evolution of spacing and pooling in colorado

EVOLUTION OF SPACING AND POOLING IN COLORADODenver Association of Division Order Analysts

July 21, 2014Denver, Colorado

Steve SullivanWelborn Sullivan Meck & Tooley,

P.C.1125 17th Street, Suite 2200

Denver, CO 80202(303) 830-2500

[email protected]

Development of oil and gas fields prior to state regulation

SPACING

“The order establishing drilling units shall permit only one well to be drilled and produced from the common source of supply on a drilling unit, and shall specify the location of the permitted well thereon.” C.R.S. §34-60-116(3).

3

“No drilling unit shall be smaller than the maximum area that can be efficiently and economically drained by one well.” CRS §34-60-116(2).

SPACING

4

SPACING

Only one well could be drilled in each spacing unit.

First person to apply receives permit to drill.

Setbacks established to protect surface rights and prevent excessive draining of adjacent spacing units.

Well would produce oil and gas from other properties in spacing unit.

5

Some people could not develop their oil and gas when they wanted to or without involving other owners in the spacing unit.

For a variety of operational reasons (geologic uncertainty, the desire to hold acreage, need to ensure a viable surface location, etc.) oil and gas operators would sometimes seek the largest drilling unit they could justify.

SPACING

6

COGCC Order No. 407-1 (1983)Codell formationOne well per 80 acres.Option to drill second wellAdditional wells could be drilled to other formations.

Section 1: W2NW

Optional Well

Vertical wells - Production from both wells allocated to mineral owners in W2NW (80 acres)

7

SPACING Niobrara and Codell formations

Weld, Adams and other counties

Williams Fork formationGarfield County

U.S. Department of Energy Multi-well Experiment

COGCC Order No. 139-28 (1995) 1 well per 80 acres



COGCC Order No. 139- 38 (2003)

1 well per 10 acres

SPACING

8

Williams Fork formationGarfield County

SPACING

FORCE POOLING

MULTI-WELL FORCE POOLING

Refusal to participate in first well prevented participating as consenting owner in any future wells.

No information on when and where future wells would be drilled.

Statute requires that owner be given “the opportunity to recover . . . his just and equitable share.” C.R.S. §34-60-116(6).

May prevent owner from developing his or her own property.

FORCE POOLING

MULTI-WELL FORCE POOLING

Potential for not participating in any future wells.

Free look vs. changed circumstances.

Relative risk vs. 200% statutory penalty.

Royalty owners treated differently than working interest owners.

Industry standard

May prevent other owners from proposing a well in the spacing unit.

11

PRODUCING FORMATIONS IN THE GREATER WATTENBERG AREA

“Cretaceous formations” are those that formed during the Cretaceous Geologic period which occurred between 145 million years ago and 66 million years ago. It includes all of the formations listed in the stratigraphic column on the left of this slide.

Greater Wattenberg Area includes all lands in Townships 2 South through 7 North, and Ranges 61 West through 69 West.

Rule 318A (1998)All Cretaceous fms. 5 wells per quarter section (160 acres)

Section 1: All

Utilizes original “drilling windows” (surface locations) for existing wells (vertical).

Allocation of production varies based upon existing spacing orders, private agreements and location of wells

SPACING Greater Wattenberg AreaWeld, Adams and other counties

Rule 318A (2006)All Cretaceous fms.8 completions per quarter section in “J” Codell and Niobrara.Same surface locations. New spacing rules for boundary and infill wells (directional wells).

Section 2: E2NE Section 1: W2NW

Production allocated to every quarter-quarter section (40 acres) within 460 feet of wellbore or existing spacing unit (80, 160 or 320 acres)

Greater Wattenberg AreaWeld, Adams and other countiesSPACING

Rule 318A(I) (2011)All Cretaceous fms.No limit to number of wells.Horizontal wellsSame surface locations Well bore spacing

Section 2: E2NE

Section 1: W2NW

Production from well allocated to every quarter-quarter section (40 acres) within 460 feet of perforated section of wellbore


Rule 318A(I) (2011)all Cretaceous fms.Horizontal wells along section linesWell bore spacing

Section 2: E2 Section 1: W2

Production from well allocated to every quarter-quarter section (40 acres) within 460 feet of perforated section of wellbore.


