POOLING AND UNITIZATION METHODS ACROSS SHALE BASINS (OR LACK THEREOF): NIOBRARA

• Jurisdiction: United States

Development Issues in Major Shale Plays
(May 2014)
CHAPTER 8B
POOLING AND UNITIZATION METHODS ACROSS SHALE BASINS (OR LACK THEREOF): NIOBRARA
Jamie L. Jost
Managing Shareholder
Joseph M. Evers ¹
Associate Attorney
Jost & Shelton Energy Group, PC
Denver, Colorado

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JAMIE L. JOST is Co-Founder and Managing Shareholder of Jost & Shelton Energy Group, P.C. in Denver, where she focuses primarily on matters relating to exploration, development and production of oil and gas, as well as local, state, and federal permitting and regulatory issues in the Rocky Mountain Region. In addition, she assists clients with legislative and policy strategy planning, land and mineral due diligence, acquisition and divestiture matters, land contracts (including leases, easements, rights-of-way, surface use and access agreements, and subsurface and pore space easements), industrial siting permitting, air and water issues, and eminent domain matters. Jamie practices in front of the Colorado Oil & Gas Conservation Commission, the Wyoming Oil & Gas Conservation Commission, the New Mexico Oil Conservation Division, and the Interior Board of Land Appeals, as well as before federal and state courts on various energy issues, including oil and gas royalty litigation, subsurface trespass matters, and surface use issues. She also currently serves as General Counsel to the Colorado Oil & Gas Association and assists national and international oil and gas operators on a daily basis to ensure that their exploration, development, and operations continue to progress efficiently and economically. Prior to founding the Jost & Shelton Energy Group, P.C., Jamie was a shareholder at a premier Denver-based energy law firm, where she served as Chair of the Oil and Gas Commission Practice Group. Jamie also enjoyed an in-house counsel role at Suncor Energy (U.S.A.) Inc., where she served as Corporate Legal Counsel and was primarily responsible for legal issues for Suncor's pipeline affiliate's land, title, litigation, and permitting matters. Specifically, Jamie worked closely with the business team on the expansion of its existing pipeline system and managed the easement acquisition, permitting, and eminent domain proceedings for the expansion project. She also advised Suncor's Terminal and Distribution Group, Retail Group, and Human Resources Group on various matters. Jamie has served as a trustee for the Rocky Mountain Mineral Law Foundation and has co-authored several oil and gas related articles for the Foundation. She has co-chaired a Special Institute on midstream operations, and is a member of the Special Institute Committee. She is an active member of the Denver Association of Petroleum Landmen and the Colorado Bar Association's Natural Resources Sections. She is a member of the Wyoming Bar Association, Colorado Bar Association, New Mexico Bar Association, the U.S. District Court of Colorado, the U.S. District Court of Wyoming, and the 10th Circuit Court of Appeals. Jamie received her J.D. from the University of Wyoming in 2002 and her undergraduate degree, cum laude, in Environmental Science and Industrial Hygiene from Indiana State University in 1998. In addition to her legal career, Jamie is also a past member of the Board of Directors for Ronald McDonald House Charities, Inc. and Colfax Community Network, a past honoree as a member of the Cystic Fibrosis Foundation's 2012 class of Colorado's Finest Young Professionals, and has received the "Rising Star" designation by Colorado Superlawyyers for 2011, 2012, 2013, and upcoming 2014.

JOE EVERS is an Associate Attorney at Jost & Shelton Energy Group, P.C. in Denver, where his practice is primarily focused on assisting clients with their exploration, development, and production of oil and gas operations, as well as their regulatory, transactional, and title issues. Joe also assists clients with federal and state land matters. Joe is currently licensed in Colorado and is in the process of obtaining his licensure in Wyoming, Montana, and North Dakota. Joe grew up in the oil patch in Sheridan, Wyoming and attended the University of Wyoming on a football scholarship, obtaining a B.S. in Finance in 2009. He graduated from the University of Wyoming College of Law in 2013, where he received a joint Juris Doctor/Master of Art in Environment & Natural Resources.

This article is for informational purposes only and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting representative counsel.

