evolution of spacing and pooling in colorado

EVOLUTION OF SPACING AND
POOLING IN COLORADO
National Association of Royalty Owners
June 6, 2014
Loveland, Colorado
Steve Sullivan
Welborn Sullivan Meck & Tooley PC
1125 17th Street, Suite 2200
Denver, CO 80202
(303) 830-2500
[email protected]
www.wsmtlaw.com
Development of oil and gas fields prior to state regulation
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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).
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SPACING
“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).
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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.
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SPACING
 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.
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SPACING
COGCC Order No. 407-1 (1983)
Codell formation
One well per 80 acres.
Option to drill second well
Additional wells could be
drilled to other formations.
Niobrara and Codell formations
Weld, Adams and other counties
Section 1: W2NW
Optional Well
Vertical wells - Production from
both wells allocated to mineral
owners in W2NW (80 acres)
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SPACING
Williams Fork formation
Garfield County
 U.S. Department of Energy
Multi-well Experiment
 COGCC Order No. 139-28 (1995)
1 well per 80 acres
 COGCC Order No. 139-31 (1997)
1 well per 40 acres
 COGCC Order No. 139-32 (1998)
1 well per 20 acres
 COGCC Order No. 139- 38 (2003)
1 well per 10 acres
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SPACING
Williams Fork formation
Garfield County
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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. §34-60116(6).
 May prevent owner from developing his
or her own property.
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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.
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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.
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SPACING
Greater Wattenberg Area
Weld, Adams and other counties
Section 1: All
Rule 318A (1998)
All Cretaceous fms.
5 wells per quarter
section (160 acres)
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
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Greater Wattenberg Area
Weld, Adams and other counties
SPACING
Rule 318A (2006)
All Cretaceous fms.
8 completions per
quarter section in “J”
Codell and Niobrara.
Section 2: E2NE
Section 1: W2NW
Same surface locations.
New spacing rules for
boundary and infill wells
(directional wells).
Production allocated to
every quarter-quarter
section (40 acres)
within 460 feet of
wellbore or existing
spacing unit (80, 160 or
320 acres)
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Greater Wattenberg Area
Weld, Adams and other counties
SPACING
Rule 318A(I) (2011)
All Cretaceous fms.
No limit to number
of wells.
Section 2: E2NE
Section 1: W2NW
Horizontal wells
Same surface locations
Well bore spacing
Production from well
allocated to every
quarter-quarter section
(40 acres) within 460
feet of perforated
section of wellbore
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Greater Wattenberg Area
Weld, Adams and other counties
SPACING
Section 2: E2
Section 1: W2
Rule 318A(I) (2011)
all Cretaceous fms.
Horizontal wells along
section lines
Well bore spacing
Production from well
allocated to every
quarter-quarter section
(40 acres) within 460
feet of perforated
section of wellbore.
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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, longterm flow between the
producing zones, or even for
distances of greater than 100 or
200 feet within zones.
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SPACING
Individual Orders
All formations
Niobrara and Codell formations
Weld, Adams and other counties
Section 1: All
Horizontal wells
Drilling windows not
located optimally.
Horizontal wells:
Production from all
wells allocated to
entire spaced area.
(40 to 1280 acres)
(640 acre example)
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Greater Wattenberg Area
Weld, Adams and other counties
SPACING
Section 2: E2
Section 1: W2
Rule 318A(I) (2011)
all Cretaceous fms.
Horizontal wells along
section lines
Well bore spacing
Production from well
allocated to every
quarter-quarter section
(40 acres) within 460
feet of perforated
section of wellbore.
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SPACING
Greater Wattenberg Area
Weld, Adams and other counties
SEGMENT OF ONLINE GIS
MAP FROM COLORADO OIL
AND GAS CONSERVATION
COMMISSION WEBSITE
http://cogcc.state.co.us/
Red dots =
Well surface locations
Purple, green and blue dots =
Bottom hole locations
Radiating lines (spokes) =
Directional well bores
Parallel lines =
Horizontal well bores
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SPACING
ROLLING SPACING UNITS
 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 PREEXISTING WELLS DRILLED
WITHIN PRE-EXISTING 640ACRE UNITS WAS NOT
AFFECTED.
COGCC Order No. 421-4 (2011)
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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)
COGCC Order No. 535-259 (2013)
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SPACING
UNCONVENTIONAL RESOURCE UNITS
 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.
COGCC Order No. 540-12 (2013)
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UNLEASED FEDERAL TRACTS
Effect of Federal
Unleased Minerals All formations
Section 1: All
Horizontal wells
Production from all wells
allocated to entire
spaced area, including
federal acreage.
(640 acre example)
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UNLEASED FEDERAL TRACTS
Effect of Federal
Unleased Minerals All formations
Section 1: All
Horizontal wells
Production from all wells
allocated to entire
spaced area, including
federal acreage.
(640 acre example)
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SPACING AND POOLING
OTHER PROBLEMS
 Unleased interests.
 Restrictive lease terms.
 Control of development.
 Pooling notice.
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SPACING
SETBACKS
At 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
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QUESTIONS?
Steve Sullivan
Welborn Sullivan Meck & Tooley PC
1125 17th Street, Suite 2200
Denver, CO 80202
(303) 830-2500
[email protected]
www.wsmtlaw.com
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