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 MANCOS, NIOBRARA, FRONTIER, MOWRY AND DAKOTA  FORMATIONS, UNNAMED  FIELD,  GARFIELD COUNTY, COLORADO

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CAUSE NO. 547   DOCKET NO. 1406-SP-2065 ORDER NO. 547-11

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on July 28, 2014, at the Weld County Administration Building Events Center, 1150 “O” Street, Greeley, Colorado, upon application for an order to establish an approximate 960-acre exploratory drilling unit for Sections 7 and 18, Township 7 South, Range 95 West, 6^th P.M., and approve up to six horizontal wells within the unit, for the production of gas and associated hydrocarbons from the Mancos, Niobrara, Frontier, Mowry and Dakota Formations (collectively, the "Deep Formations").

 

FINDINGS

 

Jurisdictional Findings:

 

1.         Ursa Operating Company LLC ("Ursa" or "Applicant") is an interested party in the subject matter of the above-referenced hearing.

 

2.         Chevron U.S.A. Inc. (“Chevron” or “Protestant”) is an interested party in the subject matter of the above-reference hearing.

 

3.         Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

 

4.         The Commission has jurisdiction over the subject matter embraced in this Application, and of the interested parties, and jurisdiction to promulgate the following order pursuant to the Oil and Gas Conservation Act.

 

Procedural History:

 

5.         On April 17, 2014, Ursa, by its attorneys, filed with the Commission pursuant to §34-60-116, C.R.S., a verified application (“Application”) for an order to establish an exploratory 1280-acre drilling and spacing unit and approve up to six horizontal wells within the unit for the production of gas and associated hydrocarbons within the unit from the Deep Formations underlying the below-described lands (“Application Lands”).

 

 

Township 7 South, Range 95 West, 6^th P.M.

Section 7:        S½

Section 18:      All

 

6.         On June 2, 2014, Chevron, by its attorneys, filed a Protest of Application in Docket No. 1406-SP-2065 (“Protest”), alleging that its approval would strand Chevron’s non-operating working interest in the N½ of Section 7, Township 7 South, Range 95 West, 6^th P.M. (hereinafter, the “Relevant Acreage”), and thereby harm Chevron’s correlative rights, create waste, cause the unnecessary drilling of wells, and potentially drain the Relevant Acreage.

 

7.        On June 5, 2014, Ursa, by its attorneys, filed a Motion to Dismiss the Protest of Chevron U.S.A., Inc. (“Motion”).  Ursa stated that Chevron had failed to state any factual or legal basis on which the Application could be denied and that Chevron’s claim is non-justiciable.

 

8.         A prehearing conference was held on June 5, 2014 with the parties to discuss the Application and status of hearing.  At that time, deadlines were established for the Response to the Motion to Dismiss.

 

9.         On June 9, 2014, Chevron, by its attorneys, filed a Response to Motion to Dismiss (“Response”). Chevron contended that the Relevant Acreage would be directly and adversely impacted if Ursa’s Motion to Dismiss is granted and Ursa’s Application is approved.

 

10.       On June 11, 2014, the Hearing Officer issued an Order to deny the Motion to Dismiss and continued the Application to the July hearing.

 

11.       On July 17, 2014, a second prehearing conference was held to establish guidelines for the Commission hearing.

 

12.       On July 25, 2014, a telephone conference was held with the parties and Commission staff presented the parties with the Staff Recommendation.

 

Testimony:

 

13.       Land testimony and evidence presented by Don Simpson, Vice President of Business Development for Ursa, showed that Ursa owns approximately 816 net mineral acres in the Application Lands and presently operates several Mesaverde wells in the area.  Further testimony showed that WPX Energy Rocky Mountain, LLC owns the majority of the Relevant Acreage and Chevron owns approximately 12.43 net mineral acres in the Relevant Acreage.

 

14.       Geologic testimony presented by Duke Cooley, Senior Geologist for Ursa showed that the Mancos Group underlies the entirety of the Application Lands and is thousands of feet thick consisting of shales, siltstones, sandstones and limestones, with Ursa focusing on the Niobrara as its initial primary target zone.  Naturally occurring fractures support generally east-west primary frac propagation with hydraulic fracture half-length predicted to be 300 to 500 feet.

 

15.       Engineering testimony by Andrew Haney, Vice Present of Development for Ursa, showed that when drilling to the Niobrara Formation at this location, the optimum lateral should be no longer than 7,500 feet.  For completions in excess of 7,500 foot lateral length, fracture stimulations requires additional horsepower to overcome increased friction. Completions in excess of 7,500 feet also have reduced stimulation effectiveness, and long term production at the toe could sand off and greatly impact or halt production near the toe stages.

