BEFORE THE OIL AND
GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
|
IN THE MATTER OF THE APPLICATION OF AXIA ENERGY, LLC FOR AN ORDER TO POOL ALL INTERESTS WITHIN AN APPROXIMATE 2660.9-ACRE UNCONVENTIONAL RESOURCE UNIT IN SECTIONS 5, 6, 7 AND 8, TOWNSHIP 8 NORTH, RANGE 91 WEST, 6TH P.M., FOR THE MANCOS AND NIOBRARA FORMATIONS, UNNAMED FIELD, MOFFAT COUNTY, COLORADO |
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CAUSE NO. 540
DOCKET NO. 1309-UP-197
ORDER NO. 540-46 |
REPORT OF THE COMMISSION
The Commission heard this matter on October 28, 2013, at the Limon Community Center, 477 D Avenue, Limon, Colorado, upon application for an order to pool all interests in an approximate 2660.9-acre unconventional resource unit, to accommodate four Initial Wells, 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 5, 6, 7 and 8, Township 8 North, Range 91 West, 6th P.M. are subject to Rule 318.a. for the Mancos and Niobrara Formations.
5. On July 18, 2013, Axia, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Concurrent Application”), Docket No. 1309-SP-1180, for an order to establish an approximate 2660.90-acre unconventional resource unit for Sections 5, 6, 7 and 8, Township 8 North, Range 91 West, 6th P.M. and approve the appropriate number of vertical, directional or horizontal 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.
6. On July 18, 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 2660.9-acre unconventional resource 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 8-34V-891 Well, the Bulldog 8-34H-891 Well, the Bulldog 8-44G-891 Well (“Wells”) and the five subsequent wells drilled within the unit, and to subject any nonconsenting interests to the cost recovery provisions of C.R.S. §34-60-116(7):
Township 8 North, Range 91 West, 6th P.M.
Section 5: All (Lots 1-4, S½ N½, S½)
Section 6: All (Lots 8-23)
Section 7: All (Lots 5-8, E½ W½, E½)
Section 8: All
7. On August 21, 2013, Axia requested, and Commission staff granted, a continuance to the October 28, 2013 hearing.
8. On October 10, 2013, a Rule 510 Statement was filed by the Rollins Investment Company.
9. On October 15, 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.
10. Land testimony and exhibits submitted in support of the Application by Tab McGinley, 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 October 28, 2013 hearing date.
11. Land testimony stated the Applicant is requesting the Commission approve the cost recovery penalties set forth in §34-60-116(7) C.R.S. for the four Initial Wells drilled within the unit. If Applicant elects to drill more than four wells, Applicant will notify nonconsenting parties and give them an opportunity to participate pursuant to Rule 530.
12. For purposes of pooling and cost recovery pursuant to C.R.S. §§34 60-116(6), (7), Applicant requested the Commission:
a. require each interest owner who is not
pooled voluntarily to make an election to participate or be pooled by statute
in the four Initial Wells collectively, rather than in each Initial Well
individually; and
b. for each nonconsenting owner, apply
the cost recovery provisions of C.R.S. §34-60-116(7) to each of the four
Initial Wells that Applicant (or a successor in interest) drills and completes
(or abandons) within five years of the date of this Order; and
c. require Applicant to re-comply with
Rule 530 and allow each nonconsenting owner to make a new election to
participate or be pooled by statute in each Initial Well, if any, that is not
drilled to total depth (or abandoned) within five years of the date of this
Order; and
d. require Applicant to re-comply with
Rule 530 and allow each interest owner who is not pooled voluntarily to make an
election to participate or be pooled by statute in any subsequently drilled
well(s) within the unconventional resource unit.
13. 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.
14. The Commission requested that this matter be set for review by the Commission in one year and annually thereafter, without exception being granted by the Commission.
15. Axia 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 upon a hearing before the Commission, the Commission may enter an order to pool all interests in an approximate 2660.9-acre unconventional resource unit, to accommodate the four Initial Wells, for the development and operation of the Mancos and Niobrara Formations.
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 2660.9-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 drilling each of the four Initial Wells:
Township 8 North, Range 91 West, 6th P.M.
Section 5: All (Lots 1-4, S½ N½, S½)
Section 6: All (Lots 8-23)
Section 7: All (Lots 5-8, E½ W½, E½)
Section 8: All
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 acres in such 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. 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.
5. 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.
6. For purposes of pooling and cost recovery pursuant to C.R.S. §§34 60-116(6), (7):
a. Each interest owner who is not pooled
voluntarily shall make an election to participate or be pooled by statute in
the four Initial Wells collectively, rather than in each Initial Well
individually; and
b. for each nonconsenting owner, the cost
recovery provisions of C.R.S. §34-60-116(7) shall apply to each of the four
Initial Wells that Applicant (or a successor in interest) drills and completes
(or abandons) within five years of the date of this Order; and
c. Applicant shall re-comply with Rule
530 and allow each nonconsenting owner to make a new election to participate or
be pooled by statute in each Initial Well, if any, that is not drilled to total
depth (or abandoned) within five years of the date of this Order; and
d. Applicant shall re-comply with Rule
530 and allow each interest owner who is not pooled voluntarily to make an
election to participate or be pooled by statute in any subsequently drilled
well(s) within the unconventional resource unit.
7. During the period of cost recovery provided for in §34-60-116(7), C.R.S. the Commission shall retain jurisdiction to determine the reasonableness of costs of operation of the well attributable to the interest of such nonconsenting owner.
8. The unconventional resource unit described above, shall be considered a drilling and spacing unit established by the Commission for purposes of Rule 530.a.
9. This matter shall be set for review by the Commission in one year and annually thereafter, without exception being granted by the Commission.
10. 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 30 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 20th day of November, 2013, as of October 28, 2013.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By____________________________________
Robert J. Frick, Secretary