BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO
IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO	) ) ) )	CAUSE NO.   112 ORDER NO.   112-165

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission on June 4, 2002 at 10:00 a.m. in the Anasazi Room, La Plata County Courthouse, 1060 E. 2^nd Avenue, Durango, Colorado for an order to allow the drilling of the Anderson #1 Coalbed Methane Well utilizing a horizontal completion technique at an exception location as close as 660 from the north, east and south lines of the drilling unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M.  In addition, the order should allow the Thuringer #1-5 Well to be completed utilizing a horizontal completion technique at an exception location as close as 926 feet to the west line of the unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M. 

FINDINGS

                        The Commission finds as follows:

                        1.   CDX Rockies, 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 the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4.  On June 15, 1988, the Commission issued Order No. 112-60 which established 320-acre drilling and spacing units for the production of gas from the Fruitland coal seams, underlying certain lands in the Ignacio-Blanco Field, with the units to consist of a governmental half section and the permitted well when north of the north line of Township 32 North to be located in the NW¼ and the SE¼ of each section and when south of the north line of Township 32 North to be located in the NE¼ and SW¼ of each section, no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line.  Order Nos. 112-61 and 112-85 were subsequently adopted amending Order No. 112-60 to establish additional field rules for the Fruitland coal seams.  Section 5, Township 32 North, Range 6 West, N.M.P.M. was included in these orders.

             5.  On April 2, 2002, CDX Rockies, LLC (“CDX”), by its attorney, filed with the Commission a verified Application for an order to allow the drilling of the Anderson #1 Coalbed Methane Well utilizing a horizontal completion technique at an exception location as close as 660 from the north, east and south lines of the drilling unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M.  In addition, CDX wishes to complete the Thuringer #1-5 Well utilizing a horizontal completion technique at an exception location as close as 926 feet to the west line of the unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M.  CDX has been unsuccessful in obtaining waivers or consents from owners to drill and complete the Wells at exception locations.

            6.  On May 17, 2002 Exok, Inc. and Petrox Resources, Inc. filed with the Commission a written protest to the application alleging that their correlative rights would be adversely affected if the application were granted.

            7.  On May 28, 2002, a prehearing conference was held with the applicant and the protestants, at which time the parties indicated their willingness to attempt a settlement through discussions between their technical representatives.

            8.  On May 31, 2002, the parties notified the Hearing Officer that they were unable to reach a settlement.  At that time, the applicant provided the Commission with a recommended order for consideration at hearing and the protestants provided the Commission proposed conditions to consider for inclusion in an order.

                        9.  The Commission heard expert testimony from Al Arlian, Land Manager for CDX regarding ownership of the application lands and the adjacent lands, the location of the existing Thuringer #1-5 Well and the proposed location for the Anderson #1 Well, the proposed horizontal legs, and the surface use for a typical 320-acre drilling and spacing unit with two (2) vertical wells versus the two (2) wells proposed using horizontal technology.  Mr. Arlian testified that utilizing the horizontal technique would result in less surface disturbance in constructing the well pad and access road.

                        10.  The Commission heard expert testimony from James Fassett, Senior Geologist for CDX regarding the geologic development generally in the San Juan Basin and specifically in the application lands, who opined that the Fruitland coal seams vary in thickness and are discontinuous throughout the basin, with an average thickness of thirteen (13) feet and a fair amount of continuity in the application lands.

                        11.  The Commission heard expert testimony from Michael Zuber, Consulting Engineer for CDX regarding the estimated gas in place for a nine section area surrounding the application lands, the estimated gas recovery for wells surrounding the application lands, and the expected production and recovery from the proposed Anderson #1 Well.  Mr. Zuber opined that the recovery of gas would be higher in a multi-lateral completion than in a vertical completion, and that drainage beyond the 320-acre drilling and spacing unit was unlikely, thus correlative rights would not be violated.

                        12.  The Commission heard expert testimony from Brad Boyce, Manager for CDX regarding the results from using horizontal completion techniques in coal seams in West Virginia and the initial results from using these techniques on the Penrose #1R Well recently completed in Section 8.   In addition, Mr. Boyce described the process CDX will undergo to drill and complete the Anderson #1 Well using the Thuringer #1-5 Well as a service well.  Mr. Boyce opined that the cost to drill one horizontal well will approximately equal the cost to drill two (2) vertical wells, and that based on the properties of the coal seams in the application area, four (4) to six (6) wells vertical wells may be necessary to adequately recover the gas reserves in Section 5, absent horizontal completions.

                        13.  Pursuant to Rule 510., a statement was made by Kirk Brown, a working interest owner with Petrox Resources, Inc. regarding the recent production of wells near the application lands who testified that these recent wells had better permeability and production than originally estimated.

                        14.  Rich Griebling, Director testified that the staff strongly supports CDX’s application based on the benefits from reducing surface impacts while recovering greater methane gas reserves from fewer wells.

                        15.  The Commission discussed the conditions proposed by the protestants for inclusion in the order and determined that under the Commission’s rules CDX is required to submit a directional survey and logs, and that requiring the submittal of daily production reports is unwarranted.

            16.  Based on the facts stated in the verified application and the testimony and exhibits presented at hearing, the Commission should enter an order to allow the drilling of the Anderson #1 Coalbed Methane Well utilizing a horizontal completion technique at an exception location as close as 660 from the north, east and south lines of the drilling unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M.  In addition, the order should allow the Thuringer #1-5 Well to be completed utilizing a horizontal completion technique at an exception location as close as 926 feet to the west line of the unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M. 

ORDER

                        NOW, THEREFORE IT IS ORDERED, that the drilling of the Anderson #1 Coalbed Methane Well utilizing a horizontal completion technique at an exception location as close as 660 from the north, east and south lines of the drilling unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M. is hereby approved.

                        IT IS FURTHER ORDERED, that the Thursinger #1-5 Well to be completed utilizing a horizontal completion technique at an exception location as close as 926 feet to the west line of the unit in the S½ of Section 5, Township 32 North, Range 6 West, N.M.P.M.  is hereby approved.

                        IT IS FURTHER ORDERED, that if a commercial well shall be completed at the location set forth above, the Commission shall, upon application of any interested person, take such action as will offset any advantages which the person securing the exception may have over other producers by reason of drilling the well as an exception, including suitable provisions to prevent the production from the well drilled as an exception of more than its just and equitable share of the oil and gas in the pool.

                        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.

                        ENTERED this  day of June 2002, as of June 4, 2002.

                                                                        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

June 12, 2002