BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

 

IN THE MATTER OF THE PROMULGATION AND                                     ) CAUSE NO. 1

ESTABLISHMENT OF FIELD RULES TO GOVERN                                 )

OPERATIONS IN A WILDCAT AREA,                                                          ) ORDER NO. 1-220

MOFFAT COUNTY, COLORADO                                                                 )

REPORT OF THE COMMISSION

                                This cause came on before the Commission at 9:00 ap.m. on April 25, 2005 in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to establish an exploratory unit consisting of approximately 1122 acres in portions of four (4) sections, allowing a horizontal production well system and service well to be produced on the 1122 acre unit with the horizontal production legs located no closer than 660 feet from the outer section lines, for production of gas and associated hydrocarbons from the Williams Fork Coal Seam Formation.

FINDINGS

                                The Commission finds as follows:

                                1. CDX Gas, LLC ("CDX"), as Applicant herein, is an interested party in the subject matter of the above-referenced hearing.

                                2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

                              3. The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

                                4. Rule 318.a. requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing.

                                5. On March 7, 2005, CDX, by its attorney, filed with the Commission a verified application for an order to allow a horizontal well system to be permitted to be completed and produce hydrocarbons from the Williams Fork Coal Seam Formation (defined as the stratigraphic equivalent of the depth from 3536’ to 4708’ below the surface as found in that certain well identified as the Argo #33-16 Well located in the SEĽ SEĽ of Section 33, Township 8 North, Range 94 West, 6th P.M.), and to be located no closer than 660 feet from the outer boundary of the sections, without regard to quarter section lines within Sections 3 and 4 of Township 7 North, Range 94 West, 6th P.M. and Sections 33 and 34 of Township 8 North, Range 94 West, 6th P.M. and without regard to the shared section lines between the affected sections. CDX also requested that this horizontal well system be designated as the unit well for an exploratory unit in accordance with the provisions of §34-60-116 (2), C.R.S. The surface location for the proposed horizontal production well system will be located in the SEĽ of Section 33 and will include multiple horizontal production legs from the Argo #33-16 Well that extend no closer than 660 feet from the exterior boundaries of Sections 3, 4, 33 and 34 without regard for the shared section lines. The surface location of service well which will not produce hydrocarbons will also be located in the SEĽ of Section 33. CDX wishes to establish an approximately 1,122.18 acre exploratory drilling and spacing unit for the horizontal well system. A portion of the mineral interests underlying Sections 3, 4 and 34 are owned by the Bureau of Land Management ("BLM"), and CDX will secure a communitization agreement such that the 1,122.18 acre unit will be developed as one and the correlative rights of all interest owners will be protected.

                                6. Testimony and exhibits presented at the administrative hearing showed the mineral ownership in Section 3 and the E˝ E˝ of Section 4, Township 7 North, Range 94 West, 6th P.M., and in the SEĽ of Section 33 and the S˝ S˝ of Section 34, Township 8 North, Range 94 West, 6th P.M. Additional testimony showed that the surface location will be in the SEĽ of Section 33 where the Argo 33-10 Well will be twinned and used as the service well, and the existing Argo 33-16 Well and its pad and pits will be used as the production well.

                                7. Testimony and exhibits presented at the administrative hearing showed the 660 foot setback to the unit area boundary within the 1122 acre proposed exploratory unit and a depiction of the proposed wellbore and welbore laterals. Additional testimony showed that CDX has one hundred percent (100%) working interest ownership in the proposed exploratory unit, and that CDX has discussed the formation of a federal unit with the BLM. If the unit is not formed, CDX will instead pursue obtaining a communitization agreement. Further testimony showed that surface use agreements are in place with the surface owners in Sections 3 and 33, as well as consent from the Colorado State Board of Land Commissioners to construct an access road across Section 16, Township 7 North, Range 94 West, 6th P.M.

                                8. Testimony and exhibits presented at the administrative hearing indicated that the Almond Formation and the Williams Fork Formation are the targets for production from coal seams. Additional testimony indicated that three (3) coal seams are expected to produce in the area.

