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

REPORT OF COMMISSION

                        This cause came on for hearing before the Commission on August 8, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish a 313-acre drilling and spacing unit for the N½ of Section 25, Township 9 South, Range 95 West, 6th P.M., and approve the equivalent of one well per 10 acres well density within the unit, for the development and operation of the  Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier, and Mowry Formations (the "Deep 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 be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  The N½ of Section 25, Township 9 South, Range 95 West, 6^th P.M. is subject to this Rule for Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier, and Mowry Formations.

5.  On June 9, 2011, Laramie, by its attorney, filed with the Commission a verified application (the “Application”) for an order to: (1) establish a 320-acre drilling and spacing unit for the below-listed lands (the “Application Lands”), and approve the equivalent of one well per 10 acres well density within the unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier, and Mowry Formations (the "Deep Formations"); and (2) pool all nonconsenting interests in the proposed 320-acre drilling and spacing unit for the Application Lands, for the development and operation of the Williams Fork and Iles Formations of the Mesaverde Group and the Deep Formations:

Township 9 South, Range 95 West, 6th P.M.

Section 25:   N½

All future Williams Fork and Iles Formation wells to be drilled under the Application should be located downhole anywhere upon the Application Lands, but no closer than 100 feet from the boundaries of the unit, without exception being granted by the Commission.  It should be provided, however, that in cases where the lands abut or corner lands in respect of which the Commission has not 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 boundaries of the unit, without exception being granted by the Commission.

All future Deep Formation wells to be drilled under the Application should  be located anywhere within the unit, but no closer than 600 feet from the boundaries of the unit, unless such boundary abuts or corners lands in which the Commission has granted the right to drill 10-acre density wells for the Deep Formations, in which event, the Deep Formation well should be drilled downhole no closer than 100 feet, or the setback footage in such other Deep Formations order, whichever is greater, from that portion of such boundary which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Deep Formation wells has been ordered by the Commission, without exception being granted by the Commission. 

All lles Formation wells to be drilled under the Application should be drilled only in connection with the drilling of a Williams Fork Formation well. The above well density and location rules shall apply to vertical and directional wells, but not to horizontal wells for which existing Commission rules and orders shall continue to apply.  Wells to be drilled under the Application 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) unless exception is granted by the Director of the Commission.

6.  On July 22, 2011, Merial Currier Vander Laan and James Vander Laan (“Vander Laans”) filed with the Commission a protest in this matter, objecting to administrative approval of the spacing and density requests, and requesting bifurcation of the involuntary pooling order for later consideration.

7.  On July 26, 2011 a prehearing conference was held by the Acting Hearings Manager.  The Parties discussed possible bifurcation of the pooling issue, without reaching resolution on the spacing and well density issues.  The parties agreed to engage in further negotiations.

8.  On July 27, 2011, Daniel Currier joined in the protest of the Vander Laans, objecting to the proposed spacing unit and involuntary pooling request.

9.  On July 29, 2011 the Oil and Gas Consultation Consultant for the Colorado Department of Public Health and Environment (“CDPHE”) submitted comments on the Application.  He requested that CDPHE be notified by COGCC staff to permit CDPHE consultation on any Form 2A applications from Laramie within the N½ of Section 25, Township 9 South, Range 95 West, 6^th P.M.

10.  On August 1, 2011, Laramie and protesting parties submitted a joint motion for: 1) bifurcating the pooling action from the spacing and well density request; 2) continuing the pooling request to the September 19, 2011 Commission meeting; 3) and withdrawing the protesting parties’ protest of the Application with regard to the spacing unit and well density request.

11.  On August 2, 2011, Laramie, by its attorney, filed with the Commission an amended application (the “Amended Application”), along with 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.  The Amended Application corrected the size of the proposed spacing unit from approximately 320 acres to 313 acres. It further requested that

“[w]ells drilled under the requested order shall be drilled either vertically or directionally from adjacent lands owned by the Applicant, or from no more than one pad located  in a given quarter section of the Application Lands (or lot or parcels approximately equivalent thereto), unless an additional surface location on such Lands is necessary (i) in order to comply with requirements contained in any directive or permit issued by a regulatory body with jurisdiction over surface use (including without limitation any Town of Collbran Watershed District Permit, or any rule or regulation of the Colorado Department of Public Health and Environment (CDPHE)), or (ii) based on a Commission finding that an approved bottom hole location is not reasonably accessible vertically or directionally from only one approved pad in each quarter section of the Application Lands.  If necessary to meet regulatory requirements or to access all approved bottom hole locations, the Commission may approve up to one additional surface location per quarter section of the Application Lands.”

                        12.  Land testimony and exhibits submitted in support of the Application by Mark R. Petry, Vice President of Business Development for Laramie, indicates that Laramie is the only leasehold owner in the Application Lands and has leased over 81% of the mineral interests in the Application Lands.   The testimony further reveals nearby lands that have been approved for 10-acre well density in the Mesaverde Formation and Deep Formations. The testimony further showed that all nonconsenting interest owners were notified of the Application and received an Authority for Expenditure (“AFE”) and a letter advising them of their rights to participate in the proposed operations within the subject spacing unit.  In the opinion of the witness, the AFE sent by the Applicant to the interest owners was a fair and reasonable estimate of the costs of the proposed drilling operation, including terms no less favorable than those currently prevailing in the area, and was received at least 30 days prior to the August 8, 2011 hearing date.

