BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

IN THE MATTER OF THE APPLICATION OF NIGHTHAWK PRODUCTION, LLC FOR AN ORDER ESTABLISHING THE ARIKAREE CREEK STATE UNIT FOR ENHANCED RECOVERY FROM SPERGEN FORMATION FOR CERTAIN DESCRIBED LANDS IN THE ARIKAREE CREEK FIELD, LINCOLN COUNTY, COLORADO

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CAUSE NO.  556

 

DOCKET NO. 151200763

 

TYPE: UNITIZATION

 

ORDER NO.  556-1

REPORT OF THE COMMISSION

 

The Commission heard this matter on March 8, 2016, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln St., Suite 801, Denver, Colorado, 80203, upon application for an order to approve an approximate 1240-acre unit for enhanced recovery from portions of Sections 2, 10, 11, 14, and 15, Township 6 South, Range 54 West, 6th P.M. for unitized operations for the production of oil, gas, and associated hydrocarbons from the Mississippian Spergen Formation.

 

FINDINGS

 

Jurisdictional Findings:

 

1.         Nighthawk Production, LLC (Operator No. 10399) (“Nighthawk”) is an interested party in the subject matter of the above-referenced hearing.

                                                                                          

2.         Running Foxes Petroleum Inc. and Mr. Steven Tedesco (collectively “Running Foxes”) are interested parties in the subject matter of the above-referenced hearing.

 

3.         MBA Arkansas, LLC (“MBA”) is an interested party in the subject matter of the above-referenced hearing.

 

4.         James A. “Jim” Evans (“Evans”) is an interested party in the subject matter of the above-referenced hearing.

 

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

 

6.         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.

 

Procedural History:

 

7.         On October 8, 2015, Nighthawk, by its attorneys, filed a verified application (“Application for Unitization”) pursuant to §34-60-118, C.R.S., for an order establishing the Arikaree Creek State Unit for enhanced recovery from the Mississippian Spergen Formation, Arikaree Creek Field, Lincoln County, Colorado:

 

Township 6 South, Range 54 West, 6th P.M.

Section 2: SW¼SW¼

Section 10: NE¼NE¼, S½NE¼, SE¼

Section 11: W½

Section 14: W½NE¼, NW¼, N½SW¼, SW¼SW¼

Section 15: NE¼, E½SE¼

 

8.         On November 19, 2015, Evans timely filed a protest of Nighthawk’s Application for Unitization.

 

9.         On November 23, 2015, Running Foxes timely filed a protest of Nighthawk’s Application for Unitization.

 

10.       On November 23, 2015, MBA timely filed a protest of Nighthawk’s Application for Unitization.

 

11.       On December 10, 2015, a prehearing conference was held after which the Hearing Officer issued orders scheduling discovery, prehearing statements, and responses.

 

12.       On January 14, 2016, Staff sent to the parties by electronic mail a “Summary of Staff Analysis on Nighthawk’s Unitization Application.”

 

13.       On January 15, 2016, a second prehearing conference was held after which the Hearing Officer continued the Application for Unitization to March 7-8, 2016 and amended the prehearing schedule to allow for additional party submittals.

 

14.       On January 29, 2016, Nighthawk submitted its Statement of Final Plan for Unitization.

 

15.       On February 12, 2016, Running Foxes and MBA submitted their responses to the final plan, and Nighthawk filed its replies on February 19, 2016.

 

16.       On February 23, 2016, Nighthawk submitted a revised simulation report from its consultant.

 

17.       On March 4, 2016, Nighthawk and MBA presented the Commission with a stipulation indicating that MBA had agreed to withdraw its protest in this matter in consideration for the joint proposal of certain terms to be included in the Commission’s Order.

 

Testimony:

 

15.       Geologic testimony and exhibits presented  by Alan Seeling, Senior Exploration Geologist for Nighthawk, showed Nighthawk’s development to date of the Arikaree Creek Field and the geologic characteristics of the field.

 

16.       Engineering testimony and exhibits presented by David Faulder, Reservoir Engineering Manager for Nighthawk, showed the recovery factor calculations for the unit, its faults, natural water drive, and the porosity of the reservoir.  Further testimony showed how Nighthawk will design the waterflood recovery, including placement of its four injection wells.

 

17.       Land testimony and exhibits presented by Ryan Sullivan, Senior Landman for Nighthawk, showed the factors included in Nighthawk’s proposed unit allocation agreement.  

 

18.       Land testimony and exhibits presented by Scott Stinson, Petroleum Engineer and consultant to Nighthawk, showed the methodology of the proposed unit allocation agreement.

 

19.       Geologic testimony and exhibits presented by James Evans, Principal Geophysicist for JED Resources, LLC on behalf of Running Foxes, showed the geology of the unit, including major and minor faulting, and seismic assessments of the area.

 

20.       Engineering testimony and exhibits presented by Nafi Onat, Petroleum Engineer and President of Sure Engineering, LLC on behalf of Running Foxes, critiqued the feasibility of waterflood recovery in the Arikaree Creek Unit including the sweep efficiency and related oil recovery.

 

21.       Geologic testimony and exhibits presented by Steven Tedesco, President and CEO of Running Foxes, questioned the necessity and risks of the proposed waterflood recovery project.  Further testimony proffered that the proposed project may be premature and its design insufficient to enhance recovery.

 

22.       Donald Knutson, mineral interest owner in the proposed unit, testified regarding his property and royalty interests in the proposed unit; that he has not approved the unit agreement; and that he opposes Nighthawk’s proposed plans.

