CHAPTER 4 SPECIAL LEGAL ISSUES AND PRACTICE BEFORE THE COLORADO OIL AND GAS CONSERVATION COMMISSION
| Jurisdiction | United States |
(Sep 1985)
SPECIAL LEGAL ISSUES AND PRACTICE BEFORE THE COLORADO OIL AND GAS CONSERVATION COMMISSION
Welborn, Dufford, Brown & Tooley
Denver, Colorado
Commissioner, Colorado Oil and Gas Conservation Commission
September 26, 1985, 2:00 p.m.
[All statutory citations are to Vol. 14, Colorado Revised Statutes (1984) All rule citations are to the Rules and Regulations and Rules of Practice and Procedure of the Colorado Oil and Gas Conservation Commission effective July 16, 1984.]
I. OVERVIEW OF BASIC COLORADO CONSERVATION CONCEPTS.
A. Spacing.
1. No state-wide spacing. Spacing is determined on a field-by-field or pool-by-pool basis by the Commission. Spacing regulations made by the Commission apply to each individual pool separately and not to all units on a state-wide basis. Section 34-60-116(2).
2. In the absence of spacing, Rule 318 regulating the location of wells applies:
a. Wells drilled to a common source of supply in excess of 2500 feet in depth shall be located not less than 600 feet from any lease line and not less than 1200 feet from any other well, producible or drilling, in the same common source of supply, unless authorized by the Commission.
b. Wells less than 2500 feet in depth, shall be located not less than 200 feet from any lease line and not less than 300 feet from any other well in the same source of supply without authorization.
3. Exceptions may be granted where topographical conditions require or consent is granted by the lease owner toward whom the well location is proposed to be moved, if correlative rights are protected. Rule 318.
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4. The acreage in and the shape of each drilling unit are determined by the Commission based upon evidence produced at a hearing. No drilling unit shall be smaller than the maximum area that can be efficiently and economically drained by one well. Section 34-60-116(2).
5. Although only one well per drilling unit is allowed, the Commission may decrease or increase the size of the drilling unit or permit additional wells to be drilled within the unit in order to prevent or assist in preventing waste, avoid the drilling of unnecessary wells or protect correlative rights. Section 34-60-116(3) and (4).
B. Forced Pooling.
1. A condition precedent to forced pooling is the entry of a spacing order covering the lands to be pooled. Section 34-60-116(6).
2. If a drilling unit has been defined and two or more separately owned tracts are embraced within the drilling unit or there are separately owned interests in all or part of the unit, and pooling is not voluntary, then the Commission may enter an order pooling all interests, but only upon terms that are just and reasonable and that afford each owner the opportunity to recover or receive, without unnecessary expense, his just and recoverable share. Id.
3. The forced pooling order must make provision for the operation of the well, for the interest of each owner in the drilling units and for the payments of the recoverable actual cost of the well including a reasonable charge for supervision and storage. Section 34-60-117(a).
4. A working interest owner who has been offered the opportunity to participate and who refuses to agree to bear his proportionate share of the costs and risks of drilling and operating the well is a non-consenting owner. Id. Normally each working interest owner is given 30 days after receipt of well information (including estimated costs) to elect whether to participate, although this is not statutory.
5. The consenting owner may recover from the non-consenting owner's share of production 100%
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of the non-consenting owner's share of the cost of surface equipment and of operation of the well and 200% of the non-consenting owner's share of all other costs. Section 34-60-116(7)(b).
6. If the non-consenting owner is unleased, he is deemed to own a landowner's 1/8th royalty, proportionately reduced, until cost recovery has occurred. After cost recovery, the non-consenting owner owns his proportionate share of the well and facilities and has his share of additional costs. Section 34-60-116(7)(c).
C. Unitization (Section 34-60-118).
1. Unit Agreements for pressure maintenance, cycling or recycling operations and for carrying on other methods of unit or cooperative development are authorized and allowed.
2. Compulsory unitization shall occur if:
a. The operation is reasonably necessary to increase the ultimate recovery of oil or gas;
b. the value of the estimated additional recovery exceeds the estimated additional cost; and
c. the unit plan has been approved in writing by 80% of the working interest owners and by the owners of at least 80% of the production attributable to cost-free interests (royalties, overriding royalties, production payments).
