BEFORE THE OIL & GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS FOR THE NIOBRARA AND CODELL FORMATIONS, WATTENBERG FIELD, WELD COUNTY, COLORADO
CAUSE NO. 1
DOCKET NO. 180600390
TYPE: GENERAL ADMINISTRATIVE
ORDER NO. 1-234
COMMISSION ORDER ON OKREEK’S EXCEPTION TO
ORDER GRANTING NOBLE’S MOTION TO
WITHDRAW POOLING APPLICATION
The Commission heard this matter on January 28, 2019, at the Colorado Oil and Gas Conservation Commission, 1120 Lincoln St., Suite 801, Denver, Colorado 80203, upon Okreek’s Exception to the Order Granting Noble’s Motion to Withdraw its Pooling Application.
The Commission finds as follows:
1. The applicant for the above-referenced docketed matters, Noble Energy, Inc.’s (Operator No. 100322) (“Noble”) is an interested party in the subject matter of the above-referenced hearing.
2. Okreek Oil and Gas, LLC, and Okreek Oil and Gas II, LLC’s (collectively “Okreek”) are interested parties in the subject matter of the above-referenced hearing.
3. Due notice of time, place, and purpose of hearing has been given in all respects as required by law.
4. The Commission has jurisdiction over the subject matter embraced in said matter and the parties interested therein, and has authority to promulgate the hereinafter prescribed order pursuant to the Oil and Gas Conservation Act (“Act”).
5. On or about March 20, 2018 (amended on March 28, 2018), Noble filed an Application (“Application”) in this matter seeking an order from the Commission pooling all interests in eight approximate 80-acre vertical wellbore spacing units, and six approximate 640-acre designated horizontal wellbore spacing units in the Greater Wattenberg Area. While the Application involves much more land than identified here, the actual dispute between these parties pertains to the South 1/2 of Section 6, Township 5 North, Range 62 West, 6th P.M. Weld County, Colorado (the “Property”).
6. On June 1, 2018, Okreek filed Protests requesting that the Commission dismiss the Application because Noble failed to serve Okreek as an interested party in this matter, in violation of the Colorado Rules of Civil Procedure. Okreek further requested that the Commission deny the Application because the failure to provide Notice also violates the Oil and Gas Act, and Commission Rule 507.
7. In its Protests, Okreek states that it acquired an interest in the Property primarily in 2016, from three individuals identified in Exhibit A to the Protests, via oil and gas leases. Okreek further states that it has been involved in civil litigation in Weld County District Court over its interest in the Property since 2016. Okreek asserts that its interest in the Property was known to Noble long before the Application was filed. A brief history of the civil litigation is detailed here, and is gleaned from the District Court’s order in case number 17CV30291, attached as Exhibit B to Okreek’s Response to the Motion:
a. In 2010, Margaret Calder, Donald Flynn and Patrick Flynn III (the “Flynns”) filed an action in 2010CV956 to quiet title to the mineral interests at issue here. The Flynns filed a motion for publication of notice of the quiet title petition, asserting that they diligently searched for other potential heirs and located none. There were no objections or responses filed to the published notice, so the Flynns moved for entry of default judgment and a declaration that they were the sole owners of the mineral interests. The Court granted this motion and entered a decree finding the Flynns were the owners of one hundred percent of the mineral interests.
b. In 2016, Okreek learned that a pooling interest for the mineral interests had been published by an energy company prior to the Flynns filing the quiet title action. Okreek quickly discovered that several heirs, in addition to the Flynns, were still alive. Okreek contacted various other heirs and purchased their mineral interests. In 2016, Okreek filed a petition for determination of heirs in 2016PR30329, requesting a ruling that Okreek, the Flynns, and other heirs each owned a percentage of the mineral interests. The Flynns opposed Okreek’s petition for determination of heirs, arguing that complete ownership of the mineral interests had already been decided in their favor via the quiet title action.
c. In 2017, Okreek filed a motion to set aside the quiet title decree, claiming that the Flynns knew or should have known through the exercise of reasonable diligence that there were other living heirs with an ownership interest in the mineral interests besides the Flynns. Okreek also filed suit against the Flynns for monetary damages, claiming that the Flynns owe Okreek and other heirs their percentage of the royalty payments that the Flynns have improperly received over the years.
d. The hearing on Okreek’s motion to set aside the quiet trial decree was held in December 2017. At the conclusion of the hearing, the Court ruled that the Flynns’ attorney in the quiet title action possessed information about other heirs, but she failed to use due diligence to locate and serve those persons. The Court further ruled that the Flynns also had information about the existence of other potential heirs, yet they failed to share that information with their attorney. As a result, the Court vacated the quiet title decree.
