Niobrara Formation, and allowed for the lateral of a given horizontal well to enter the Niobrara Formation no closer than 300 feet from the section line. Sections 4 and 5, Township 4 South, Range 64 West, 6th P.M., were subject to this Order for the production of oil, gas, and associated hydrocarbons from the Niobrara Formation.

5.         On July 28, 2014, the Commission entered Order No. 535-519 which, among other things, vacated two approximate 640-acre drilling and spacing units established by Order No. 535-97 for Sections 5 and 6, Township 4 South, Range 64 West, 6th P.M.; and established an approximate 1,280-acre exploratory drilling and spacing unit for Sections 5 and 6, Township 4 South, Range 64 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation; and approve up to two horizontal wells within the unit.

 

 

6.         On September 15, 2014, the Commission entered Order No. 535-537 which, among other things, modified Order No. 535-97 to allow for the lateral of a given horizontal well to enter the Niobrara Formation anywhere with the unit for Section 4, Township 4 South, Range 64 West, 6th P.M.

 

7.         On October 26, 2015, the Commission entered Order No. 535-709 which, among other things, (1) vacated an approximate 640-acre drilling and spacing unit established by Order No. 535-97 for Section 4, Township 4 South, Range 64 West, 6th P.M.; (2) vacated an approximate 1280-acre exploratory drilling and spacing unit established by Order No. 535-519 for Sections 5 and 6, Township 4 South, Range 64 West, 6th P.M.; and (3) established an approximate 1280-acre drilling and spacing unit for Sections 4 and 5, Township 4 South, Range 64 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.

 

8.         On January 19, 2017, ConocoPhillips, 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 1,280-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 B&D Land 4-64 4-5 #4BH Well (API No. 05-005-07245) (“Well”):

 

Township 4 South, Range 64 West, 6th P.M.

Section 4:        All

Section 5:        All

 

9.         On February 21, 2017, 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.

 

10.       On February 16, 2017, Rodney J. and Susan L. Bockenfeld (“Bockenfelds”) filed a protest.  A prehearing conference was held on March 6, 2017.  At the prehearing conference, the Bockenfelds’ protest was converted to a Rule 510 statement.

 

11.       On March 6, 2017, CMH Homes, Inc. (“CMH”) filed a protest.  On March 30, 2017, CMH withdrew its protest.

 

12.       On March 6, 2017, Watkins Farm Homeowners Association Inc. (“Watkins Farm HOA”) filed a protest.  On April 11, 2017, Watkins Farm HOA withdrew its protest.

 

13.       On March 6, 2017, Extraction Oil & Gas, Inc. (“Extraction”) filed a protest.  On May 1, 2017, Extraction withdrew its protest.

 

14.       ConocoPhillips made a presentation to the Commission at the May 1, 2017 hearing. 

 

15.       Land testimony and exhibits submitted in support of the Application by Jace McKenzie, Associate Landman for ConocoPhillips, 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 35 days prior to the March 20, 2017 hearing date.

                                                 

16.       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 B&D Land 4-64 4-5 #4BH Well, but did not provide testimony for any subsequent wells.

 

17.       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.

 

18.       ConocoPhillips agreed to be bound by oral order of the Commission.

 

19.       Based on the facts stated in the verified Application, the Bockenfelds’ protest have been converted to a Rule 510 statement, all other protests having been withdrawn, and based on the Hearing Officer review of the Application under Rule 511., and the presentation made to the Commission, the Commission should enter an order to pool all interests in an approximate 1,280-acre drilling and spacing unit established for Sections 4 and 5, Township 4 South, Range 64 West, 6th P.M., and to subject all nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the B&D Land 4-64 4-5 #4BH 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 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 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 B&D Land 4-64 4-5 #4BH Well (API No. 05-005-07245):

 

Township 4 South, Range 64 West, 6th P.M.

Section 4:        All

Section 5:        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 Well 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 the Well (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 Well 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 unleased 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 nonconsenting unleased 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 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 8th day of May, 2017, as of May 1, 2017.

           

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By____________________________________

Peter Gowen, Acting Secretary