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

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on June 1, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to vacate the existing 40-acre drilling and spacing units contained in certain lands in Section 18, Township 7 South, Range 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations and establish an approximate 131.87-acre drilling and spacing unit for those same lands for the 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 this order pursuant to the Oil and Gas Conservation Act.

4.  On May 25, 2007, the Commission issued Order No. 139-73, which among other things, established 40-acre drilling and spacing units for certain lands, including Section 18, Township 7 South, Range 94 West, 6^th P.M., and approved one well per 10 acres for said units, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formation, with the permitted well to be located no closer than 100 feet from the unit boundary and no closer than 200 feet from the unit boundaries where 10-acre density drilling has not been allowed.

5.  On April 5, 2010, Laramie, by its attorney, filed with the Commission a verified application for an order to:

(1)   Vacate the existing 40-acre drilling and spacing units contained within Lot 1 (26.34 acres), Lot 2 (25.53 acres), and the S½ NE¼ of Section 18, Township 7 South, Range 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations;

(2)   Establish an approximate 131.87-acre drilling and spacing unit for Lot 1 (26.34 acres), Lot 2 (25.53 acres), and the S½ NE¼ of Section 18, Township 7 South, Range 94 West, 6^th P.M., with the continuing approval of 10-acre equivalent well density, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, with setback and development rules described below:

All future Williams Fork and Iles Formation wells to be drilled upon said drilling and spacing unit should be located downhole anywhere in the drilling and spacing unit but no closer than 100 feet from the boundaries of the unit without exception being granted by the Director of the Commission.  It is provided however that in cases where the lands abut or corner 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 and Iles Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the drilling unit so abutting or cornering such lands without exception being granted by the Director of the Commission.

That, except as previously authorized by order of the Commission, wells to be drilled under this order should 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)  and that Iles Formation wells shall be drilled and completed only in association with the drilling and completing of wells in the Williams Fork Formation, unless exception is granted by the Commission pursuant to application made for such exception.

(3)   As is provided for by Rule 318.a., those lands located in the N½ NE¼ of Section 18, Township 7 South, Range 94 West, 6^th P.M. which are not within Lot 1 and Lot 2 of said Section 18, are to be considered unspaced and continue to be approved for 10-acre equivalent well density, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, with setback and development rules described below:

All future Williams Fork and Iles Formation wells to be drilled upon said lands should be located downhole anywhere upon such lands but no closer than 100 feet from the boundaries of such lands or any lease boundary within such lands without exception being granted by the Director of the Commission.  It is provided however that in cases where the lands abut or corner 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 lands or lease boundaries so abutting or cornering such lands without exception being granted by the Director of the Commission.

That, except as previously authorized by order of the Commission, wells to be drilled under this order should 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)  and that Iles Formation wells shall be drilled and completed only in association with the drilling and completing of wells in the Williams Fork Formation, unless exception is granted by the Commission pursuant to application made for such exception.

6.    On May 18, 2010, 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 as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the application.

7.  Testimony and exhibits submitted in support of the application indicated there is only one oil and gas lease that covers the application lands, that the Commission has approved 10-acre density drilling for Williams Fork and Iles Formation wells on the application lands, and that granting the application will allow the application lands to be drilled without regard for interior setback limitations, thus allowing more efficient development of the resources.

8.    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.  Further testimony indicated that the productive sandstones throughout the Williams Fork Formation contain microdarcy permeability and average 6 - 10% porosity, and that 10-acre density drilling is necessary to develop the Williams Fork Formation underlying the application lands.  Testimony also indicated that the discontinuous Corcoran sands of the Iles Formation are a primary target for new wells drilled on the application lands and that the Corcoran’s depositional environment is thought to be identical to that of the Williams Fork Formation.

9.    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 seven acres and achieve an estimated ultimate recovery (“EUR”) of approximately 1,055 million cubic feet (MMcf) of gas.  Additional testimony showed that it is expected that 10-acre density wells completed in Williams Fork Formation in the application lands will be economic and the most efficient method of developing the lands while preventing waste.  Further testimony indicated that of the typical EUR for a commingled completion in the Williams Fork and Iles Formations is 1,152 MMcf, suggesting 97 MMcf is being contributed by the Iles Formation.  Further testimony indicated that the average Iles Formation well is draining 11 acres but that drilling 20-acre density would leave significant reserves behind and create waste.  Additional testimony showed that the most efficient method to recover Iles Formation reserves is through commingling development with the Williams Fork Formation.

10.  The above-referenced testimony and exhibits showed that the proposed spacing will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

11. Laramie agreed to be bound by oral order of the Commission. 

12.  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 80-acre laydown drilling and spacing unit consisting of the S½ SW¼ of Section 8, Township 7 South, Range 93 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, and to pool all nonconsenting interests in said unit, for the operation and development of the Williams Fork Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that the 40-acre drilling and spacing units established for the for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations for the following lands pursuant to Order No. 139-73 are hereby vacated:

Township 7 South, Range 94 West, 6^th P.M.

            Section 18:  Lot 1 (26.34 acres), Lot 2 (25.53 acres), S½ NE¼

IT IS FURTHER ORDERED, that an approximate 131.87 acre drilling and spacing unit is hereby established for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations for the following lands:

Township 7 South, Range 94 West, 6^th P.M.

            Section 18:  Lot 1 (26.34 acres), Lot 2 (25.53 acres), S½ NE¼

IT IS FURTHER ORDERED, that those lands located in the N½ NE¼ of Section 18, Township 7 South, Range 94 West, 6^th P.M. which are not within Lot 1 and Lot 2 of said Section 18, are to be considered unspaced and continue to be approved for 10-acre equivalent well density.

IT IS FURTHER ORDERED, that Williams Fork and Iles Formation wells drilled under this order shall be located downhole anywhere upon such lands but no closer than 100 feet from the boundaries of such lands or any lease boundary within such lands without exception being granted by the Director of the Commission.  It is provided however that in cases where the lands abut or corner 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 lands or lease boundaries so abutting or cornering such lands without exception being granted by the Director of the Commission.

IT IS FURTHER ORDERED, that except as previously authorized by order of the Commission, wells to be drilled under this order should 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) and that Iles Formation wells shall be drilled and completed only in association with the drilling and completing of wells in the Williams Fork Formation, unless exception is granted by the Commission pursuant to application made for such exception.

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 June, 2010, as of June 1, 2010.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 29, 2010