13.  Geology testimony and exhibits submitted in support of the Application by Andrew Mc Carthy, Senior Consulting Geologist for Laramie, states that the Williams Fork, Iles, and Mancos Group underlay and are drilling objectives for new wells drilled on the Application Lands. The geologic model of the Williams Fork Formation in the major producing regions of the Piceance Basin is well understood. Outcrop studies from both the western and eastern edges of the Piceance Basin illustrate that the Williams Fork Formation consists of sand bodies that are highly discontinuous in nature. The mean sand width identified from the outcrop study is 526 ft. Wells drilled on 10 acre density will statistically not encounter the same sand bodies. The accepted geologic model predicts that the mean sand width found in outcrop and in drilled 10 acre density wells will also be present under the Application Lands. Because of the shaly nature of the Deep Formations, their system porosity and permeability are much lower than the overlying Mesaverde Group.  Due to the lateral geologic consistencies within the Mancos Group, data collected in offset wells can be used as a geologic analogy for the Application lands.

14.  Enginering testimony and exhibits submitted in support of the Application by Robert G. Hea, Vice President of Engineering and Operations for Laramie, reveal the Application Lands are bordered by acreage previously approved for 10-acre density drilling in the Mesaverde Group and the Mancos Group, and there are no known differences in the Mesaverde Group and the Mancos Group between the Application Lands and the areas already approved for 10-acre density. Nearby William’s Fork wells are draining, on average, approximately 10 acres per well.  Drilling at 20-acre density would leave significant undrained areas behind and create waste. Iles Formation wells are draining, on average, 8 acres. Stand-alone Iles Formation wells are not commercial.  The most efficient way to recover Iles Formation reserves is through joint development with the Williams Fork sands. Drilling at 20-acre density would leave significant undrained areas behind and create waste. Mancos Group completions within the Application Lands should recover 1444 MMcf. Developing the Williams Fork, Iles, and Mancos intervals in common wellbores drilled on 10-acre density is the most efficient and unobtrusive method to recover these reserves.

15.  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.

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

                        17.  Based on the facts stated in the verified Application, having no unresolved protests regarding the spacing and well density request, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order establishing a 313-acre drilling and spacing unit for the N½ of Section 25, Township 9 South, Range 95 West, 6th P.M., and approve the equivalent of one well per 10 acres well density within the unit for the development and operation of the  Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier, and Mowry Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that a 313-acre drilling and spacing unit is hereby established for the below-listed lands, and the equivalent of one well per 10 acres well density is approved within the unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group, and the Mancos, Niobrara, Frontier, and Mowry Formations (the "Deep Formations"):

Township 9 South, Range 95 West, 6th P.M.

Section 25:   N½

IT IS FURTHER ORDERED, that all future Williams Fork and Iles Formation wells to be drilled under the Application shall be located downhole anywhere upon the Application Lands, but no closer than 100 feet from the boundaries of the unit, without exception being granted by the Commission.  However, in cases where the lands abut or corner lands where the Commission has not 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 boundaries of the unit, without exception being granted by the Commission.

IT IS FURTHER ORDERED, that all future Deep Formation wells to be drilled under the Application shall be located anywhere within the unit, but no closer than 600 feet from the boundaries of the unit, unless such boundary abuts or corners lands in which the Commission has granted the right to drill 10-acre density wells for the Deep Formations, in which case, the Deep Formation well shall be drilled downhole no closer than 100 feet, or the setback footage in such other Deep Formations order, whichever is greater, from that portion of such boundary which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Deep Formation wells has been ordered by the Commission, without exception being granted by the Commission. 

IT IS FURTHER ORDERED, that all lles Formation wells to be drilled under the Application shall be drilled only in connection with the drilling of a Williams Fork Formation well. The above well density and location rules shall apply to vertical and directional wells, but not to horizontal wells for which existing Commission rules and orders shall continue to apply. 

IT IS FURTHER ORDERED, that wells drilled under this Order shall be drilled either vertically or directionally from adjacent lands owned by the Applicant, or from no more than one pad located  in a given quarter section of the Application Lands (or lot or parcels approximately equivalent thereto), unless an additional surface location on such Lands is necessary (i) in order to comply with requirements contained in any directive or permit issued by a regulatory body with jurisdiction over surface use (including without limitation any Town of Collbran Watershed District Permit, or any rule or regulation of the Colorado Department of Public Health and Environment (CDPHE)), or (ii) based on a Commission finding that an approved bottom hole location is not reasonably accessible vertically or directionally from only one approved pad in each quarter section of the Application Lands.  If necessary to meet regulatory requirements or to access all approved bottom hole locations, the Commission may approve up to one additional surface location per quarter section of the Application Lands.

IT IS FURTHER ORDERED, that the CDPHE shall be notified of any Form 2A application by Laramie in the N½ of Section 25, Township 9 South, Range 95 West, 6^th P.M., and CDPHE shall be given an opportunity to comment on such application.

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   12^th   day of August, 2011, as of August 8, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

August  12, 2011