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. 540-9
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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 1272.61-acre exploratory drilling and
spacing unit for Sections 6 and 7, Township 7 North, Range 89 West, 6th
P.M., to accommodate the Bulldog 7-14H-789 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 89 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-58, seeking
to, among other things, establish an approximate 1272.61-acre exploratory
drilling and spacing unit for certain lands in Sections 6 and 7, Township 7
North, Range 89 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 1272.61-acre exploratory drilling
and spacing unit, including the
currently-proposed Well, 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 7-14H-789 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 89 West, 6th P.M.
Section 6: Lots 8-23; a/d/a ALL
Section 7: Lots 5-20; a/d/a ALL
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 noncensenting
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
1272.61-acre exploratory drilling and spacing unit for Sections 6 and 7,
Township 7 North, Range 89 West, 6th P.M., to accommodate the Bulldog
7-14H-789 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 1272.61-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 7-14H-789 Well:
Township 7
North, Range 89 West, 6th P.M.
Section 6: Lots 8-23; a/d/a ALL
Section 7: Lots 5-20; a/d/a ALL
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