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, SULPHUR CREEK FIELD, RIO BLANCO COUNTY, COLORADO

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CAUSE NO. 547

 

DOCKET NO. 1409-UP-276

 

ORDER NO. 547-16

CORRECTED

 

REPORT OF THE COMMISSION

 

            The Commission heard this matter on September 15, 2014, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, CO, upon application for an order to: 1) establish an approximate 600-acre drilling and spacing unit for Section 29, Township 2 South, Range 98 West, 6th P.M., and approve up to eight horizontal, vertical, and directional wells within the unit; and 2) pool all interests within the approximate 600-acre drilling and spacing unit established for Section 29, Township 2 South, Range 98 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Federal RG 713-29-298 Well, for the development and operation of the Mancos, Niobrara, Frontier, Mowry, and Dakota Formations (collectively, the “Deep Formations”).

 

FINDINGS

 

The Commission finds as follows:

 

1.         WPX Energy Rocky Mountain, LLC (“WPX” 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, on unspaced lands, 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.  Section 29, Township 2 South, Range 98 West, 6th P.M. is subject to Rule 318.a. for the Deep Formations.

 

5.         On July 17, 2014, WPX, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S. for an order to: 1) establish an approximate 600-acre drilling and spacing unit for the below-described lands (“Application Lands”), and approve up to eight horizontal, vertical and directional wells within the unit, with the productive interval of the wellbore to be located no closer than 300 feet from the unit boundaries, and no closer than 600 feet from the productive interval of any other wellbore located in the unit, without exception by the Director; and 2) pool all interests in the approximate 600-acre drilling and spacing unit established for the Application Lands (“Application Lands”), for the development and operation of the Deep Formations, effective as of the date of the Application, and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S.,:

 

Township 2 South, Range 98 West, 6th P.M.
            Section 29:      Lots 1 through 16        (All)

 

Applicant also requested that the proposed wells be drilled from a new, common, or existing well pad and from no more than one pad per quarter-quarter section (or lots or parcels approximately equivalent).

 

 6.        On August 25, 2014, WPX, 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.

 

7.         Land testimony and exhibits submitted in support of the Application by Maxwell Faith, Senior Landman for WPX, showed that WPX holds oil and gas leasehold interests and has a right to drill in the Application Lands. Testimony also showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure ("AFE") and offer to participate in the Federal RG 713-29-298 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 September 15, 2014 hearing date.

 

8.         Land testimony showed the Applicant complied with the requirements of Rule 530, and is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the  Federal RG 713-29-298 Well, but did not provide testimony for any subsequent wells.

 

            9.         Geologic testimony and exhibits submitted in support of the Application by Trevor Gates, Petroleum Geologist for WPX, showed that the Deep Formations exist underneath the entirety of the Application Lands and are a common source of supply. Testimony further showed that conventional log interpretation supports the presence of gas supply throughout the Deep Formations underlying the Application Lands.

 

            10.       Engineering testimony and exhibits submitted in support of the Application by Tyler Peters, Senior Reservoir Engineer for WPX, showed that drilling and completing a combination of horizontal and vertical wells is the most efficient and economic method of developing the resource for the Deep Formations underlying the Application Lands. Testimony further showed that based on the micro seismic analysis, drilling up to eight horizontal, directional and vertical wells with reduced inter-well spacing of no less than 300 feet for the proposed exploratory drilling unit and a 300 foot setback from the northern and southern unit boundaries is necessary to promote efficient drainage while protecting correlative rights.

 

11.       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.

 

12.       WPX agreed to be bound by oral order of the Commission.

 

13.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Unit review of the Application under Rule 511., the Commission should enter an order to: 1) establish an approximate 600-acre drilling and spacing unit for Section 29, Township 2 South, Range 98 West, 6th P.M., and approve up to eight horizontal, vertical, and directional wells within the unit; and 2) pool all interests within the approximate 600-acre drilling and spacing unit established for Section 29, Township 2 South, Range 98 West, 6th P.M., and to subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., for the drilling of the Federal RG 713-29-298 Well, for the development and operation of the Mancos, Niobrara, Frontier, Mowry, and Dakota Formations (collectively, the “Deep Formations”).

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         An approximate 600-acre drilling and spacing unit for the below-described lands, is hereby established, and a total of up to eight horizontal, vertical and directional wells within the unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Deep Formations:

 

Township 2 South, Range 98 West, 6th P.M.

Section 29:      Lots 1 thru 16 (All)

 

2.         The productive interval of the wellbore shall be located no closer than 300 feet from the unit boundaries, and no closer than 600 feet from the productive interval of any other wellbore located in the unit, without exception by the Director.

 

3.         The proposed wells shall be drilled from a new, common, or existing well pad and from no more than one pad per quarter-quarter section (or lots or parcels approximately equivalent).

 

4.         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 600-acre drilling and spacing unit established for the below-described lands, are hereby pooled, for the development and operation of the Deep 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) are first incurred for the drilling of the Federal RG 713-29-298 Well (“Well”)

 

5.         The production obtained from the 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 drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

 

6.         The nonconsenting unleased 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 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.

 

7.         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.  Any party seeking the cost recovery provisions of §34-60-116(7), C.R.S., shall first comply with subsection (d) for any subsequent well(s).

 

8.         Each nonconsenting unleased owner within the 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.

 

9.         The operator of the well drilled on the above-described 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.

 

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 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 22nd  day of September, 2014, as of September 15, 2014.            

CORRECTED this 8th day of October, 2015, as of September 15, 2014.

 

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________       

                                                                                    Julie Murphy, Secretary