                                9. Testimony and exhibits presented at the administrative hearing showed that the Williams Fork Coal Seam Formation is defined as the stratigraphic equivalent of the depth from 3536’ to 4708’ below the surface as found in the Argo #33-16 Well located in the SEĽ SEĽ of Section 33, Township 8 North, Range 94 West, 6th P.M. Additional testimony and exhibits showed that the Sugarloaf Coal is the thickest Williams Fork Coal Seam, and the Almond Coal is thinner and less continuous in the area. Further testimony and exhibits showed the coal thickness ranges from ten (10) feet to a maximum of thirty (30) feet.

                                10. Testimony and exhibits presented at the administrative hearing showed the Z-Pinnate drilling pattern in the proposed 1122 acre exploratory unit. Additional testimony and exhibits showed artistic renditions of typical well spacing and the Z-Pinnate drilling system.

                                11. Testimony and exhibits presented at the administrative hearing showed the wellbore diagrams for the service and production wells, the location where the cavity will be cut, and the five (5) lateral legs. Additional testimony indicated that the Argo #33-10 Well will be plugged and the pad will be used to drill the Argo #33-10X Well as a twin, which will be used as the service well only to access the lateral legs. Further testimony indicated that the pad and pit at the existing Argo #33-16 Well will be used for the production well. Testimony presented at the administrative hearing showed that the longest lateral leg will be thirteen thousand five hundred (13,500) feet, that there will be no hydraulic fracturing, that the two (2) nearby plugged wells should not be conduits for methane gas to escape, and that the proposed six hundred sixty (660) foot setback from the boundaries of the exploratory unit will protect correlative rights.

                                12. Testimony and exhibits presented at the administrative hearing showed that the horizontal well system can be drilled to protect public health, safety, welfare and the environment. Additional testimony indicated that the proposed drilling plan will reduce surface impact and adequately drain the 1122 acre exploratory unit.

                                13. Testimony and exhibits presented at the administrative hearing showed that the well will be economic, that based on data from other horizontal well systems, the proposed horizontal well system located no closer than 600 feet from the boundaries of the 1122 acre exploratory drilling unit will efficiently drain the Williams Fork Coal Seams, prevent waste and increase gas recovery.

                                14. CDX Gas, LLC agreed to be bound by oral order of the Commission.

                               15. Based on the facts stated in the verified application, having received no protests to the application and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to allow a horizontal well system to be permitted to be completed and produce hydrocarbons from the Williams Fork Coal Seam Formation (defined as the stratigraphic equivalent of the depth from 3536’ to 4708’ below the surface as found in that certain well identified as the Argo #33-16 Well located in the SEĽ SEĽ of Section 33, Township 8 North, Range 94 West, 6th P.M.), and to be located no closer than 660 feet from the outer boundary of the sections, without regard to quarter section lines within Sections 3 and 4 of Township 7 North, Range 94 West, 6th P.M. and Sections 33 and 34 of Township 8 North, Range 94 West, 6th P.M. and without regard to the shared section lines between the affected sections.

ORDER

                                NOW, THEREFORE IT IS ORDERED, that an exploratory unit is hereby established consisting of approximately 1122 acres for the below-listed lands, allowing a horizontal production well system and service well to be produced on the 1122 acre unit with the horizontal production legs located no closer than 660 feet from the outer section lines, for production of gas and associated hydrocarbons from the Williams Fork Coal Seam Formation, without regard to the shared section lines between the affected sections.

                                Township 7 North, Range 94 West, 6th P.M.

                                Section 3: All

                                Section 4: E˝ E˝

 

                                Township 8 North, Range 94 West, 6th P.M.

                                Section 33: SEĽ

                                Section 34: S˝ S˝

                                IT IS FURTHER ORDERED, that the surface location for the proposed horizontal production well system shall be located in the SEĽ of Section 33 and shall include multiple horizontal production legs from the Argo #33-16 Well that extend no closer than 660 feet from the exterior boundaries of Sections 3, 4, 33 and 34 without regard for the shared section lines

                                IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

                                IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

                                IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

                                IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

 

                                ENTERED this ________ day of May, 2005, as of April 25, 2005.

 

                            OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

                                                                            By

                                                                            Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

May 16, 2005