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. 112-224

CORRECTED

REPORT OF COMMISSION

This cause was heard by the Commission on November 29, 2010, in Suite 801, at The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on an application for an order to approve of up to four optional infill wells in established approximate 320-acre drilling and spacing units for certain lands located in Sections 8 and 21, Township 32 North, Range 9 West, N.M.P.M (SUL), Sections 18, 19 and 30, Township 33 North, Range 9 West, N.M.P.M. (SUL), and Sections 1 through 3, 11, 12, and Sections 18 through 20, Township 33 North, Range 10 West, N.M.P.M. (SUL), for the production of gas and associated hydrocarbons from the Fruitland coal seams.

FINDINGS

The Commission finds as follows:

1. BP America Production Company and the Southern Ute Indian Tribe, d/b/a Red Willow Production Company (“BP/Red Willow” or “Applicants”), are interested parties in the subject matter of the above-referenced matter.

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 has jurisdiction to promulgate the hereinafter prescribed order.

4. On June 17, 1988, the Commission issued Order No. 112-60, which among other things, established 320-acre drilling and spacing units for the below-listed lands, for the production of gas from the Fruitland Coal Seam Formation, with a 990-foot setback to the outer boundary of each unit and a 130-foot setback to the interior quarter section line:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 8:	All
Section 21:	All

Township 33 North, Range 9 West, N.M.P.M. (SUL)

Section 18:	All
Section 19:	All
Section 30:	All

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section1:	All
Section 2:	All
Section 3:	All
Section 11:	All
Section 12:	All
Section 18:	All
Section 19:	All
Section 20:	All

The units consisted of the N½ and S½ or the E½ and W½ of a full section with the one permitted well located, when north of the north line of Township 32 North, in the NW¼ and SE¼ of the section, and when south of the north line of Township 32 North, in the NE¼ and SW¼ of the section, and no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line.

5. On December 17, 1990, the Commission issued Order No. 112-85, which among other things, established 320-acre drilling and spacing units for the below-listed lands, Sections 8 and 21, Township 32 North, Range 9 West, N.M.P.M (SUL), Sections 18 and 19, Township 33 North, Range 9 West, N.M.P.M. (SUL), and Sections 1 through 3, 11, 12, and Sections 18 through 20, Township 33 North, Range 10 West, N.M.P.M. (SUL) for the production of gas from the Fruitland coal seams:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 8:	All
Section 21:	All

Township 33 North, Range 9 West, N.M.P.M. (SUL)

Section 18:	All
Section 19:	All

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section1:	All
Section 2:	All
Section 3:	All
Section 11:	All
Section 12:	All
Section 18:	All
Section 19:	All
Section 20:	All

6. On July 11, 2000, the Commission issued Order No. 112-157, which among other things, amended Order Nos. 112-60, 112-61, and 112-85 to allow an optional additional well to be drilled for the below-listed lands, for the production of gas from the Fruitland coal seams, with the permitted well to be located in any undrilled quarter section no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line:

Township 33 North, Range 9 West, N.M.P.M. (SUL)

Section 18:	All
Section 19:	All
Section 30:	All

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section1:	All
Section 2:	All
Section 3:	All
Section 11:	E½
Section 12:	All
Section 20:	E½

7. On October 8, 2010, Applicants, by their attorneys, filed with the Commission, a verified application (“Application”) for an order approve of up to four optional infill wells in established approximate 320-acre drilling and spacing units for the below-listed lands, for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the bottomhole location of any permitted well to be no closer than 660 feet to the outer boundary of the unit and no setback from any interior quarter section line:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 8:	E½
Section 21:	E½, E½ W½

Township 33 North, Range 9 West, N.M.P.M. (SUL)

Section 18:	S½
Section 19:	W½
Section 30:	N½

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section1:	W½
Section 2:	All
Section 3:	S½
Section 11:	All
Section 12:	E½
Section 18:	All
Section 19:	E½
Section 20:	All

La Plata County, Colorado

8. Insofar as the Application concerns lands within the jurisdiction of the Southern Ute Indian Tribe, it was submitted to the Commission in accordance with the terms of the Memorandum of Understanding dated August 22, 1991 between the Bureau of Land Management (“BLM”) and the Commission and the separate Memorandum of Understanding (“MOU”) dated August 22, 1991 between the Bureau of Indian Affairs, the BLM and the Southern Ute Indian Tribe (“SUIT”). In portions of the Application Lands, the SUIT owns surface interests, mineral interests and leasehold interests underlying such lands.

