BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF COMMISSION

                        This cause came on for hearing before the Commission on May 16, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish an approximate 740.95-acre drilling and spacing unit for the E½ of Section 20 and Section 21, Township 32 North, Range 5 West, N.M.P.M., and allow for the drilling of up to two horizontal wells within the unit, for the production of gas and associated hydrocarbons from the Fruitland coal seams.

FINDINGS

The Commission finds as follows:

1.     Energen Resources Corporation (“Energen” or “Applicant”), 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, except that the Notice was not published in a newspaper of general circulation in the City and County of Denver 10 days prior to the hearing.  Counsel for Energen will cause such publication to occur.  Should there be no protest filed before the June 13, 2011 noticed protest date for the June 27, 2011 Commission meeting, this Order will take effect as if there had been no defect in Notice.  If a protest is filed after republication of Notice, this Order may be amended as necessary to address the protest.

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 pursuant to the Oil and Gas Conservation Act.

4.     On December 17, 1990, the Commission entered Order No. 112-85, which among other things, established 320-acre drilling and spacing units for certain lands, including Sections 20 and 21, Township 32 North, Range 5 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the permitted well to be no closer than 990 feet from the boundaries of the unit and no closer than 130 from any interior quarter section line.

5.     On July 11, 2000, the Commission entered Order No. 112-157, which among other things, allowed for the drilling of an optional second well for certain lands, including Section 20, Township 32 North, Range 5 West, N.M.P.M., for the production of gas and associated hydrocarbons from the Fruitland coal seams.

6.     On March 17, 2011, Energen, by its attorneys, filed with the Commission a verified application (the “Application”) for an order to establish an approximate 740.95-acre drilling and spacing unit for the below-listed lands (the “Application Lands,” which are comprised of sections of lands truncated by the southern boundary of the State of Colorado), and allow for the drilling and completion of up to two horizontal wells within the unit, for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the treated interval of any permitted well to be no closer than 990 feet from the east and west boundaries of the unit and no closer than 660 feet from the south and north boundaries of the unit, with no interior quarter section setback:

Township 32 North, Range 5 West, N.M.P.M.

7.     On May 3, 2011, Energen, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified Application and the supporting exhibits. Sworn written testimony and exhibits were submitted in support of the Application.

8.     Land testimony and exhibits submitted in support of the Application by John L. Harrington, Landman for Energen, showed: (a) the general location of the proposed horizontal wells within the proposed 740.45-acre drilling and spacing unit and the approximate location of the anticipated 660 foot setbacks of the drilling and spacing unit; (b) Applicant owns a majority of the mineral interest in the Application Lands; (c) the Southern Ute Indian Tribe owns certain mineral interests within and adjacent to the Application Lands; (d) the surface within and adjacent to the Application Lands is owned in fee by the Southern Ute Indian Tribe and/or by the United States Bureau of Reclamation; and (e) notice was given to all interested parties and no protest to the Application was received.

9.     Geologic testimony and exhibits submitted in support of the Application by Andrew Benson, Lead Geologist for Energen, showed: (a) the thickness of the Fruitland Coal Formation, using a 2.0 g/cc bulk density cutoff and assuming a contour interval of 5 feet, is approximately 25 to 35 feet in the general vicinity of the Application Lands; (b) the stratigraphic structure of the Fruitland Coal reservoir in the Application Lands is expected to facilitate recovery of hydrocarbons from the Application Lands; and (c) the establishment of a 740.45-acre spacing unit with the option of drilling two horizontal wells will maximize the productive length of the horizontal wells, will promote economical and efficient drainage, protect correlative rights, prevent waste, and will ensure the greatest recovery of gas and associated hydrocarbons from the Fruitland coal seams underlying the Application Lands while ensuring limited surface disturbance and environmental impact.

10.   Engineering testimony and exhibits submitted in support of the Application by Rounak Collier, Reservoir Engineer for Energen, showed: (a) by establishing the proposed 740.45-acre drilling and spacing unit, providing the option to drill two horizontal wells, and reducing the setbacks to 660-feet from any north and south unit boundary, the proposed wells will most efficiently recover the gas in the Fruitland coal seams underlying the Application Lands, will not adversely affect correlative rights, and will have minimal surface disturbance; and (b) the proposed wells will economically recover the reserves underlying the Application Lands. 

11.   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 associated hydrocarbons from the Fruitland coal seams, will not violate correlative rights, and will reduce surface impacts in the Application Lands.

12.   Energen agreed to be bound by oral order of the Commission. 

13.   Based on the facts stated in the verified Application, having received no protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to establish an approximate 740.95-acre drilling and spacing unit for the E½ of Section 20 and Section 21, Township 32 North, Range 5 West, N.M.P.M., allow for the drilling and completion of up to two horizontal wells within the unit, and reduce the setbacks for the northern and southern boundaries of the proposed 640-acre drilling and spacing unit to 660 feet.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 740.95-acre drilling and spacing unit is established for the below-listed lands, and up to two horizontal wells within the unit may be drilled and completed for the production of gas and associated hydrocarbons from the Fruitland coal seams, with the treated interval of any permitted well to be no closer than 990 feet from the east and west boundaries of the unit and no closer than 660 feet from the south and north boundaries of the unit with no interior quarter section setback:

Township 32 North, Range 5 West, N.M.P.M.

IT IS FURTHER ORDERED that the surface location of said horizontal wells shall be located on a common or an expanded existing well pad.

IT IS FURTHER ORDERED that the rules of Order Nos. 112-85 and 112-157 not specifically modified by this Order shall be applicable to the drilling and spacing unit established by this Order and any wells drilled thereon.

IT IS FURTHER ORDERED, that the provisions contained in the above Order shall become effective June 14, 2011.

                        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 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      23^rd      day of May, 2011, as of May 16, 2011.

                                                                        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

May 23, 2011