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 LYONS FORMATION, UNNAMED FIELD, WELD COUNTY, COLORADO |
) ) ) ) ) ) )
|
CAUSE NO. 562
DOCKET NO. 171000704
TYPE: POOLING
ORDER NO. 562-1
|
REPORT OF THE COMMISSION
The Commission heard this matter on January 29, 2018, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to: 1) establish an approximate 160-acre exploratory drilling and spacing unit for the Sections 1 and 12, Township 9 North, Range 57 West, 6th P.M., with the well to be located approximately 1670 feet from the east line of the proposed exploratory drilling and spacing unit, and approximately 1150 feet from the south line of the proposed exploratory drilling and spacing unit, i.e., not less than 600 feet from any unit boundary, and shall be 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, for the production of oil, gas, and associated hydrocarbons from the Lyons Formation; and 2) pool all interests in the approximate 160-acre exploratory drilling and spacing unit established for the Sections 1 and 12, Township 9 North, Range 57 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Lyons Formation, and subject any non-consenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the first well to the Lyons Formation.
FINDINGS
The Commission finds as follows:
1. Dan A. Hughes Company, L.P. (Operator No. 10346) (“Hughes Company” or “Applicant”) 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 provides that a well to be drilled two thousand five hundred (2,500) feet or greater shall be located not less than 600 feet from any lease line, and shall be 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, unless authorized by order of the Commission upon hearing. Sections 1 and 12, Township 9 North, Range 57 West, 6th P.M., are subject to this Rule for the Lyons Formation.
5. On October 6, 2017, amended December 20, 2017, Hughes Company, by its attorneys, filed a verified application (“Application”) pursuant to §34-60-116, C.R.S., for an order to: 1) establish an approximate 160-acre exploratory drilling and spacing unit for the for the below-described lands (“Application Lands”) for the production of oil, gas and associated hydrocarbons from the Lyons Formation, with the well to be located approximately 1670 feet from the east line of the proposed exploratory drilling and spacing unit, and approximately 1150 feet from the south line of the proposed exploratory drilling and spacing unit, i.e., not less than 600 feet from any unit boundary, and 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; 2) pool all interests in the approximate 160-acre exploratory drilling and spacing unit established for the Application Lands for the development and operation of the Lyons Formation; and 3) subject any nonconsenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the first well to the Lyons Formation (i.e.; the Cervi 1 #1-12-957 Well) (“Well”):
Township 9 North, Range 57 West, 6th P.M.
Section 1: S½SE¼
Section 12: N½NE¼
6. On November 20, 2017, Hughes Company, 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 John M. Wells, President of Wells Petroleum, Inc., lease broker for Hughes Company, showed that Hughes Company holds oil and gas leasehold interests and has a right to drill in the Application Lands. The land testimony and exhibits further showed that certain nonconsenting interest owners, those being Andrew Schmelter, Alvina Schmelter O’Brien, Albina Schmelter O’Brien, Lorraine Michalski, Eugene Schmelter, Marie Schmelter Waggoner, Marie Schmelter Weggoner, and Rosela Schmelter, were served with a Summons by Publication pursuant to Commission Rule 507.a, Colorado Rule of Civil Procedure 4(g)(2), and §34-60-108(4), C.R.S. All other interested parties were notified of the Application and, except for Cervi Enterprises, have either leased their mineral interest or have agreed to participate in the Well.
8. Land testimony showed the Applicant could not comply with the requirements of Rule 530 because it had no addresses for the eight of the non-consenting parties, but is entitled to the cost recovery provisions pursuant to §34-60-116(7), C.R.S., for the Cervi 1 #1-12-957 Well. Applicant did not provide testimony for any subsequent wells.
9. Geologic testimony and exhibits submitted in support of the Application by Tom Taylor, Geoscientist consulting for Hughes Company, showed that the Lyons Formation is present throughout the Application Lands, is approximately 130 feet thick, and is generally of uniform thickness throughout the Application Lands. Geoscience testimony also showed that based on a reservoir area of 125 acres, reservoir thickness of 28 feet, and a calculated estimated ultimate recovery of 255,796 barrels of oil, the well should be economic, and an approximate 160-acre drilling and spacing unit is not less than the maximum area than can be efficiently, economically and effectively drained by a well producing oil, gas and associated hydrocarbons from the Lyons Formation.
10. 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.
11. Hughes Company agreed to be bound by oral order of the Commission.
12. 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: 1) establish an approximate 160-acre exploratory drilling and spacing unit for the Sections 1 and 12, Township 9 North, Range 57 West, 6th P.M., with the well to be located approximately 1670 feet from the east line of the proposed exploratory drilling and spacing unit, and approximately 1150 feet from the south line of the proposed exploratory drilling and spacing unit, i.e., not less than 600 feet from any unit boundary, and shall be 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, for the production of oil, gas, and associated hydrocarbons from the Lyons Formation; and 2) pool all interests in the approximate 160-acre exploratory drilling and spacing unit established for the Sections 1 and 12, Township 9 North, Range 57 West, 6th P.M., for the production of oil, gas, and associated hydrocarbons from the Lyons Formation, and subject any non-consenting interests to the cost recovery provisions of §34-60-116(7), C.R.S., effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the first well to the Lyons Formation.
ORDER
IT IS HEREBY ORDERED:
1. An approximate 160-acre exploratory drilling and spacing unit for the below-described lands is hereby established, and one well within the unit is hereby approved, for the production of oil, gas and associated hydrocarbons from the Lyons Formation:
Township 9 North, Range 57 West, 6th P.M.
Section 1: S½SE¼
Section 12: N½NE¼
2. The well approved by this Order shall be located approximately 1670 feet from the east line of the proposed exploratory drilling and spacing unit, and approximately 1150 feet from the south line of the proposed exploratory drilling and spacing unit, i.e., not less than 600 feet from any unit boundary, and shall be 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.
3. 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 160-acre exploratory drilling and spacing unit established for the below-described lands are hereby pooled, for the development and operation of the Lyons Formation, effective as of the earlier of the date of the Application, or the date that any of the costs specified in §34-60-116(7)(b), C.R.S., are first incurred for the drilling of the first well to the Lyons Formation; i.e., the Cervi 1 #1-12-957 Well (“Well”):
Township 9 North, Range 57 West, 6th P.M.
Section 1: S½SE¼
Section 12: N½NE¼
4. 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 drilling and spacing unit.
5. Any working interest owner who does not elect to participate in the Well or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §34-60-116(7), C.R.S. The nonconsenting working interest owner must reimburse the consenting owners for his proportionate share of the costs and risks of drilling and operating the Well from his proportionate share of production, subject to non-cost bearing interests, until costs and penalties are recovered as set forth in §34-60-116(7), C.R.S.
6. Any unleased owner who does not elect to participate in the Well or fails to make a timely election is hereby deemed to be nonconsenting and is subject to the penalties as provided for in §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).
7. 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. 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.
8. 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.
9. 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 8th day of February, 2018, as of January 29, 2018.
OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO
By_____________________________________
Julie Spence Prine, Secretary