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I. Introduction

The Niobrara Shale Formation (Niobrara Formation] is one of the most prolific shale formations in the United States. The portion of the Niobrara Formation that is the focus of this paper covers four states - Colorado, Wyoming, Kansas, and Nebraska - and is primarily an oil play located in the Denver-Julesberg Basin (DJ Basin).² Most of the development of the Niobrara Formation is focused in the DJ Basin, with much of the development in the Wattenberg Field in Weld County, Colorado, and the Silo Field in Laramie County, Wyoming. Over the past few years, over fifty operators have utilized horizontal drilling as the common method of recovering valuable hydrocarbons from this prolific geologic formation in Colorado and Wyoming alone. Horizontal drilling is one of the most useful and valuable drilling technologies used by oil and gas operators in the development of the hydrocarbons from the Niobrara Formation.

Although operators have been extensively exploring, developing and producing from the Niobrara for several years, it still remains much of an exploratory play in the DJ Basin. As a result, the Colorado Oil and Gas Conservation Commission (COGCC or Commission) and Wyoming Oil and Gas Conservation Commission (WOGCC or Commission) have continually approved various shapes and sizes of units, as well as various methods of pooling interests in such units. This paper provides a practical overview of the variety of unitization and pooling methods utilized by operators to

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efficiently and effectively develop the Niobrara Formation in the states of Colorado and Wyoming.³

II. Overview of Colorado and Wyoming State Statutes. Rules and Policies

An operator who intends to develop the Niobrara Formation in the DJ Basin must have a full and firm understanding of the applicable statutes, rules, and agency policies that will govern its oil and gas operations. This portion of the paper provides a comprehensive overview of the applicable Colorado and Wyoming laws, regulations and policies that are consistently applied to horizontal development of the Niobrara Formation.

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A. Colorado:

The COGCC governs oil and gas exploration, development, production, and operations in the State of Colorado. ⁴ The COGCC is made up of nine members that are appointed by the Governor of the State of Colorado.⁵ The make-up of the COGCC is mandated by the Colorado Oil and Gas Conservation Act and includes the following appointed commissioners - the Director of the Colorado Department of Public Health and Environment, the Director of the Department of Natural Resources, two members that reside west of the Continental Divide, three members with substantial oil and gas experience, two members with a college degree in petroleum geology or petroleum engineering, one local government official, one member with substantial environmental or wildlife protection experience, one member with substantial soil conservation or reclamation experience, one member engaged in agricultural production and a royalty owner, with a maximum of four members from the same political party.⁶

The COGCC is subject to, and limited by, the authority provided to it by the Colorado Oil and Gas Conservation Act.⁷ Based on the COGCC's mandate to prevent waste, protect correlative rights, and protect the public health, safety and welfare, including protection of the environment and wildlife resource, it has adopted various policies and undertaken numerous recent rulemakings to ensure that, among other things, the horizontal development of the Niobrara formation in the DJ Basin is efficiently developed, as well as strictly monitored and regulated. Many of the applicable Colorado laws and rules, as well as COGCC policies are described in this portion of the paper.

1. Colorado Oil and Gas Conservation Act:

et seq.&title=34&getbrowsepage=yes" target="_new" >C.R.S. § 34-60-101. et seq. ; Pursuant to the Oil and Gas Conservation Act, the COGCC is primarily charged with ensuring the efficient development of the State's oil and gas resources by preventing waste, protecting the correlative rights of mineral interest owners, and protecting the State's environmental resources to safeguard wildlife and public health alike.⁸ The COGCC carries out its mission by regulating the drilling,

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production, and plugging of wells, as well as reviewing and approving the spacing of lands and pooling of minerals, among other functions.⁹

C.R.S. 34-60-116 : Drilling and spacing units are utilized by the COGCC to avoid the drilling of unnecessary wells and are established based upon evidence presented to the COGCC showing that such units are necessary to facilitate the efficient and economic development of oil and gas producing zones.¹⁰ Generally, one well is allowed permitted per drilling unit, but an operator can obtain approval of an increased density application that allows multiple wells to be drilled in the unit. When increased density is allowed, the COGCC typically requires the operator to utilize common or multi-well pads. This is particularly useful to allow for multiple horizontal wells that would result in efficient development of the oil and gas resource, particularly the Niobrara Formation.

C.R.S. g 34-60-116(6), (7): To further facilitate unit wide development, the Oil and Gas...