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 allow the equivalent of one well per 10 acres for certain lands located in Sections 22, 25, 26, and 27, Township 6 South, Range 91 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Iles Formation and allow wells to be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter with commingled production from the Williams Fork Formation. 

FINDINGS

The Commission finds as follows:

1.     Williams Production RMT Company (“Williams”), 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 below-described lands are subject to this Rule for the Williams Fork and Iles Formations:

Township 6 South, Range 91 West, 6^th P.M.

5.     On April 25, 2005, the Commission issued Order No. 191-11, which among other things, approved the equivalent of one well per 10 acres well density for the below-described lands, for the production of gas and associated hydrocarbons from the Williams Fork Formation, with setback and development rules described below:

Township 6 South, Range 91 West, 6^th P.M.

All future Williams Fork 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 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), unless exception is granted by the Commission pursuant to application made for such exception.

6.     On April 6, 2010, Williams, by its attorney, filed with the Commission a verified application to approve the equivalent of one well per 10 acres well density for the below-described lands, for the production of gas and associated hydrocarbons for the Iles Formation, with setback and development rules described below:

Township 6 South, Range 91 West, 6^th P.M.

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 should 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.

7.     On May 19, 2010, Williams, 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.

8.     Testimony and exhibits submitted in support of the application showed that Williams is a leasehold owner in the application lands.  Further testimony and exhibits submitted indicated that the application lands have been approved for 10-acre well density for the Williams Fork Formation under Order No. 191-11, and are adjacent to lands that have been approved for 10-acre well density for the Iles Formation under Order No. 191-10.

9.     Testimony and exhibits submitted in support of the application showed that the geologic model for the Iles Formation in the Piceance Basin is well understood and, as to the model for said formation underlying the application lands, it consists of extensive cross-sectional analysis, production and reservoir data from nearby wells drilled on 10-acre density.  Additional testimony indicated that the Iles Formation in the area of the application lands is a marine deposit that consists of shoreline-related marine mudstones and low permeability sandstones that are laterally discontinuous. 

10.   Testimony and exhibits submitted in support of the application demonstrated that decline curve analysis of 10-acre density wells completed in the Iles Formation, in the vicinity of the application lands, indicated that stand-alone Iles Formation wells are not economic due to estimated ultimate recovery.  Additional testimony showed that the estimated drainage area for an Iles Formation well in the area is between 2.4 and 5.1 acres.  Further testimony indicated that Williams intends to drill 10-acre density wells on the application land to the Iles Formation and has adopted the practice of commingling production from the Iles Formation with that of the Williams Fork Formation, and that this practice has proven success in the Piceance Basin and that commingling gas production from the Williams Fork and Iles Formation is the most economic and efficient method of extracting hydrocarbons.           

11.   The above-referenced testimony and exhibits showed 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.

12.   Commission staff consulted with staff from the Colorado Department of Natural Resources, Division of Wildlife (“DOW”) and Colorado Department of Public Health and Environment (“CDPHE”) pursuant to Rules 306.c. and 306.d, respectively.  DOW did not respond and, thus, is considered to have waived consultation. CDPHE submitted a letter recommending approval of the application based on certain information it confirmed during consultation.

13.   Williams 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.c., the Commission should enter an order to allow the equivalent of one well per 10 acres for certain lands located in Sections 22, 25, 26, and 27, Township 6 South, Range 91 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Iles Formation and allow wells to be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter with commingled production from the Williams Fork Formation. 

ORDER

NOW, THEREFORE IT IS ORDERED, that the equivalent of one well per 10 acres, is hereby approved to be drilled on the below-listed lands, for the production of gas and associated hydrocarbons from the Iles Formation:

Township 6 South, Range 91 West, 6^th P.M.

IT IS FURTHER ORDERED, that all future wells drilled for production from the Iles Formation upon such lands shall be located downhole anywhere but no closer than 100 feet from the outside boundary of the drilling and spacing unit unless such boundary abuts or corners lands in respect of which the Commission has not at the time of the drilling permit application granted the right to drill 10-acre density wells, in which event the Iles Formation wells to be drilled upon the application lands shall be drilled downhole no closer than 200 feet from that portion of the boundary of the unit which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Iles Formation wells has not been ordered by the 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), 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 Director of the Commission pursuant to application made for such exception as set forth by Rule 318.c.

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