D. Regulation of Drilling Activity.
1. Drilling rules generally require the use of blowout prevention equipment and other necessary precautions to keep well under control in wildcat areas. In proven areas, blowout prevention equipment is required only if this is the established practice. Rule 317(a), (b) & (c).
2. Protection of domestic fresh water is required and the migration of oil and gas from one
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horizon to another must be prevented. Rule 317(f), (g) & (h).
3. Special rules govern the drilling and completion practices in the northern portion of the Denver Basin, Front Range Corridor. Order No. A-1-3 (March 18, 1985).
a. These rules were promulgated in response to an explosion and fire in the town of LaSalle. Gas from shallow formations (probably Codell) seeped into abandoned water wells and vented to the surface. The final regulations became effective March 18, 1985, and apply to wells drilled, completed or recompleted in the area extending from and including Township 1 North to and including Township 12 North, and West from and including Range 49 West to and including Range 70 West, 6th P.M.
b. These rules impose special requirements on the running of surface casing and the cementing of production casing. They require approval before fracing, mudlogging after fracing, and pressure readings after completion with notice to the Director if specified amounts of pressure are released. When pulling the tubing in a work-over well that is in a residential area, a notice form must also be submitted for approval before the Operator may proceed.
c. Before removing any tubing from any well completed in the Niobrara, Codell, or "J" Sand formations, blowout preventors and kill lines must be installed. This equipment must be operated at least once each 24-hour period and must be ready to kill a well immediately if necessary.
4. Special rules govern the disposal of produced water and of oil field waste.
a. Water and waste disposed of in a commercial facility are not regulated by the Commission. Rules 125 and 325.
b. Surface disposal (on site or in a central facility) is regulated by Rule 325 which requires, removal of surface accumulation
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of liquid hydrocarbons, construction of pits to prevent seepage and the furnishing of information about soil conditions and the location of surface water sources and facilities.
c. Underground disposal of water in Class II wells is regulated by Rules 326 and 327 under the authority of the Clean Water Act.
E. Bonding.
1. Bond is required in the minimum amount of $5,000 per well or $30,000 statewide to secure proper plugging. Section 34-60-106(d) and Rule 304(a).
2. When the surface owner is not a party to the lease, an additional bond of $2,000 (per site) or $20,000 (statewide) is required to cover surface restoration. Section 34-60-106(3.5) and Rule 304(b).
3. Operators of central disposal facilities (Rule 124) must be bonded in the amount of $50,000 to secure reclamation of facility and removal of materials upon abandonment. Rule 304(c).
F. Regulation of Production.
1. The Commission generally has the authority to prevent waste and protect correlative rights. Section 34-60-117. Included in the definition of waste is abuse of correlative rights. Section 34-60-103(13)(b).
2. To this end, it may limit production so long as it also allocates or distributes allowable production among the several wells or producing properties within the pool on a reasonable basis so as to prevent or minimize drainage and so that each property has the opportunity to produce or receive its just and equitable share. Section 34-60-117 and Section 34-60-106(3) (b).
3. The Commission must give due regard to the fact that gas production is to be regulated and restricted so as to protect the use of gas as a means of oil production (anti-flaring) Section 34-60-117(3).
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II. PROCEDURAL ASPECTS OF THE COLORADO COMMISSION.
A. Makeup of the Commission (Section 34-60-104 as amended April 24, 1985 by H.B. 1154).
1. The Commission consists of six members appointed by the Governor with the consent of the Senate, one from each congressional district of the state.
2. Members of the Commission serve without compensation, except for actual expenses, for terms of five years.
3. No more than three members of the Commission shall be from the same major political party.
B. Actions by the Commission.
1. The Commission may act upon its own motion or upon the filing of a petition (8 copies) of any interested person. Section 34-60-108(7).
2. Upon the filing of a petition, the Commission must promptly fix a date for hearing and must cause notice of the filing of the petition and of the date to be given as is required by the statute and regulations. Id.
3. Rules, regulations and orders of the Commission and amendments thereto may not be made without a hearing upon at least ten days notice unless an emergency requiring immediate action is found to exist, in which case the Commission may enter an emergency order, without notice of hearing, to...
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