e. After the quiet title decree was vacated, the Court issued an order in 2016PR30329 determining that the mineral heirs included the Flynns, Okreek, and several other heirs identified by Okreek. The parties jointly moved to dismiss the quiet title action on June 28, 2018, which was granted by the Court the following day.
f. As a result of the ruling in the quiet title action, on September 21, 2018, the District Court reinstated Okreek’s claims in 2017CV30291 (with the exception of the quiet title claim which had already been resolved in Okreek’s favor), which included Okreek’s claim for monetary damages against the Flynns for the royalties that were allegedly improperly paid to the Flynns. Following the reinstatement of Okreek’s claim for monetary damages, on October 5, 2018, the Flynns filed a Notice of Appeal in the Colorado Court of Appeals in case number 2018CA1987, challenging the District Court’s ruling that reinstated these claims.
8. On September 25, 2018, an initial prehearing conference (“PHC”) was conducted, with all parties present. At the PHC, the Hearing Officer raised the concern that this matter appears to more appropriately belong in District Court due to the title disputes. Okreek stated that it does not believe this matter involves a title dispute, because the District Court has now ruled in its favor regarding the ownership of oil and gas interests underlying the Property. Noble asserted that at the time its Application was filed, the quiet title had not yet been decided by the District Court, and as such, the list of interested parties was valid and accurate, and therefore it was not required to provide an offer to lease or Notice of Hearing to Okreek. However, Noble did concede that it no longer took the position that Okreek was not an “owner” of the minerals in the Property. Rather, the parties agreed that the dispute boiled down to whether or not Okreek was an “owner” at the time this Application was filed. Because of this dispute, the Hearing Officer granted Okreek’s request for discovery, including one deposition.
9. On October 12, 2018, Noble filed a Motion to Withdraw, or, in the Alternative, Voluntarily Dismiss its Application Without Prejudice (“Motion”). Okreek objected to the withdrawal of the Application, stating that it would be prejudiced if the Motion was granted, because Noble has been taking Okreek’s minerals without payment since 2011.
10. In its Motion, Noble argues that its Application should be withdrawn because of the pending matters before both the District Court and the Court of Appeals involving the mineral interests at issue, including the amount of royalties received by the Flynns, that Okreek claims a portion of as the basis for its monetary damages claims against the Flynns. Noble also asserts that these matters are outside the jurisdiction of the Commission and are also an inefficient use of the Commission’s resources.
11. In its Response, Okreek contends that Noble drilled the wells at issue beginning in 2011, and since that time, Noble has been taking Okreek’s minerals without compensation. In the event the Motion is granted, Noble will be able to continue these efforts thereby causing serious prejudice to Okreek in the form of wasted time litigating this matter and the unjust taking of its minerals.
12. In its Reply, Noble stresses that at the time the Application was filed, the ownership of the minerals was still in dispute and unresolved at the District Court level. However, since that time, the circumstances of this case have changed, specifically: the District Court has ruled in Okreek’s favor, and the subject matter of Noble’s Application is now in dispute; Okreek has made separate demands for damages from Noble in addition to the relief requested herein (an offer to lease and election to participate); and the pending Court of Appeals case, all of which support Noble’s request to withdraw the Application.
13. On November 28, 2018, the Hearing Officer issued an Order granting Noble’s Motion to Withdraw. The Order allowing for the withdrawal of the Application was based on the five factors cited by both parties and articulated in Powers v. Prof'l Rodeo Cowboys Ass’n, 832 P.2d 1099 (Colo. App. 1992). The factors apply when a court must determine if a voluntary dismissal would be prejudicial to a defendant:
(1) the duplicative expense of a second litigation;
(2) the extent to which the current suit has progressed, including the effort and expenses incurred by defendant in preparing for trial;
(3) the adequacy of plaintiff’s explanation for the need to dismiss;
(4) the plaintiff's diligence in bringing the motion to dismiss; and
(5) any “undue vexatiousness” on plaintiff’s part.
14. In finding that dismissal of the action would not prejudice Okreek, the Hearing Officer found that all but one of the factors weighed in Noble’s favor. First, the Hearing Officer found that the “duplicative expense” of a second litigation was relatively low. Order at p. 4. Second, the Hearing Officer was persuaded that the proceedings were still in the early stage, and that the parties had not completed discovery or begun making other necessary filings. Id. Third, the Hearing Officer concurred with Noble that significant complexities could arise should the Commission intervene before the District Court and Court of Appeals actions are finalized. Id. Fourth, the Hearing Officer found that Noble could have been more diligent in filing its motion to dismiss earlier. Order at p. 5. Fifth, the Hearing Officer found that there was no “undue vexatiousness” on Noble’s part. Order at p. 5.
