BEFORE THE OIL & GAS CONSERVATION COMMISSION
OF THE STATE OF
IN THE MATTER OF THE
PROMULGATION ) CAUSE NO. 9
AND
ESTABLISHMENT OF FIELD RULES TO )
GOVERN
OPERATIONS IN THE
FIELD,
REPORT OF THE COMMISSION
This cause came on for
hearing before the Commission at 9:00 a.m. on August 28, 2007, in Suite 801, The
Chancery Building, 1120 Lincoln Street, Denver, Colorado, on an
application for an order to establish 40-acre drilling and spacing units for
production of gas and associated hydrocarbons from the “O” Sand Formation, for certain
lands in Township 9 North, Range 53 West, 6th P.M., and for an order
to pool all nonconsenting interests in the 40-acre drilling and spacing unit
consisting of the NE¼ SE¼ of Section 20, Township 9 North, Range 53 West, 6th
P.M., for the development and operation of the “O” Sand Formation.
FINDINGS
The Commission finds as
follows:
1. DJ Resources, Inc. (“DJ Resources”), 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 Commission requires that wells
drilled in excess of two thousand five hundred (2,500) feet in depth be located
not less than six hundred (600) feet from any lease line, and located not less
than one thousand two hundred (1,200) feet from any other producible or
drilling oil or gas well when drilling to the same common source of supply. The
below-listed lands are subject to this Rule:
Township 9 North, Range 53 West, 6th P.M.
Sections 20 and 21: All
Sections 28 and 29: N½
5. On April 20, 2007, DJ Resources, by its
attorney, filed with the Commission a verified application for an order to
establish 40-acre drilling and spacing units for production of gas and
associated hydrocarbons from the “O” Sand Formation, for below-listed lands:
Township 9 North, Range 53 West, 6th P.M.
Sections 20 and 21: All
Sections 28 and 29: N½
Further,
if the request to establish 40-acre drilling and spacing units is approved, DJ
Resources requested an order to pool all nonconsenting interests in the 40-acre
drilling and spacing unit consisting of the NE¼ SE¼ of Section 20, Township 9
North, Range 53 West, 6th P.M., for the development and operation of
the “O” Sand Formation.
6. On May 21, 2007, DJ Resources, by its
attorney, filed with the Commission a request to continue this matter to the
July hearing and the hearing in this matter was continued.
7. On July 10, 2007, DJ Resources, by its
attorney, 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, and subsequently,
additional testimony was submitted.
8. Testimony
and exhibits submitted in support of the application showed that the “O” Sand Formation
is uniformly present and water bearing throughout the application area, and
that the area sought to be spaced encompasses a common source of supply from
the “O” Sand Formation.
9. Testimony and exhibits submitted in
support of the application showed the base data and parameters used in calculating
the effective drainage radii for the Walker Field “O” Sand producers, based on
three old wells that were perforated in the “O” Sand, and production
information available for two of the wells, the Ray W. Davis #1 and the Ramey
#1. Additional testimony indicated that
cumulative oil production was based upon the Commission’s historical records,
and that the resulting calculated radial drainage areas for the two producers
are 23 and 9 acres, respectively.
10. Testimony and exhibits submitted in support
of the application showed the input parameters and results of the economic
analysis for an “O” Sand producer in this field. Additional testimony indicated that “O” Sand
production is economically viable in this field in the current cost and price
environment.
11. Testimony and exhibits submitted in
support of the application showed that establishing 40-acre drilling and
spacing units will facilitate drilling and production, will protect correlative
rights, that waste will be prevented, and that such 40-acre spacing units are
not smaller than the maximum area that can be efficiently and economically
drained by one well drilled into the “O” Sand Formation underlying the subject
lands.
12. Testimony and exhibits submitted in
support of the application showed that DJ Resources has 65.67% of the leasehold
ownership in the 40-acre drilling and spacing unit consisting of the NE¼ SE¼ of
Section 20, Township 9 North, Range 53 West, 6th P.M., and that the
remaining 34.33% is unleased.
13. Testimony and exhibits submitted in
support of the application showed that letters were sent on April 27, 2007 to
each mineral owner offering leases at $15.00 per acre with an 18.75% royalty
interest, or offering an opportunity to participate as a working interest owner
in the subject unit. Testimony indicated
that these terms are similar to those prevailing in the area. None of the mineral owners have agreed to
date to participate as working interest owners.
14. Testimony and exhibits submitted in
support of the application showed that fair and reasonable offers to
participate including Authorizations for Expenditures were sent to 28 unleased
mineral owners at least 30 days prior to the date of the August hearing, and
were similar to those prevailing in the area. Nineteen of the unleased mineral owners’
offers were returned non-deliverable and nine of the unleased mineral owners
signed for the offers but have not responded.
15. DJ Resources, Inc. agreed to be bound by
an oral order of the Commission.
16. Based on the facts stated in the verified
application, having received no protests or interventions to the application
and based on the Hearing Officer review of the application under Rule 511.b.,
the Commission should enter an order to establish 40-acre drilling and spacing
units for production from the “O” Sand Formation for certain lands in Township
9 North, Range 53 West, 6th P.M.
In addition, the Commission should enter an order pooling all nonconsenting
interests in the 40-acre drilling and spacing unit consisting of the NE¼ SE¼ of
Section 20, Township 9 North, Range 53 West for production from the “O” Sand
Formation.
ORDER
NOW, THEREFORE IT IS
ORDERED that, 40-acre drilling and spacing units for production from the “O”
Sand Formation are hereby established for the following lands:
Township 9 North, Range 53 West, 6th P.M.
Sections 20 and 21: All
Sections 28 and 29: N½
IT IS FURTHER ORDERED,
that, 1. Pursuant to the provisions of
§34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the
State of Colorado, all unleased mineral interests in the 40-acre drilling and
spacing unit consisting of the NE¼ SE¼ of Section 20, Township 9 North, Range
53 West, 6th P.M. (the “Unit”) are hereby pooled for the development
and operation of the “O” Sand Formation.
2. The production obtained from that 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 Unit; each owner of an interest in the Unit shall be entitled
to receive his/her share of the production of the well located on the Unit
applicable to his interest in the Unit.
3. Said 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).
4. Any nonconsenting unleased mineral
owner within the Unit shall be treated as an owner of the landowner’s royalty
to the extent of 12.5% of his/her record title interest, whatever that interest
may be, until such time as the consenting owner recovers, only out of the
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, the
nonconsenting mineral owner shall then own his/her proportionate 8/8ths share
of the well, surface facilities and production, and then be liable for his/her
proportionate share of further costs incurred in connection with the well as if
he/she had originally agreed to the drilling.
5. The operator of any well drilled on the
above-described Unit shall furnish all 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.
IT IS FURTHER ORDERED,
that the provisions contained in the above order shall become effective
forthwith.
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 thirty
(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 on this _____
day of September, 2007, as of August 28, 2007.
OIL
AND GAS CONSERVATION COMMISSION
OF
THE STATE OF
By:
_____________________________________
Patricia
C. Beaver, Secretary
Dated
at
September
11, 2007