9. On November 12, 2010, La Plata County, by its attorney, filed with the Commission an intervention raising environmental and public health, safety and welfare concerns on the application. The intervention is not concerning the technical merits of the Application, and La Plata County does not object to the technical case being heard or reviewed administratively or pursuant to Rule 511. BP has negotiated a MOU with La Plata County regarding proposed conditions for the Commission to place upon the proposed increased well density Application. Further, La Plata County has conditionally withdrawn its intervention provided the Commission inserts the conditions set forth hereinafter in this Order.

10. On November 15, 2010, the Commission received letters from the BLM, after consultation with the SUIT, and the SUIT Department of Energy in support of the Application.

11. On November 15, 2010, Applicants, by their attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified Application and the supporting exhibits as is provided for by Rule 511. Sworn written testimony and exhibits were submitted in support of the Application.

12. Testimony and exhibits submitted in support of the Application by Ryan D. Fitzpatrick, Land Negotiator for BP, showed that the Application Lands are in close proximity to areas where up to four wells are allowed per 320-acre drilling and spacing unit for the development of the Fruitland coal seams. Additional testimony indicated that BP and Red Willow each operate certain designated areas within the Application Lands.

13. Testimony and exhibits submitted in support of the Application by Glenn G. Zinter, Geologist for BP, showed that the Fruitland coal seams underlie the entirety of the Application Lands, however, the discontinuous vertical and lateral continuity of individual seams and variable coal reservoir properties, indicate more wells are needed to adequately drain the gas contained in this reservoir.

14. Testimony and exhibits submitted in support of the Application by Tamara H. Golson, Reservoir Engineer for CBM for BP, showed that approving additional infill wells for Fruitland coal seams underlying the Application Lands for an effective 80-acre infill density would improve the efficiency of recovery of the Original Gas-in-Place from a median of 61% to a median recovery factor of 76%, resulting in an incremental recovery increase across the Application Lands of nearly 54.4 BCF gas. Additional testimony and exhibits showed that, based on the incremental recovery expected and the robust economics generated even with conservation rate profiles, the Applicants’ proposed infill drilling program is economically sound and is essential to recover additional reserves, prevent waste, and protect correlative rights.

15. Testimony and exhibits submitted in support of the Application by James W. Hawkins, Petroleum Engineering Consultant for BP, showed that the statutory regulatory requirements of prevention of waste and protection of correlative rights will be satisfied by granting the application, and that the additional wells are needed since existing wells are going to leave almost half of the original gas in place unrecovered. Additional testimony showed that in order to minimize land impacts, the wells are planned to be directionally drilled from no more than four well pads per 640-acre section, and that to accommodate efficient well drainage, the bottomhole well location setbacks need to be reduced to 660 feet from the spacing unit boundary. Further, testimony indicated that public health, safety, and welfare issues are addressed in the MOU negotiated with La Plata County which was agreed to on November 16, 2010, and that the Applicants’ public health, safety, and welfare plan limits the well pad density to four pads per section, identifies acceptable conditions for well location exceptions, specifies a water well water quality monitoring program offsetting new infill wells, establishes risk assessment for old plugged and abandoned wellbores within ¼ mile of the new infill wells, requires a COGCC hearing for wells located within 1½ miles of Fruitland Coal outcrop, requires COGCC onsite inspections for wells located within two miles of Fruitland Coal outcrop, and provides for emergency preparedness plans and pressure build-up surveys.

16. The above-referenced testimony and exhibits show that granting the application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

17. BP/Red Willow agreed to be bound by oral order of the Commission.

18. Based on the facts stated in the verified application, having received no protests, incorporating the Conditions as requested, and based on the hearing officer review of the Application under Rule 511., the Commission should enter an order approving up to four optional infill wells in established approximate 320-acre drilling and spacing units for certain lands located in Sections 8 and 21, Township 32 North, Range 9 West, N.M.P.M (SUL), Sections 18, 19 and 30, Township 33 North, Range 9 West, N.M.P.M. (SUL), and Sections 1 through 3, 11, 12, and Sections 18 through 20, Township 33 North, Range 10 West, N.M.P.M. (SUL), for the production of gas and associated hydrocarbons from the Fruitland coal seams.

