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 well density and location rules for an approximate 165.25-acre unit located in Sections 29 through 32, Township 7 South, Range 93 West, 6th P.M., Garfield County, for development and production of oil, gas and related hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group.

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.  Sections 29 through 32, Township 7 South, Range 93 West, 6^th P.M. are subject to this rule.

5.   On September 1, 2011, Laramie, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) authorize the equivalent of one well per 10 acre density for the below listed lands (“Application Lands”), for production of oil, gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group; 2) provide that any permitted well to the Williams Fork and Iles Formations be located no closer than 200 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 Williams Fork and Iles Formations, in which case, any well to the Williams Fork and Iles Formations shall be drilled downhole no closer than 100 feet or the setback footage in such Williams Fork and Iles 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 Williams Fork and Iles Formations has been ordered by the Commission, without exception being granted by the Commission; 3) require all wells drilled to the Iles Formation to be drilled only in connection with the drilling of Williams Fork Formation wells; and 4) require all Williams Fork Formation and Iles Formation wells 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) or directionally from any other existing pad on other lands, unless exception is granted by the Director of the Colorado Oil and Gas Conservation Commission:

Township 7 South, Range 93 West, 6th P.M.
Section 29:  W½  Tract 66

Section 30:  Tract 66

Section 31:  Tract 66, Lots 5, 6 and 7

Section 32:  W½ of Tract 66, Lot 3

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 the Commission has granted 10-acre density for wells to the Mesaverde Group 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: 1) The Williams Fork and Iles Formations of the Mesaverde Group underlie and are drilling objectives for wells drilled on the Application Lands; and 2) Outcrop studies have shown, and well logs confirm, the sand bodies are highly discontinuous in nature.  The testimony concludes wells drilled on 10 acre density will statistically not encounter the same sand bodies.

                        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 Application Lands are surrounded by acreage approved for 10-acre density drilling for the Williams Fork and Iles Formations, and that no known differences exist in the reservoirs between the Application Lands and the areas already approved for 10-acre density.  The testimony further stated drilling at 20-acre density would leave significant undrained areas behind and create waste.  Developing both the Williams Fork and Iles intervals at the same time will incur only an incremental drilling cost, and permit the most efficient and unobtrusive method to recover these reserves, and would not result in the drilling of unnecessary wells.

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 to establish well density and location rules for an approximate 165.25-acre unit located in Sections 29 through 32, Township 7 South, Range 93 West, 6^th P.M., Garfield County, for development and production of oil, gas and related hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that: 1) the equivalent of one well per 10-acre density, is hereby approved, for the below listed lands, for production of oil, gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group; and 2) any permitted well to the Williams Fork and Iles Formations shall be located no closer than 200 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; 3) all wells drilled to the Iles Formation shall be drilled only in connection with the drilling of Williams Fork Formation wells; and 4) all Williams Fork Formation and Iles Formation wells 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) or directionally from any other existing pad on other lands, unless exception is granted by the Director of the Colorado Oil and Gas Conservation Commission:

Township 7 South, Range 93 West, 6th P.M.
Section 29:  W½  Tract 66

Section 30:  Tract 66

Section 31:  Tract 66, