1976, July, Pg. 924. Colorado Oil and Gas Conservation Commission.

• Author: by David E. Brody

5 Colo.Law. 924

Colorado Lawyer

1976.

1976, July, Pg. 924.

Colorado Oil and Gas Conservation Commission

924Vol. 5, No. 7, Pg. 924Colorado Oil and Gas Conservation Commissionby David E. BrodyDavid E. Brody, Denver, is attorney for Amoco Production Company and an honorarium lecturer in "The Legal Process" at the University of Colorado at Denver.The Colorado Oil and Gas Conservation Commission (the "Commission") is an independent regulatory agency in the Colorado Department of Natural Resources(fn1) and is charged with the regulation of the production of crude oil and natural gas in Colorado. Its existence and authority are founded in the Oil and Gas Conservation Act (the "Act"),(fn2) enacted in 1951 and amended numerous times since then.(fn3)

Legislative IntentThe name "Conservation" Commission is somewhat misleading, since the role of the Commission is to promote and encourage, rather than retard, the development of Colorado's oil and gas resources. Its role is to "conserve" these resources only insofar as the Commission requires producers to proceed in such a way that no waste of oil or gas occurs;(fn4) it does not conserve in the sense that it saves those resources from being produced in the first place and consumed by the public. Indeed, § 102 of the Act (the legislative declaration) states in summary that intent is to (1) foster, encourage and promote the development, production and utilization of the natural resources of oil and gas in the state of Colorado; (2) permit each oil and gas pool in Colorado to produce up to the maximum efficient rate of production; (3) protect the public and private interests against the evils of waste in the production and utilization of oil and gas; and (4) safeguard, protect, and enforce the coequal and correlative rights of owners and producers in a common source or pool of oil and gas to the end that each such owner and producer may obtain a just and equitable share of production.(fn5)

The second and third points above can be categorized generally as preventing waste. Preventing waste is one of the two main purposes of the Act and of all conservation statutes. The other major purpose is to protect correlative rights (point four above). In fact, the legislative declaration makes all purposes of the Act subject to those two major purposes of preventing waste and protecting correlative rights.(fn6)

926Prevention of WasteSection 107 of the Act provides: "The waste of oil and gas in the state of Colorado is prohibited by this article."(fn7) As applied to gas, the Act defines "waste" as "the escape, blowing, or releasing. . . of gas from wells, productive of gas only, or gas in an excessive

or unreasonable amount from wells producing oil, or both oil and gas. . . or in such manner as unreasonably reduces reservoir pressure or unreasonably diminishes the quantity of oil or gas that ultimately may be produced...." Waste in terms of oil usage is defined as "inefficient, excessive or improper use or dissipation of reservoir energy. . . surface waste. . . and waste incident to the production of oil in excess of the producer's above-ground storage facilities and lease and contractual requirements. . . ." Finally, with respect to both gas and oil, waste is defined as "the locating, spacing, drilling, equipping, operating, or producing of any oil or gas well or wells in a manner which causes or tends to cause reduction in quantity of oil or gas ultimately recoverable from a pool. . . [and] abuse of the correlative rights of any owner in a pool due to. . . excessive withdrawals of oil or gas therefrom. . . ."(fn8)The Commission is bound, therefore, by its statutory mandate to recognize and promote those petroleum engineering techniques, production methods and principles of well location which allow for the fullest recovery possible and which prevent the creation of unrecoverable pockets of oil and gas, caused by structural problems or by insufficient pressure or by sandstone ("reservoirs" or "traps") of low permeability.

Forty years or more ago---that is, in the day of the "gusher"---producers often simply took oil and gas as rapidly as possible from the well until it stopped flowing, then abandoned the well and moved on to other locations. Frequently, this practice left as much as 90 percent of the oil and gas still in the ground. Production practices in Oklahoma and Texas in particular were characterized by prolific "flush production" leading to extensive losses due to weathering and pollution due to runoff, as well as enormous waste underground due to inefficient use of the reservoir's natural energy.

The object of petroleum production and engineering and one of the objects of conservation statutes today, including the Colorado Act, is to recover as much oil and gas as possible from the reservoir within the cost limitations imposed by its price. For example, some reservoirs have a "maximum efficient rate" of production.(fn9) If this is exceeded, the natural energy or pressure contained within the reservoir is used inefficiently. However, if production remains within that rate, greater quantities of oil and gas are conserved and produced for our use.

Insofar as secondary recovery methods are concerned, the most commonly used methods are water injection, or "waterflooding," and gas injection, which replaces pressure in the formation and forces more oil to migrate through the rock to the well bore. Secondary recovery methods are not used for gas wells. Instead, several different "well stimulation" techniques are used to loosen up the reservoir and release the gas held under pressure. Most frequently used methods are "acidizing" and "fracturing." Acidizing involves the use of raw acid---usually hydrochloric---to eat tiny channels in the formation through which oil and gas can flow. Fracturing is a method in which treated fluids are pumped into the well under extreme pressure, thus splitting open fissures in the reservoir.

Protection of Correlative RightsThe Act defines "correlative rights" as meaning that "each owner and producer in...