BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF THE COMMISSION

The Commission heard this matter on March 25, 2013, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to pool all interests in an approximate 2613.44-acre unit established for Sections 3, 4, 9, and 10, Township 8 North, Range 90 West, 6^th P.M., to accommodate the Bulldog 10-24H-890 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 all persons and property, public and private, necessary to enforce the provisions of the Oil and Gas Conservation Act (“Act”), and has the power to make and enforce rules, regulations, and orders pursuant to the Act, and to do whatever may reasonably be necessary to carry out the provisions of the Act.  §34-60-105 C.R.S.  The Commission has the authority to regulate the drilling, producing and spacing of wells.  §34-60-106(2) C.R.S.

4.         The Commission finds it has jurisdiction over the subject matter embraced in said Notice, and that the Notice provided meets all requirements of law

5.         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 3, 4, 9, and 10, Township 8 North, Range 90 West, 6^th P.M., are subject to Rule 318.a for the Mancos and Niobrara Formations.

6.         On January 24, 2013, Axia, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Concurrent Application”), Docket No. 1303-SP-40, for an order to, among other things, establish an approximate 2613.44-acre unit for certain lands in Sections 3, 4, 9, and 10, Township 8 North, Range 90 West, 6^th P.M., and the appropriate number of wells in order to efficiently and economically recover the oil, gas and associated hydrocarbons from the proposed unit, for the production of oil, gas and associated hydrocarbons from the Mancos and Niobrara Formations.

7.         On January 24, 2013, 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 2613.44-acre unit established 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 10-24H-890 (“Well”), and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. § 34-60-116(7):

Township 8 North, Range 90 West, 6^th P.M.

Section 3:           All        (a/d/a Lots 2, 5-18, SW¼ NE¼)

Section 4:           All        (a/d/a Lots 5-20)

Section 9:           All        (a/d/a Lots 1-16)

Section 10:         All        (a/d/a Lots 1-15, SE¼ SE¼)

Applicant confirmed that the approved pooling order will pool all interests in the unit, pursuant to §34-60-116(6) C.R.S., and acknowledges that the nonconsenting parties’ interests in the first eight wells drilled and completed in the unit will be subject to the nonconsent penalties set forth in §34-60-116(7) C.R.S.  If Applicant elects to drill more than eight wells, Applicant will notify nonconsenting parties and give them an opportunity to participate pursuant to Rule 530.

8.         On March 12, 2013, 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.

9.         Land 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 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 March 25, 2013 hearing date.

10.       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.

11.       Axia agreed to be bound by oral order of the Commission. 

12.       The Commission finds that the unconventional resource unit shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.

13.       The Commission requested that this matter be set for review by the Commission in one year.

14.       Based on the facts stated in the verified Application, having received no protests, and upon a hearing before the Commission, the Commission should enter an order to pool all interests in an approximate 2613.44-acre unit established for Sections 3, 4, 9, and 10, Township 8 North, Range 90 West, 6^th P.M., to accommodate the Bulldog 10-24H-890 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 2613.44-acre unconventional resource 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 any of the costs specified in C.R.S. §34-60-116(7)(b)(II) are first incurred for the drilling of the Bulldog 10-24H-890 Well, and the first eight wells drilled within the unit:

Township 8 North, Range 90 West, 6^th P.M.

Section 3:           All        (a/d/a Lots 2, 5-18, SW¼ NE¼)

Section 4:           All        (a/d/a Lots 5-20)

Section 9:           All        (a/d/a Lots 1-16)

Section 10:         All        (a/d/a Lots 1-15, SE¼ SE¼)

2.         The production obtained from the unit shall be allocated to each owner in the unit on the basis of the proportion that the number of surface acres in each owner’s tract bears to the total number of mineral acres within the unit; each owner of an interest in the unit shall be entitled to receive its share of the production of the Well located on the unit applicable to its interest in the 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 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 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 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 approved pooling order will pool all interests in the unit, pursuant to §34-60-116(6) C.R.S., and acknowledges that the nonconsenting parties’ interests in the first eight wells drilled and completed in the unit will be subject to the nonconsent penalties set forth in §34-60-116(7) C.R.S.  If Applicant elects to drill more than eight wells, Applicant will notify nonconsenting parties and give them an opportunity to participate pursuant to Rule 530.

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   16^th   day of April, 2013, as of March 25, 2013.

                                                            OIL AND GAS CONSERVATION COMMISSION

                                                            OF THE STATE OF COLORADO

                                                                                                                                                                                                                        By____________________________________       

                                                                        Robert J. Frick, Secretary