15. On December 28, 2018, Okreek filed its “Exception to the Order Entered on November 28, 2018 Granting Noble’s Motion to Dismiss its Application Over Okreek’s Objection” (“Exception”). Okreek argued that the Hearing Officer erred in granting Noble’s Motion to Withdraw because disputes regarding payment of past proceeds are not connected to the Application, the Hearing Officer failed to follow statutory procedure, and Noble acted in bad faith. Finally, Okreek asserts that the Commission must determine whether it has jurisdiction to allocate and distribute future proceeds where ownership is not disputed in a pooled field.
16. Notably, Okreek failed to certify the record in accordance with C.R.S. § 24-4-105(15)(a), aka the Administrative Procedures Act (“APA”).
17. On January 16, 2019, the Hearing Officer informed the parties that Okreek’s Exception would be submitted to the Commission without the attached Exhibits, because to find otherwise would violate C.R.S. § 24-4-105(15)(a). The Hearing Officer also held that because of this failure, the record would consist of the Exception, and Noble’s Response, if any. At the time of this finding, Noble had not yet filed its Response.
18. On January 17, 2019, Noble filed its Response to the Exception, arguing that the Hearing Officer made specific, detailed findings by applying the Prof'l Rodeo Cowboys Ass’n standard, as detailed above. Noble also cited the Hearing Officer’s reliance on Commission precedent, and the lack of any rule or statute allowing for Okreek’s request. Noble’s Response did not feature any Exhibits.
19. On January 18, 2019, Okreek responded to the Hearing Officer’s finding regarding the record and argued that the Hearing Officer’s interpretation of the APA was incorrect.
20. On January 23, 2019, the Hearing Officer responded to Okreek’s objection regarding the certification of the record and stated why Okreek’s interpretation was flawed, but nonetheless changed the prior ruling to allow for the expansion of the record. The record now consisted of: Noble's Motion to Withdraw, Okreek's Response, and Noble's Reply, along with all exhibits attached thereto; the Order granting Noble’s Motion to Withdraw; and Okreek's Exception and Noble's Response, along with all exhibits attached thereto.
21. On January 23, 2019, in response to the expansion of the record, Noble filed a request to continue this matter to the Commission’s March 2019 hearing, in order to allow Noble the opportunity to file a supplemental Response. Noble argued that it would suffer significant prejudice if it could not supplement the record with additional Exhibits. Okreek responded on the same day stating that it objects to another continuance. The Hearing Officer ended the arguments by reminding the parties that a ruling had been issued and the matter was closed.
22. On January 25, 2019, Noble filed its “Emergency Exception to the Hearing Officer’s Orders – Preliminary Requirement to Okreek’s January 29, 2019 Exception Hearing” (“Emergency Exception”). The Emergency Exception argued that Noble’s due process rights were violated by way of the Hearing Officer’s rulings regarding the record before the Commission.
23. On January 25, 2019, the Hearing Officer issued an order striking Noble’s Emergency Exception as being untimely.
24. At the January 28-29, 2019 Commission hearing, the following parties were present: counsel and representatives of Noble, as well as counsel and representatives for Okreek.
25. Following the Hearing Officer’s introduction of the case, the parties engaged in argument regarding the issue of the record before the Commission, specifically, Noble’s Emergency Exception. Following the argument of the parties, the Commission voted unanimously to deny Noble’s Emergency Exception.
26. Next, the Commission considered the merits of Okreek’s Exception. Namely, whether or not Noble’s Motion to Withdraw should have been granted. As grounds for support of its Exception, Okreek argued:
a. Okreek did not protest the Application for the purpose of it being dismissed. Rather, Okreek protested so that it could ultimately obtain an order of the Commission which would force Noble to provide it with the opportunity to participate in the wells, or at least receive a reasonable lease offer.
b. If the unit is not pooled, and there is no agreement between the parties, then Okreek is left without recourse, and Noble can continue to take Okreek’s minerals without compensation.
c. Okreek disagrees with the Hearing Officer’s order that there is no authority for the Commission to force an applicant to complete its application. Both 34-60-103 and 34-60-116 allow the Commission to fashion a just and fair remedy. Thus, the Commission is the only entity that has the jurisdiction to settle this dispute.