 

23.       Engineering testimony and exhibits presented by Naing Moe Aye, Reservoir Engineer for Tiorco, Inc. on behalf of Running Foxes, showed potential problems regarding the consistency of the tract allocation produced by Nighthawk with its proposed operations.

 

24.       Engineering testimony and exhibits presented by Jack Bowler, Principal, Bowler Petrophysics, Inc. on behalf of Running Foxes, showed an interpretation of well logs in the proposed unit suggesting poor reservoir communication between the wells.

 

25.       Julie Sullivan, mineral interest owner in the proposed unit gave a 510 Statement expressing she did approve the unit agreement and her support for establishing the unit.

 

26.       Carla Knutson, mineral interest owner in the proposed unit gave a 510 Statement expressing she did not approve the unit agreement and her opposition to establishing the unit.

 

27.       Staff analysis presented by Stuart Ellsworth, Engineering Manager summarized Staff’s understanding of the unit’s proposed operation.  Staff stated it did not have any technical objections to the proposed enhanced recovery plan.

 

28.       Anders Elgerd, Exploration Manager for Nighthawk, testified on rebuttal regarding geologic faulting and oil water contact in the proposed unit.

 

Commission Deliberation Comments:

 

29.       Commissioner Benton stated that he agrees there is a need to improve recovery, but can see potential issues with a recovery project including faults and interwell connections.  He further noted that he did not find that the value exceeds the investment.

 

30.       Commissioner Hawkins stated his concerns with the model’s inability to address a fractured reservoir.  Also he expressed concern that royalty owners who have not approved the unit agreement do not understand whether Nighthawk’s proposed plan will work, and they are relying on the Commission to decide whether this plan will succeed or fail.  Further, he stated the need for more information about fractures.

 

31.       Chairman Compton stated that he was inclined to approve the Application for Unitization, but has hesitation over the Knutson family’s objection to the unit agreement.

 

32.       Commissioner Holton stated concerns regarding objections from the mineral interest owners and the lack of 80% of agreement from such owners necessary to approve unit operations.

 

33.       Commissioner Alward stated a preference to let time help resolve some of the issues.  Further, he stated that while still in a quandary, he leans towards approving the unit.

 

34.       Commissioner Randall stated he can be convinced that Nighthawk meets the two part standard; that the project is reasonably necessary to improve recovery; and that enhanced recovery outweighs cost.  He would like to hear more from Commissioners with technical expertise.

 

ORDER

 

IT IS HEREBY ORDERED:

 

1.         An approximate 1240-acre enhanced recovery unit, the Arikaree Creek State Unit, for the below described lands is hereby established, and unitized operations are hereby approved, for the production of oil, gas, and associated hydrocarbons from the Mississippian Spergen Formation:  

 

Township 6 South, Range 54 West, 6th P.M.

Section 2: SW¼SW¼

Section 10: NE¼NE¼, S½NE¼, SE¼

Section 11: W½

Section 14: W½NE¼, NW¼, N½SW¼, SW¼SW¼

Section 15: NE¼, E½SE¼

 

1240.00 acres, more or less, Lincoln County, Colorado

(“Unit Area”)

 

2.         This order is subject to the stipulation between Nighthawk and MBA. Nighthawk, its successors and assigns, will request dissolution of the unit and termination of unit operations if, after two years from the date of first injection, the value of the actual additional recovery of oil does not exceed the additional cost of conducting unit operations.  Any owner in the mineral estate underlying the Unit Area may likewise seek dissolution of the unit and termination of unit operations under the foregoing conditions.

 

3.         This Order shall become effective upon the Commission finding in a supplemental order, after application, notice, and hearing, that Nighthawk has presented a unit agreement that is a just and fair allocation of production in the unit and includes a two-phased formula.  Phase one must compensate royalty interest owners based on estimated remaining primary recovery and phase two must compensate royalty interest owners based on secondary recovery. 

 

4.         This Order shall become effective upon approval in writing of the plan of unit operations by those persons who, under the Commission’s Order, will be required to pay at least eighty-percent (80%) of the costs of unit operation, and also by the owners of at least eighty-percent (80%) of the production or proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments, and a finding by the Commission in a supplemental order, after application, notice, and such supplemental hearing as may be required, that the requisite eighty-percent (80%) approvals have been obtained.

 

5.         If the persons owning the required percentage of interest in the Unit Area do not approve the plan of unit operations within a period of six months from the effective date of this Order, this Order shall become ineffective and shall be revoked by the Commission unless for good cause shown the Commission extends said time.

 

6.         All operations, including, but not limited to, the commencement, drilling, or operation of a well upon any portion of the Unit Area shall be deemed for all purposes the conduct of such operations upon each separately owned tract in the Unit Area by the several owners thereof. The portion of the unit production allocated to a separately owned tract in the Unit Area shall, when produced, be deemed, for all purposes, to have been actually produced from such tract by a well drilled thereon. Operations conducted pursuant to this Order shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the Unit Area to the extent that compliance with such obligations cannot be had because of this Order.

 

7.         No division order or other contract relating to the sale or purchase of production from a separately owned tract shall be terminated by this Order, but shall remain in force and apply to oil and gas allocated to such tract until terminated in accordance with the provisions hereof.

 

8.         Except to the extent that the parties affected so agree, this Order shall not be construed to result in a transfer of all or any part of the title of any person to the oil and gas rights in any tract in the Unit Area.  All property, whether real or personal, that may be acquired in the conduct of unit operations under this Order, shall be acquired for the account of the owners within the Unit Area, and shall be the property of such owners in the  proportion that the expenses of unit operations are charged.

 


 

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 17th day of March, 2016, as of March 8, 2015.      

 

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By__________________________________

Julie Murphy, Secretary