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 pool all nonconsenting interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 7 South, Range 94 West, 6^th P.M., for the development and operation of the Iles Formation.

FINDINGS

The Commission finds as follows:

1. Encana Oil & Gas (USA), Inc. (“Encana” 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 February 21, 1961, the Commission issued Order No. 139-2, which, among other things, established 640-acre drilling and spacing units for certain lands, including Section 11, Township 7 South, Range 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Mesaverde Formation.

5. On February 21, 1995, the Commission issued Order Nos. 139-28 and 440-16, which, among other things, authorized up to 16 wells per 640-acre drilling and spacing unit for certain lands, including Section 11, Township 7 South, Range 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation.

6. On September 25, 2005, the Commission issued Order No. 139-50, which, among other things, allowed one (1) well per 20-acres to be drilled on certain lands, including Section 11, 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.

7. On September 22, 2008, the Commission issued Order No. 139-99, which, among other things, approved the equivalent of one well per 10-acres density for certain lands, including Section 11, 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.

                        8. On July 21, 2011, Encana, by its attorneys, filed with the Commission a verified application (“Application”) for an order to pool all interests not otherwise voluntarily pooled in the approximate 640-acre drilling and spacing unit established for the below-listed lands, for the development and operation of the Iles Formations, effective retroactive to the earliest date costs are incurred for any well drilled within said unit as allowed by §34-60-116(7), C.R.S., or the date of the Application, whichever is earlier:

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

                        9. On September, 2, 2011, Williams Production Company (“Williams”), by its attorneys, filed a protest disputing the terms of three July 13, 2011 Authorizations for Expenditure (“AFE”) it received.   Williams alleged the AFE’s did not provide the option to elect to participate in the Williams Fork Formation and the Iles Formation separately, conflicting with a previously signed Joint Operating Agreement (“JOA”) between Encana and Williams.

                        10. On January 12, 2012, Williams Production withdrew its protest

11. On January 12, 2012, Encana, 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.

12. Land Testimony and exhibits submitted in support of the Application by Damian Westerman, Land Negotiator for Encana, showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure “(AFE”) and an offer to participate in the Well.  Further testimony concluded that the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation and was received at least 30 days prior to the January 23, 2012 hearing date.

13. 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.

14. Encana agreed to be bound by oral order of the Commission. 

15. On January 20, 2012, Encana requested that the following parties be withdrawn from its pooling application in this matter: Yates Petroleum Corporation; Yates Drilling Company; Myco Industries Inc.; and ABO Petroleum Corporation.

                        16. Based on the facts stated in the verified Application, having resolved all protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to pool all nonconsenting interests in an approximate 640-acre drilling and spacing unit established for Section 11, Township 7 South, Range 94 West, 6th P.M., for the development and operation of the Iles Formation.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that:

1.  Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, all nonconsenting interests in the approximate 640-acre drilling and spacing unit established for the below-listed lands, are hereby pooled for the development and operation of the Iles Formations, effective retroactive to the earliest date costs are incurred for any well drilled within said unit as allowed by §34-60-116(7), C.R.S., or the date of the Application, whichever is earlier:

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

2.  The production obtained from the drilling and spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within the drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the Well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3.  The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the Well (including penalties as provided by §34-60-116(7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

4.  Any unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the Well and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

5.  Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S. as amended.  After recovery of such costs, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the Well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the Well as if it had originally agreed to the drilling.

6.  The operator of the well drilled on the above-described drilling and spacing unit shall furnish the nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7.  Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

IT IS FURTHER ORDERED, that the following parties are not to be considered nonconsenting parties pursuant to this Order: 1) Yates Petroleum Corporation; 2) Yates Drilling Company; 3) Myco Industries Inc.; and 4)  ABO Petroleum Corporation.

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