 

16.       Land testimony and evidence presented by Kevin McCarty, Land Representative for Chevron, showed that approval of the Application would prevent or severely reduce development of the Relevant Acreage, thereby creating waste and harming correlative rights, and cause wide variation in the shape and size of drilling and spacing units in the area of the Application Lands in violation of C.R.S. § 34-60-116(1).

 

17.       Geology evidence submitted by Debra Gomez, C.P.G, P.G., Vice President of MHA Petroleum Consultants on behalf of Chevron, indicated that the Deep Formations are prevalent throughout the Application Lands and the Relevant Acreage and that there is no geological impediment to drilling from the Application Lands into the Relevant Acreage, and requesting to expand the Application Lands to include the Relevant Acreage.

 

18.       Engineering testimony and evidence presented by John P. Seidle, Ph.D., P.E., Vice President of MHA Petroleum Consultants, on behalf of Chevron, indicated that Ursa’s planned wells for the Application Lands could potentially drain the Relevant Acreage.  Further testimony showed that approval of the Application would force development of the Relevant Acreage with suboptimal wellbore orientations, causing waste, and reduce the opportunity for owners within the Relevant Acreage to recover their just and equitable share of the oil and gas harming their correlative rights, and cause the drilling of unnecessary wells which may increase surface impacts.

 

19.       Further engineering testimony was provided by Ken Cooper, Completions Engineer for Petrotech on behalf of Chevron,, showed that there are differences between the proposed units and that there are longer lateral wells which have been proposed and approved by the Commission than those presented by Ursa. 

 

20.       Staff analysis presented by Stuart Ellsworth, Engineering Manager, explained that he considered the following factors in developing his recommendation: 1) the wells in the adjacent and nearby parcels have mile-long laterals; 2) orders nearby require a combination of vertical, horizontal, and directional wells; and 3) Chevron did not indicate that it had attempted to develop the acreage in the northern half of Section 7.

 

21.       Staff analysis presented by Jane Stanzcyk, Permitting and Technical Services Manager, showed that Ursa’s application is consistent with other applications submitted to the Commission and it is proposing an exploratory drilling and spacing unit, which means that aspects of the process may change. Ursa has several challenges in this area, including the Battlement Mesa Planned Unit Development and the availability of adequate surface locations.

 

Commission Deliberation Comments:

 

            22.       Commissioner Hawkins commented that the differences in technical evidence can be attributed to the fact this is exploratory and these projections are best estimates. Commissioner Hawkins also noted that establishing two 1280-acre exploratory units will allow for more orderly development. 

 

23.       Commissioner Benton noted that it is odd to have one 960-acre unit immediately adjacent to one 1280-acre unit. He commented that in reviewing the 960-acre unit, he noted that there is a 320 acres in the north half which does not contain a well and in the adjacent unit, there is a standup 320 acres and another 160 acres which does not contain a wellbore. 

 

24.       Commissioner Spielman was concerned about the opportunities to develop the 320-acre parcel in this particular area without including it in a 1280-acre unit. The 320- acre is bifurcated by the Colorado River, the riparian zone, a high-density residential area, I-70 and railroad infrastructure, which make the development of a 1280-acre unit more compelling.

 

25.       Chairman Compton commented that it appears that it would be very difficult, not impossible, to develop 320-acre unit as a separate unit.  He suggested approving the 1280-acre unit and denying the request for the 960-acre unit on the bases of waste. 

 

26.       Commissioner Hawkins asked whether there is a possibility to create two 1280-acre units or simply deny the request for the 960-acre unit.

 

27.       Commissioner Alward inquired as to whether the Staff used the proposed speculative well pad and trajectories in evaluating a proposed unit as there is limited number of proposed well pad location. 

 

28.       Commissioner Benton commented that some of the wellpads could be moved around depending on what is in the Planned Unit Development.

 

29.       Commissioner Benton moved to deny the request for the 960-acre exploratory unit.  Commissioner Hawkins seconded the motion and the denial of the application was approved by five Commissioners.

 

30.       Commissioner Holton voted against the denial of the 960-acre unit.

 

CONCLUSIONS OF LAW

 

The Commission finds and concludes:

 

1.         The application for an order to establish an approximate 960-acre exploratory drilling unit for Sections 7 and 18, Township 7 South, Range 95 West, 6^th P.M., and approve up to six horizontal wells within the unit, for the production of gas and associated hydrocarbons from the Deep Formations, is hereby denied.

 

ORDER

 

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                         day of August, 2014, as of July 28, 2014.

           

 

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

 

By: ____________________________________     

                    Robert J. Frick, Secretary