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

REPORT OF COMMISSION

                        The Commission heard this matter on January 23, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to: 1) vacate two existing 640-acre drilling and spacing units; 2) establish an approximate 1280-acre exploratory drilling and spacing unit for Sections 13 and 14, Township 32 North, Range 4 West, N.M.P.M., Archuleta County, Colorado; and 3) allow up to five horizontal wells to be drilled within the exploratory 1280-acre drilling and spacing unit for development and production of gas and related hydrocarbons from the Fruitland Coal Seam Formation.

FINDINGS

The Commission finds as follows:

1. Red Willow Production Company, (“Red Willow” 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.

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 June 17, 1988, the Commission issued Order No. 112-60, which among other things, established 320-acre drilling and spacing units for certain lands including Sections 13 and 14, Township 32 North, Range 4 West, N.M.P.M., for production of gas from the Fruitland Coal Seam Formation, with the treated interval of the permitted wellbore to be located no closer than 990 feet from the outer boundary of the unit, and no 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 certain lands including Sections 13 and 14, Township 32 North, Range 4 West, N.M.P.M., for production of gas from the Fruitland Coal Seam Formation, with the treated interval of the permitted wellbore to be located no closer than 990 feet from the outer boundary of the unit, and no closer than 130 feet to any interior quarter section line.

6. On May 8, 2008, the Commission issued Order No. 112-210, which among other things: 1) vacated the existing 320-acre drilling and spacing units established under Order No. 112-85; 2) established 640-acre drilling and spacing units; 3) approved two horizontal wells within each unit; and 4) established a setback of 660 feet from the outer unit boundary for the production of gas from the Fruitland Coal Seam Formation underlying certain lands, including Sections 13 and 14, Township 32 North, Range 4 West, N.M.P.M.

7. On August 29, 2011, Red Willow, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) vacate the 640-acre drilling and spacing units for the below-listed lands (“Application Lands”); 2) establish an approximate 1280-acre exploratory drilling and spacing unit for the Application Lands; and 3) approve up to five horizontal wells to be drilled within the 1280-acre drilling and spacing unit, for the production of gas from the Fruitland Coal Seam Formation underlying the Application Lands, with the treated interval of a horizontal well to be no closer than 100 feet from the boundaries of the drilling and spacing unit unless an exception is authorized by the Director:

Township 32 North, Range 4 West, N.M.P.M.

Sections 13 and 14:    All

8.  On October 18, 2011, Red Willow, by its attorneys, filed with the Commission a written request to approve the Application based on the merits of the verified Application and supporting exhibits. Sworn written testimony and exhibits were submitted in support of the Application.

9. On January 9, 2012, Red Willow, by its attorneys, filed an amended request (“Amended 511 Request”) to approve the Application, withdrawing its request to reduce the outer boundary setbacks from 660 feet to 100 feet. The Amended 511 Request proposes the treated interval of any horizontal well to be no closer than 660 feet from the outer boundary of the unit, and that any internal quarter section setbacks be eliminated.

                        10. Land testimony and exhibits were submitted in support of the Application by Brooks J. Boedecker, District Landman for Energen Resources Corporation, working directly with Red Willow.  Testimony showed Red Willow owns a leasehold interest in the Application Lands.

                        11. Geologic testimony and exhibits were submitted in support of the Application by Andrew Benson, Lead Geologist for Energen Resources Corporation, working directly with Red Willow. Testimony stated the most effective way to produce hydrocarbons from the Fruitland Coal Seam Formation underlying the Application Lands is to form a 1280-acre spacing unit and produce from five horizontal wells.  The testimony states horizontal wells will reduce surface and environmental impact by drilling the five wells from shared well pads that will each provide surface locations for additional wells in adjacent spacing units.

                        12. Engineering testimony and exhibits were submitted in support of the Application by Evan Chan, Reservoir Engineer on the North Carracas Area for Energen Resources Corporation, working directly with Red Willow.  The testimony showed that combining the two existing 640-acre drilling and spacing units into one 1280-acre drilling and spacing unit, and allowing for five horizontal wells, will allow Red Willow to engage in a more optimum recovery of hydrocarbons from the Fruitland Coal Seam Formation under the Application Lands.

                        13.  The Hearing Officer received comments from Commission Permitting Unit staff expressing concerns that the proposed 100 foot setbacks in the original application may not be protective of correlative rights of adjacent owners.  Permitting staff believed that external setbacks should remain at 660 feet until proven otherwise. Red Willow’s Rule 511 submittal revised the external setbacks as requested by staff, and setbacks are no longer an issue.

14.  The above-referenced testimony and exhibits show that granting the Application with 660 foot external boundary setbacks, will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of hydrocarbons, and will not violate correlative rights.

15.   The Application was reviewed by the Colorado Department of Public Health and Environment (“CDPHE”) pursuant to consultation provisions of Rule 306.d.  In a letter dated October 21, 2011, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the Application.

16.  Red Willow agreed to be bound by oral order of the Commission. 

                        17.  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: 1) vacate two existing 640 acre drilling and spacing units; 2) establish an approximate 1280-acre exploratory drilling and spacing unit for Sections 13 and 14, Township 32 North, Range 4 West, N.M.P.M., Archuleta County, Colorado; 3) allow up to five horizontal wells to be drilled within the exploratory 1280-acre drilling and spacing unit; and 4) maintain the setbacks for the proposed 1280-acre exploratory drilling and spacing unit at 660 feet from any outer boundary of the unit, and eliminate any internal quarter section setbacks, for development and production of gas and related hydrocarbons from the Fruitland Coal Seam Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that the 640-acre drilling and spacing units are hereby vacated for the below-listed lands; and an approximate 1280-acre exploratory drilling and spacing unit, is hereby established, for said lands:

Township 32 North, Range 4 West, N.M.P.M.

Sections 13 and 14:    All

IT IS FURTHER ORDERED, that up to five horizontal wells, are hereby approved, within the 1280-acre drilling and spacing unit, for production of gas and associated hydrocarbons from the Fruitland Coal Seam Formation underlying the Application Lands, with the treated interval of a horizontal well to be no closer than 660 feet from the boundaries of the drilling and spacing unit, unless an exception is authorized by the Director.

IT IS FURTHER ORDERED, that any internal quarter section setbacks, are hereby eliminated, within the drilling and spacing unit.

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

                        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   26^th  day of January, 2012, as of January 23, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

January 26, 2012