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 RULISON AND PARACHUTE FIELDS, GARFIELD COUNTY, COLORADO	) ) ) )	CAUSE NO.   139 and 440 ORDER NO.   139-103 and 440-55

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on December 9, 2008, in the Terrace Room at the Sheraton Hotel, 1550 Court Place, Denver, Colorado, for an order to allow the equivalent of one well per 10 acres for the SE¼ NW¼ of Section 22, Township 7 South, Range 95 West, 6^th P.M., for production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1.     Laramie Energy II, LLC, (“Laramie”), 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 April 20, 1990, the Commission issued Order No. 139-16, which among other things, established 640-acre drilling and spacing units for certain lands including Section 22, Township 7 South, Range 95 West, 6^th P.M. for the production of gas and associated hydrocarbons from the Mesaverde Formation.

5.     On April 24, 2006, the Commission issued Order No. 440-32, which among other things, amended prior orders to allow the drilling of additional wells, the equivalent of one well per 20 acres in the 640-acre drilling and spacing unit consisting of Section 22, Township 7 South, Range 95 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, with the downhole location anywhere in the drilling and spacing unit no closer than 200 feet from the boundaries of the drilling and spacing unit and no closer than 400 feet from any existing Williams Fork Formation well.

6.     On August 28, 2007, the Commission issued Order Nos. 139-79 and 440-49, which among other things, vacated the 640-acre drilling and spacing units established in Order No. 139-16 and established 40-acre drilling and spacing units that allowed the equivalent of one (1) well per 20 acres with the permitted well to be located 200 feet from the boundaries of the drilling and spacing unit and 400 feet from an existing Williams Fork Formation well and Iles Formation well.

7.     On October 9, 2008, Laramie, by its attorney, filed with the Commission, a verified application for an order to allow the equivalent of one well per 10 acres for the SE¼ NW¼ of Section 22, Township 7 South, Range 95 West, 6^th P.M., for production of gas and associated hydrocarbons from the Williams Fork Formation and the Iles Formation.

That as to all future Williams Fork Formation and Iles Formation wells to be drilled upon the application lands, the wells should be located downhole anywhere within a given drilling unit but no closer than 100 feet from the boundary or boundaries of the unit without exception being granted by the Director of the Oil and Gas Conservation Commission.  It is provided however that in cases where a drilling and spacing unit of the application lands abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the unit so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

That, except as previously authorized by order of the Commission, wells to be drilled under this application will be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Director of the Oil and Gas Conservation Commission pursuant to application made for such exception.

8.     On November 24, 2008, Laramie, by its attorney, 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.

9.     Testimony and exhibits submitted in support of the application showed that the application lands total approximately 40 acres and are located in the vicinity of lands that have been approved for 10-acre density for the Williams Fork and Iles Formations.

10.   Testimony and exhibits submitted in support of the application indicated that the geologic model of the Williams Fork Formation in the major producing areas of the Piceance Basin is well understood and consists of extensive log, completion, and reservoir engineering data from wells inside current 10-acre density areas and the extremely useful and representative nearby outcrops of producing rocks.  Additional testimony indicated that based upon outcrop studies, the majority of the discontinuous sand bodies within the Williams Fork Formation are smaller than the distance between wells drilled on a 10-acre density basis, and contain microdarcy permeability and average 6% to 10% porosity.  Further testimony indicated that 10-acre density drilling is necessary to develop the Williams Fork Formation underlying the application lands.  Testimony indicated that the depositional environment of the Iles Formation is similar to that of the Williams Fork Formation and that it is gas bearing underlying the application lands.

11.   Testimony and exhibits submitted in support of the application showed that based on gas-in-place calculations, a typical Williams Fork Formation well in the vicinity of the application lands will drain approximately 6.5 acres, and achieve an estimated ultimate recovery (EUR) of approximately 719 MMCF.  Additional testimony indicated that, in the vicinity of the application lands, Iles Formation wells will result in an EUR of 174 MCF, and cannot be economically developed by the drilling of stand alone wells but can be developed economically if drilled together with the Williams Fork Formation.

12.   The above-referenced testimony and exhibits show that the proposed increased well density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

13.   Laramie Energy II, LLC agreed to be bound by oral order of the Commission.

14.   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.b., the Commission should enter an order to allow the equivalent of one well per 10 acres for the SE¼ NW¼ of Section 22, Township 7 South, Range 95 West, 6^th P.M., for production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the equivalent of one (1) well per 10 acres is hereby approved for the SE¼ NW¼ of Section 22, Township 7 South, Range 95 West, 6^th P.M., for production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

IT IS FURTHER ORDERED, that all future Williams Fork Formation and Iles Formation wells to be drilled upon the application lands shall be located downhole anywhere within a given drilling unit but no closer than 100 feet from the boundary or boundaries of the unit without exception being granted by the Director of the Oil and Gas Conservation Commission.  It is provided however that in cases where a drilling and spacing unit of the application lands abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells, the well shall be located downhole no closer than 200 feet from the boundary or boundaries of the unit so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

IT IS FURTHER ORDERED, that except as previously authorized by order of the Commission, wells to be drilled under this application shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Director of the Oil and Gas Conservation Commission pursuant to application made for such exception.

IT IS FURTHER ORDERED, that all wells drilled to the Iles Formation shall be drilled only in connection with the drilling of Williams Fork Formation wells.

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 December, 2008, as of December 9, 2008.

                                                                        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

December 12, 2008