ORDER

NOW, THEREFORE IT IS ORDERED, that up to four optional infill wells are hereby approved in established approximate 320-acre drilling and spacing units for the below-described lands, for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the bottomhole location of any permitted well to be no closer than 660 feet to the outer boundary of the unit and no setback from any interior quarter section line:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 8:	E½
Section 21:	E½, E½ W½

Township 33 North, Range 9 West, N.M.P.M. (SUL)

Section 18:	S½
Section 19:	W½
Section 30:	N½

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section1:	W½
Section 2:	All
Section 3:	S½
Section 11:	All
Section 12:	E½
Section 18:	All
Section 19:	E½
Section 20:	All

La Plata County, Colorado

IT IS FURTHER ORDERED, that wells drilled on the above-described lands shall comply with the terms and provisions of all of the Commission’s health, safety, welfare and environmental rules and regulations now or hereafter in effect.

IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with all applicable regulations of the BLM, Bureau of Indian Affairs and the Southern Ute Indian Tribe when conducting operations on lands subject to the respective jurisdiction of each agency.

IT IS FURTHER ORDERED, that wells drilled in the above-described lands shall comply with certain provisions of the MOU between BP and La Plata County, and shall comply with all terms, conditions and provisions of prior Commission Orders in Cause No. 112, including without limitation, the specific provisions of Order No. 112-157 including the Rule 508.j.(3)B. conditions attached thereto, to the extent they do not duplicate the provisions of the MOU. For convenience and ease of reference, the relevant conditions of the MOU and Order No. 112-157, including Rule 508.j.(3)B. conditions, are set forth below. Conflicts between the conditions of the MOU set forth herein and the terms, conditions and provisions of Order No. 112-157 shall be resolved in favor of the MOU.

IT IS FURTHER ORDERED, that the following provisions of the proposed MOU between the Applicants and La Plata County shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations or orders:

Surface Density The density of Fruitland Coal Well Pads within the Infill Application Area shall not exceed four (4) within the existing drilling and spacing units of 320 acres for the Fruitland Coal Seam formation. Notwithstanding the foregoing, nothing contained in this provision shall be construed so as to require the closure or abandonment of any existing gas well.

Storm Water Management and Spill Prevention Containment and Control Even if not required to do so by any applicable regulation or law, BP agrees to utilize best management practices for all pad expansions and new pads and for road and pipeline development or improvements.

Water Well Monitoring If a conventional gas well exists within one quarter (¼) mile of the bottom hole location of a proposed Infill Well, then the two (2) closest water wells within a one-half (½) mile radius of a conventional gas well shall be sampled by Applicants as water quality testing wells. If possible, the water wells selected shall be on opposite sides of the existing conventional gas well not exceeding one-half (½) mile radius. "Infill Well" means wells drilled pursuant to this Order No. 112-215. "Conventional gas well" means a well producing from a non-coalbed methane formation found in the San Juan Basin, such as the Mesaverde or Dakota Sandstone Formation.

If water wells on opposite sides of the conventional gas well cannot be identified, then the two (2) closest wells within one-half (½) mile radius shall be sampled. If two (2) or more conventional gas wells are located within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the conventional gas well closest to a proposed Infill Well shall be used for selecting water wells for sampling.

If no conventional gas wells are located within one quarter (¼) mile radius of the bottom hole location of the proposed Infill Well, then the selected water wells shall be within one quarter (¼) mile of the bottom hole location of the proposed Infill Well. In areas where two (2) or more water wells exist within one quarter (¼) mile of the bottom hole location of the proposed Infill Well, then the two (2) closest water wells shall be sampled by Applicants. Ideally, if possible, the water wells selected shall be on opposite sides of the bottom hole location of the proposed Infill Well.

