BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

 

IN THE MATTER OF THE PROMULGATION                   )           CAUSE NO. 9

AND ESTABLISHMENT OF FIELD RULES TO               )          

GOVERN OPERATIONS IN THE WALKER                     )           ORDER NO. 9-6

FIELD, LOGAN COUNTY, COLORADO                           )

 

REPORT OF THE COMMISSION

 

This cause came on for hearing before the Commission at 8:00 a.m. on July 15, 2008, in Ballroom B of the Brown Palace Hotel, 321 Seventeenth Street, Denver, Colorado, for an order to amend Order No. 9-5 and establish an 80-acre drilling and spacing unit consisting of the E SE of Section 20, Township 9 North, Range 53, West, 6th P.M., for the redrilling of the Gilliland #1 Well as a horizontal well, to be located in accordance with Rule 318.a., and to pool all nonconsenting interests in said 80-acre drilling and spacing unit, 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.    On August 28, 2007, the Commission issued Order No. 9-5, which among other things, established 40-acre drilling and spacing units for Sections 20 and 21 and the N of Sections 28 and 29, all in Township 9 North, Range 53 West, 6th P.M., for production from the O Sand Formation.

 

5.    On May 23, 2008, DJ Resources, by its attorney, filed with the Commission a verified application for an order to amend Order No. 9-5 and establish an 80-acre drilling and spacing unit consisting of the E SE of Section 20, Township 9 North, Range 53 West, 6th P.M., for the redrilling of the Gilliland #1 Well as a horizontal well, to be located in accordance with Rule 318.a., and to pool all nonconsenting interests in said 80-acre drilling and spacing unit and for the development and operation of the O Sand Formation.

 

6.    On July 1, 2008, 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.

 

7.    Testimony and exhibits submitted in support of the application showed that letters were sent to each unleased mineral owner within the E SE of Section 20, Township 9 North, Range 53 West, 6th P.M., 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.  Additional testimony indicated that these terms are similar to those prevailing in the area, and that as of the date of application, none of the mineral owners have agreed to lease their mineral interests or to participate as working interest owners.

 

8.    Testimony and exhibits submitted in support of the application showed that establishing an 80-acre drilling and spacing unit for the E SE of Section 20, Township 9 North, Range 53 West, 6th P.M., for the redrilling of the Gilliland #1 Well as a horizontal well, for the development and operation of the O Sand Formation, will facilitate the efficient and economic drainage of said formation and will protect correlative rights.  Additional testimony showed that geologic evidence supports that the greatest reservoir thickness for the O Sand Formation is underlying the application lands.

 

9.    Testimony and exhibits submitted in support of the application showed that establishing an 80-acre drilling and spacing unit for the E SE of Section 20, Township 9 North, Range 53 West, 6th P.M., for the redrilling of the Gilliland #1 Well as a horizontal well, for the development and operation of the O Sand Formation, will facilitate the efficient and economic drainage of said formation and will protect correlative rights.  Additional testimony showed that the anticipated drainage area for a horizontal well under the application lands for the O Sand Formation is 57.5 acres.

 

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 gas, and will not violate correlative rights.

 

11.  DJ Resources, Inc. 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.b., the Commission should enter an order to amend Order No. 9-5 and establish an 80-acre drilling and spacing unit consisting of the E SE of Section 20, Township 9 North, Range 53, West, 6th P.M. and pool all nonconsenting interests in said 80-acre drilling and spacing unit, for the redrilling of the Gilliland #1 Well as a horizontal well, for the development and operation of the O Sand Formation.

 

ORDER

 

NOW, THEREFORE IT IS ORDERED, that Order No. 9-5 is hereby amended and an 80-acre drilling and spacing unit consisting of the E SE of Section 20, Township 9 North, Range 53, West, 6th P.M. is hereby established for the redrilling of the Gilliland #1 Well as a horizontal well, for production from the O Sand Formation.

 

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 nonconsenting interests in the 80-acre drilling and spacing unit consisting of the E SE of Section 20, Township 9 North, Range 53, West, 6th P.M. are hereby pooled for the development and operation O Sand Formation.

 

2.    The production obtained from each drilling 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 each drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling 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(s) and be subject to the penalties as provided for by 34‑60‑116 (7), C.R.S.

 

4.    Any nonconsenting unleased mineral owner within the spacing unit shall be treated as the 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 this__________day of July, 2008, as of July 15, 2008.

           

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

 

 

                                                                        By____________________________________          

                                                                                    Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 21, 2008