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

REPORT OF THE COMMISSION

                        The Commission heard this matter on October 31, 2011, at the City of Littleton Council Chambers, 2255 West Berry Avenue, Littleton, Colorado 80120 upon application for an order to establish an approximate 40-acre spacing unit for Section 3, Township 8 South, Range 96 West, 6^th P.M., Garfield County, Colorado; and establish well density and location rules for the development and production of oil, gas and associated hydrocarbons for the Mancos, Niobrara, Frontier and Mowry Formations.

FINDINGS

The Commission finds as follows:

1.     Laramie Energy II, LLC (“Laramie” 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.  Rule 318.a of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth shall be located not less than 600 feet from any lease line, and shall be located not less than 1,200 feet from any other producible or drilling oil and gas well when drilling to the same common source of supply.  The SE¼ SE¼ of Section 3, Township 8 South, Range 96 West of the 6^th P.M. is subject to this Rule for the Mancos, Niobrara, Frontier and Mowry Formations ("Deep Formations").

5.  On September 1, 2011, Laramie, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) establish an approximate 40-acre drilling and spacing unit for the below-described lands (“Application Lands”), for development of and production from the Deep Formations; 2) authorize 10-acre well density for the Application Lands; 3) provide that any permitted well to the Deep Formations be located no closer than 600 feet from the unit boundary, unless such boundary abuts or corners lands which the Commission has at the time of drilling permit application granted the right to drill 10-acre density wells for the Deep Formations, in which case, any well to the Deep Formations shall be drilled downhole no closer than 100 feet or the setback footage in such Deep Formations order, whichever is greater, from that portion of the unit boundary which abuts or corners the lands for which 10-acre density downhole drilling for wells to the Deep Formations has been ordered by the Commission, without exception being granted by the Commission; and 4) restrict wells to be drilled from the surface either vertically or directionally from no more than one pad located on the Unit, or directionally from an existing pad on other lands, unless exception is granted by the Director: 

Township 8 South, Range 96 West, 6^th P.M.
Section 3:   SE¼ SE¼

6.  On October 14, 2011, Laramie, 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.

                        7.  Land testimony and exhibits submitted in support of the Application by Mark R. Petry, Vice President of Business Development for Laramie, showed that Laramie owns a leasehold interest in the Application Lands. The Petry testimony showed that the Commission has granted 10-acre density for wells to the Deep Formations in the vicinity of the Application Lands.

                        8.   Geologic testimony and exhibits submitted in support of the Application by Andrew McCarthy, Senior Consulting Geologist for Laramie, showed that: (1) Mancos, Niobrara, Frontier and Mowry Formations (“Deep Formations”) underlie and are drilling objectives for wells drilled on the Application Lands; (2) data collected for the Mancos Group in offset wells can be used as a geologic analogy for the Application Lands.

                        9.   Engineering testimony and exhibits submitted in support of the Application by Robert G. Hea, Vice President of Engineering and Operations for Laramie, showed the Type Well in the Deep Formations is draining approximately 9.9 acres.  The testimony further stated drilling at 20-acre density would leave significant undrained areas behind and create waste.  Developing the Deep Formations in common wellbores drilled on 10-acre density is the most efficient and unobtrusive method to recover these reserves, and would not result in the drilling of unnecessary wells.  Testimony and Exhibits show the Application Lands are near acreage previously approved for 10 acre density drilling in the Mancos Group.

10.  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 hydrocarbons, and will not violate correlative rights.

11.   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 amended Application.

12.  Laramie 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 establish an approximate 40-acre spacing unit for Section 3, Township 8 South, Range 96 West, 6^th P.M., Garfield County, Colorado; and establishing well density and location rules for the development and production of oil, gas and associated hydrocarbons for the Mancos, Niobrara, Frontier and Mowry Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that 1) an approximate 40-acre drilling and spacing unit, is hereby established, for the below listed lands; and 2) the equivalent of one well per 10 acre density for said unit, is hereby approved, for production of oil, gas and associated hydrocarbons from the Deep Formations; and 3) any permitted well to the Deep Formations shall be located no closer than 600 feet from the unit boundary, unless such boundary abuts or corners lands which the Commission has at the time of drilling permit application granted the right to drill 10-acre density wells for the Deep Formations, in which case, any well to the Deep Formations shall be drilled downhole no closer than 100 feet, or the setback footage in such Deep Formations order, whichever is greater, from that portion of the unit boundary which abuts or corners the lands for which 10-acre density downhole drilling for wells to the Deep Formations has been ordered by the Commission, without exception being granted by the Commission:

Township 8 South, Range 96 West, 6th P.M.
Section 3:   SE¼ SE¼

IT IS FURTHER ORDERED, that wells to be drilled under this Order shall be drilled from the surface either vertically or directionally from no more than one pad located on the Unit, or directionally from an existing pad on other lands, unless exception is granted by the Director of the Commission pursuant to application made for such exception.

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   7th  day of November, 2011, as of October 31, 2011.

                                                                        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

November 7, 2011