27. As grounds to deny the Exception, Noble argued:
a. The APA provides that the Commission can only overturn the Hearing Officer’s order if the evidentiary conclusions of fact are contrary to the weight of evidence, and if the ultimate determinations of fact are unsupported by any competent evidence based on an incorrect legal conclusion applied from the underlying facts. This standard is in favor of upholding the Hearing Officer’s order in this matter.
b. Okreek has the burden of proof, by a preponderance of the evidence, to show that the Hearing Officer’s findings are incorrect, and Okreek has failed to do so.
c. There are four legal bases supporting the Hearing Officer’s order in this matter. Upholding any one of which would require that the underlying order must be upheld. The first legal basis is the application of the five factors from the Prof'l Rodeo Cowboys Ass’n case. The second basis is that the finding is consistent with Commission precedent in allowing applicants to withdraw applications. The third legal basis is that there is no mechanism, rule, or statutory section which allows the Commission to force an applicant to complete an application. The fourth legal basis is the finding regarding the potential for inconsistent verdicts, as well as the possibility of other legal avenues of recourse for Okreek.
d. Okreek failed to designate any part of the record, or plead any facts that the Hearing Officer’s findings are contrary to the weight of evidence.
28. Following argument, the Commission inquired of Okreek what it hoped to accomplish by obtaining a pooling order in this matter. Okreek stated that a pooling order was necessary in order to determine the ownership of the minerals in question, and how the respective parties receive payment from said minerals. Okreek further argued that it must exhaust its administrative remedies before it could proceed to the court for relief. The Commission disagreed with Okreek’s understanding and interpretation of the pooling statute, and instead instructed Okreek that matters such as these are proper before a court, where equitable remedies could be fashioned.
29. The Commission asked Noble for its reason for the withdrawal of the Application. Noble stated that since the time the Application was filed, title to the minerals at issue has changed significantly, and the proper place to resolve these disputes, which involve questions about the timing and amounts of payments going back to 2011, should be before a court, where equitable remedies could be invoked. Further, Okreek’s title did not vest until 2018, and the Commission could not consider equitable remedies.
30. The Commission deliberated following argument. The Commission voted unanimously to deny Okreek’s Exception.
COMMISSION FINDINGS AND CONCLUSIONS
31. As grounds for denying Okreek’s Exception, the Commission cited three factors: 1) the Hearing Officer properly applied the relevant law which the parties agree is the Prof'l Rodeo Cowboys Ass’n test, and applied the facts of this case and reached a reasonable conclusion; 2) the Hearing Officer correctly noted that there is no mechanism, and the Oil and Gas Act does not contemplate, the requirement that an applicant proceed with a pooling application against its will, which would be contrary to the process established by the statute and the Commission Rules; and 3) the Commission undoubtedly has the jurisdiction to decide pooling matters, but that is not the issue here - the only issue for the Commission to decide in this matter is whether or not the applicant may withdraw its Application, not if the Commission has jurisdiction to begin with.
32. After further discussion, the Commission stated that the pooling statute has nothing to do with the issues raised by these parties, and it also has nothing to do with the determination of the rights of these parties. Rather, it has a much narrower focus, which is to allow for the drilling of wells, and to ensure that any parties who have an interest in the area that will be drained by those wells will have either the right to participate in those wells, or, in the alternative, to receive fair compensation.
IT IS HEREBY ORDERED:
1. The Hearing Officer’s Order Granting Noble’s Motion to Withdraw is ADOPTED.
2. Okreek’s Exception to the Hearing Officer’s Order Granting Noble’s Motion to Withdraw is DENIED.
3. Docket No. 180600390 is WITHDRAWN.
IT IS FURTHER ORDERED:
1. The provisions contained in the above order shall become effective immediately.
ENTERED this 26th day of February, 2019, as of January 28, 2019.
OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
Mimi C. Larsen, Secretary
CERTIFICATE OF SERVICE
The undersigned certifies that on February 27, 2019, a true and correct copy of this Commission Order on Okreek’s Exception to the Order Granting Noble’s Motion to Withdraw its Pooling Application was served by email addressed to the following:
Jennifer Lynn Peters
Timothy R. Odil
Otis, Bedingfield & Peters, LLC
Attorney for Okreek
Attorneys for Okreek
Jamie L. Jost
Kelsey H. Wasylenky
Jost Energy Law, P.C.
Attorneys for Noble
Jonathan Peskin, Hearing Officer