If water wells on opposite sides of the bottom hole location of the proposed Infill Well cannot be identified, then the two (2) closest wells within one quarter (¼) mile radius shall be sampled by Applicants. If two (2) water wells do not exist within one quarter (¼) mile radius, then the two closest water wells within a one-half (½) mile radius shall be selected. If no water well is located within a one quarter (¼) mile radius area or if access is denied, two water wells within one-half (½) mile of the bottom hole location of the Infill Well shall be selected. If there are no water quality testing wells meeting the foregoing criteria, then sampling shall not be required. If the BLM or the Commission have already acquired data on a water well within one quarter (¼) mile of the conventional gas well, but it is not the closest water well, it shall be given preference in selecting a water quality testing well. The "initial baseline testing" described in this paragraph shall include all major cations and anions, total dissolved solids ("TDS"), iron and manganese, nutrients (nitrates and nitrites), selenium, dissolved methane, pH, presence of bacteria and specific conductance and field hydrogen sulfide.

If free gas or a methane concentration level greater than 2 milligrams/liter ("mg/L") is detected in a water quality testing well, compositional analysis and isotopic analyses of the carbon and hydrogen of the methane shall be performed to determine gas type (thermogenic, biogenic or an intermediate mix of both). If the testing results reveal biogenic gas, no further isotopic testing shall be done. If the carbon isotope test results in a thermogenic or intermediate mix signature, annual testing shall be performed thereafter and an action plan shall be drafted by Applicants to determine the source of the gas. If the methane concentration level increases by more than 5 mg/L between sampling periods, or increases to more than 10 mg/L, an action plan shall be drafted to determine the source of the gas.

The initial baseline testing shall occur prior to the drilling of the proposed Infill Well. Within one (1) year after completion of the proposed Infill Well, a "post completion" test shall be performed for the same parameters above and repeated three (3) and six (6) years thereafter. If no significant changes from the baseline have been identified after the third test (the six year test), no further testing shall be required. The testing schedule shall restart after the drilling of a new Infill Well on an existing Well Pad if the wells to be tested include those tested for the 160-acre infill program. Additional "post completion" test(s) may be required if changes in water quality are identified during follow-up testing. The Director of the Commission may require further water well sampling, which may include water quantity monitoring, at any time in response to complaints from water well owners.

Within three (3) months of collecting the samples used for the test, copies of all test results described above shall be provided to the Commission and the County and the landowner where the water quality testing well is located.

Plugged and Abandoned Wells/Soil Gas Vapor Survey A soil gas vapor-monitoring program shall be designed to determine a possible lack of zonal isolation along wellbores of plugged and abandoned wells. Applicants shall attempt to identify any plugged and abandoned wells located within one quarter (¼) mile of the bottom hole location of any Infill Well. Any plugged and abandoned well within one quarter (¼) mile of the bottom hole of an Infill Well shall be assessed for risk, taking into account cementing practices reported in the plugged and abandoned reports. Applicants shall notify the Commission of all results of all risk assessments of plugging procedures. The Commission may appropriate funds under Rule 701. (the Environmental Response Fund) to conduct soil gas monitoring tests to further define the risks. If the monitoring reveals a possible lack of zonal isolation, the Commission may then conduct or order any necessary remediation or other authorized activities.

IT IS FURTHER ORDERED, that the following terms, conditions and provisions shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable existing Commission Rules and Regulations:

Well Permit Limitations A Commission hearing shall be required before a drilling permit may be issued for a well site located within one and one-half (1½) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations. The purpose of the hearing shall be to address potential adverse impacts to the Fruitland outcrop.

Annual Drilling Plan The Director shall survey the operator as to its drilling plans annually. The survey results shall be reported to the Commission for its consideration with respect to the conditions attached to this order.

Wildlife The operator shall notify the Colorado Division of Wildlife ("CDOW") of the location of any proposed additional well site and advise the Director of the date such notice was provided. If the Director receives comments from the CDOW within ten (10) days of the date notice was provided, such comments may be considered in applying Rule 508.j.(3)B. conditions.

Emergency Preparedness Plan The operator submitting an Application for Permit-to-Drill for a proposed additional well under this order shall file and maintain a digital Emergency Preparedness Plan ("EPP") with La Plata County. The EPP shall include as-built facilities maps showing the location of wells, pipelines and other facilities, except control valve locations that which may be held confidential. The EPP shall include an emergency personnel contact list.

Gas and Oil Regulatory Team The Director shall ensure that the La Plata County Gas and Oil Regulatory Team ("GORT") continues to meet as appropriate, but no less than semiannually. GORT meetings may be scheduled more frequently if the members believe a meeting is appropriate. (GORT includes invited member representatives from La Plata County, BLM, SUIT, industry operators and Commission. Its meetings are open and typically attended by interested area residents.)