PRODUCING FORMATIONS IN PORTIONS OF THE DJ BASIN

Niobrara formation contains up to four producing zones, often with permeability barriers between them.

Some natural fracturing exists, creating extensive drainage in a few areas.

Hydraulic fracturing does not often create significant, long-term flow between the producing zones, or even for distances of greater than 100 or 200 feet within zones.

Individual OrdersAll formations

Horizontal wellsDrilling windows not located optimally.

Section 1: All

Horizontal wells: Production from all wells allocated to entire spaced area.(40 to 1280 acres)(640 acre example)

Niobrara and Codell formationsWeld, Adams and other countiesSPACING

Rule 318A(I) (2011)all Cretaceous fms.Horizontal wells along section linesWell bore spacing

Section 2: E2 Section 1: W2

Production from well allocated to every quarter-quarter section (40 acres) within 460 feet of perforated section of wellbore.


Red dots = Well surface locationsPurple, green and blue dots = Bottom hole locationsRadiating lines (spokes) = Directional well boresParallel lines = Horizontal well bores

SEGMENT OF ONLINE GIS MAP FROM COLORADO OIL AND GAS CONSERVATION COMMISSION WEBSITE

http://cogcc.state.co.us/

SPACING Greater Wattenberg AreaWeld, Adams and other counties

SPACING

HORIZONTAL WELLS MUST BE AT LEAST 600 FEET FROM BOUNDARIES OF 1280-ACRE SPACING UNITS.

ADDITIONAL WELL COULD

CROSS BOUNDARIES OF SPACING UNITS.

ALLOCATION OF PRODUCTION FROM PRE-EXISTING WELLS DRILLED WITHIN PRE-EXISTING 640-ACRE UNITS WAS NOT AFFECTED.

COGCC Order No. 421-4 (2011)

21

ROLLING SPACING UNITS

22

SPACING

EXPLORATORY SPACING UNITS USED AUTHORITY UNDER

C.R.S. §34-60-116(2) AND C.R.S. §34-60-118. 80% WORKING INTEREST AND ROYALTY OWNERS MUST AGREE.

WELLS MUST BE AT LEAST 600

FEET FROM UNIT BOUNDARY AND 150 FEET FROM OTHER WELLS IN UNIT.

NUMBER OF WELLS NO GREATER THAN NECESSARY TO EFFECTIVELY DRAIN RESERVOIR.

ONE SURFACE LOCATION PER QUARTER-QUARTER SECTION. (40 ACRES)


USED AUTHORITY UNDER C.R.S. §34-60-105 AND C.R.S. §34-60-106(2) - AUTHORIZES COGCC “TO DO WHATEVER MAY REASONABLY BE NECESSARY” TO REGULATE SPACING.

2,600-ACRE UNIT, BUT SIZE NOT

LIMITED – WELLS COULD BE NOT LESS THAN 600 FEET FROM UNIT BOUNDARY.

AS MANY WELLS AS NEEDED TO EFFECTIVELY DRAIN THE RESERVOIR.

8 SURFACE LOCATIONS PER SECTION.


UNCONVENTIONAL RESOURCE UNITS

23

SPACING

Effect of Federal Unleased Minerals - All formations

Horizontal wells

Production from all wells allocated to entire spaced area, including federal acreage.(640 acre example)

Section 1: All

UNLEASED FEDERAL TRACTS

SPACING AND POOLING

OTHER PROBLEMS

Unleased interests.

Restrictive lease terms.

Control of development.

Pooling notice.

SPACING

SETBACKSAt the time of initial drilling operations

2009 2013

Building 150’ 500’

High Density areas 350’ 1000’

Schools, hospitals, etc. 350’ 1000’

Designated Outside Activity Area 350’ 350’+

2014 BALLOT INITIATIVES

QUESTIONS?

Steve SullivanWelborn Sullivan Meck & Tooley PC

1125 17th Street, Suite 2200Denver, CO 80202

(303) [email protected]

www.wsmtlaw.com

evolution of spacing and pooling in colorado

Documents

acres cogcc order

future wells

experiment cogcc order

welladditional wells

largest drilling unit

evolution of spacing

drilling units

mineral owners