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 AN UNNAMED FIELD,
MOFFAT COUNTY, COLORADO |
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CAUSE NO. 540
ORDER NO. 540-10
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REPORT OF THE COMMISSION
The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery
Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order
to pool all interests in an approximate 1027.90-acre exploratory drilling and
spacing unit for Sections 6 and 7, Township 7 North, Range 90 West, 6th
P.M., to accommodate the
Bulldog 6-31H-790 Well for the development and operation of the Mancos and
Niobrara Formations.
FINDINGS
The Commission finds as follows:
1.
Axia Energy, LLC (“Axia” 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.
Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation
Commission requires that wells drilled in excess of 2,500 feet in depth be
located not less than 600 feet from any lease line, and located not less than
1,200 feet from any other producible or drilling oil or gas well when drilling
to the same common source of supply. Sections 6 and 7, Township 7 North, Range
90 West, 6th P.M. are unspaced as to the Mancos and Niobrara
Formations, and are therefore subject to Rule 318.a.
5.
On March 30, 2012, Axia, by its attorneys, filed with the Commission
pursuant to § 34-60-116 C.R.S., a verified application (“Concurrent
Application”), Docket No. 1205-SP-52, seeking to, among other things, establish
an approximate 1027.90-acre exploratory drilling and spacing unit for certain
lands in Sections 6 and 7, Township 7 North, Range 90 West, 6th P.M.,
and authorize one or more horizontal wells within the unit, for the production
of oil, gas and associated hydrocarbons from the Mancos and Niobrara Formations.
6.
On March 30, 2012, Axia, 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 1027.90-acre exploratory drilling
and spacing unit for the
below-described lands (“Application Lands”), for the development and operation
of the Mancos and Niobrara Formations, 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)(II) were first incurred for the drilling of the Bulldog
6-31H-790 Well (“Well”), and to subject any nonconsenting interests to the cost
recovery provisions of C.R.S. § 34-60-116(7):
Township 7 North, Range 90 West, 6th P.M.
Section 6:
Lots
8-10, 12-23; a/d/a NE¼ NW¼, S½ NW¼, SW¼, E½
Section 7:
Lots 5-15; a/d/a N½, NE¼ SW¼, N½ SE¼
7.
On May 15, 2012, Axia, 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.
8.
Testimony and exhibits submitted in support of the Application by Tab
McGinley, Vice President of Land for Axia, showed that all nonconsenting
interest owners were notified of the Application and received an Authority for
Expenditure (“AFE”) and an 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 May 29, 2012 hearing date.
9.
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.
10.
Axia
agreed to be bound by oral order of the Commission.
11.
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 1027.90-acre exploratory drilling and spacing unit for Sections 6
and 7, Township 7 North, Range 90 West, 6th P.M., to accommodate the
Bulldog 6-31H-790 Well for the development and operation of the Mancos and
Niobrara Formations.
ORDER
NOW, THEREFORE IT IS ORDERED,
that:
1.
Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil
and Gas Conservation Act, all interests in the approximate 1027.90-acre
exploratory drilling and spacing unit established for the below-described lands,
are hereby pooled, for the development and operation of the Mancos and Niobrara
Formations, effective as of the earlier of the date of the Application, or the
date that the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred
for the drilling of the Bulldog 6-31H-790 Well:
Township 7 North, Range 90 West, 6th P.M.
Section 6:
Lots
8-10, 12-23; a/d/a NE¼ NW¼, S½ NW¼, SW¼, E½
Section 7:
Lots 5-15; a/d/a N½, NE¼ SW¼, N½ SE¼
2.
The production obtained from the exploratory 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 exploratory drilling and spacing unit; each owner of an interest in the exploratory
drilling and spacing unit shall be entitled to
receive its share of the production of the Well located on the exploratory
drilling and spacing unit applicable to its
interest in the exploratory 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 Well (including penalties as provided by
§34-60-116(7)(b), C.R.S.) out of production from the exploratory 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.
5.
Each nonconsenting unleased owner within the exploratory 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 well drilled on the above-described exploratory
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,
that the provisions contained in the above order shall become effective
immediately.
IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after
notice and hearing, to alter, amend or repeal any and/or all of the above
orders.
IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the
Commission considers this Order to be final agency action for purposes of
judicial review within 30 days after the date this Order is mailed by the
Commission.
IT IS FURTHER ORDERED, that an application for reconsideration by the Commission
of this Order is not required prior to the filing for judicial review.
ENTERED this
4th
day of June, 2012, as of May 29,
2012.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Peter J. Gowen, Acting Secretary
Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
June 4, 2012