3M Mapping, Modeling and Monitoring Project The Director shall ensure that the 3M Technical Peer Review Team is invited to meet as appropriate, but no less than semiannually to review proposals and results related to the 3M Mapping, Modeling and Monitoring Project. 3M Technical Peer Review Team meetings may be scheduled more frequently if the members believe a meeting is appropriate.

Post Completion Pressure Testing For wells drilled under this order, the operator shall obtain a valid measurement of reservoir pressure prior to first delivery, and shall continue to provide the Commission with quarterly updates from all pressure tests obtained for the operator’s engineering studies and downtime opportunities.

IT IS FURTHER ORDERED, that the following Rule 508.j.(3)B. conditions from Order No. 112-157 shall be applied to additional wells where the surface location is proposed to be sited on lands subject to Commission jurisdiction, in addition to any requirements of applicable Commission Rules and Regulations:

Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the surface well location is proposed to be sited within any subdivision that has been approved by La Plata County. The Director shall conduct an onsite inspection if the surface well location is within two (2) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations and an onsite inspection is requested by the surface owner, LGD, operator, or Director.

Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the operator and the surface owner have not entered into a surface use agreement. If the reason the surface use agreement has not been executed is related to surface owner compensation, property value diminution, or any private property contractual issues between the operator and the surface owner, then no onsite inspection shall be required.

The purpose of the onsite inspection shall be to identify any potential public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction regarding the proposed surface location that may not be adequately addressed by Commission rules or orders. The onsite inspection shall not address matters of surface owner compensation, property value diminution, or any private party contractual issues between the operator and the surface owner.

When the Director conducts onsite inspections under the conditions described in the paragraphs above, the Director shall invite the representatives of the surface owner, the operator and LGD to attend. The Director shall attempt to select a mutually acceptable time for the representatives to attend. The inspection shall be conducted within ten (10) days, or as soon as practicable thereafter, of either the date the LGD advises the Director in writing that the proposed surface well site location falls within an approved subdivision or the date the operator advises the Director in writing that a surface use agreement has not been reached with the surface owner. If requested by the operator, the Director may delay the onsite inspection to allow for negotiation between the operator and surface owner or other parties.

Following the onsite inspection, the Director shall apply appropriate site specific drilling permit conditions if necessary to prevent or mitigate public health, safety and welfare or significant adverse environmental impacts taking into consideration cost-effectiveness and technical feasibility and relevant geologic and petroleum engineering conditions as well as prevention of waste, protection of correlative rights, and promotion of development.

Examples of the types of impacts and conditions that might be applied if determined necessary by the Director include (this list is not prescriptive or all inclusive):

Visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening.

Surface impacts – moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of future reclamation activities; utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas.

Noise impacts – installing electric motors where practicable; locating or orienting motors or compressors to reduce noise; installing sound barriers to achieve compliance with Commission rules; confining cavitation completion operations (excluding flaring) to the hours of 7 a.m. to 7 p.m. and notifying all area residents within one-half (½) mile at least seven (7) days before cavitation is commenced.

Dust impacts – watering roads as necessary to control dust during drilling and completion operations.

Ground water impacts – collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data.

Safety impacts – soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment.

Outcrop impacts – performing outcrop gas seep surveys; performing produced water quality analysis; periodic pressure transient testing of high water/gas ratio wells; limiting water production in wells with anomalously high water rates and water/gas ratios; funding investigative reservoir modeling under the Director’s supervision.

Wildlife impacts – limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant.

If the operator objects to any of the conditions of approval applied above, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.

If the Director has reasonable cause to believe that any existing or proposed oil and gas operations are causing, or are likely to cause, public health, safety and welfare or significant adverse environmental impacts within Commission jurisdiction that may not be adequately addressed by Commission rules or orders, the Director may properly notice and set the matter for the next regularly scheduled Commission hearing to order appropriate investigative or remedial action. Reasonable cause may include, but is not limited to, information from the 3M Mapping, Modeling and Monitoring Project.

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 __22^nd _ day of December, 2010, as of November 29, 2010.

CORRECTED this 15^th day July, 2011, as of November 29, 2010.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By__________________________ _______

Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 15, 2011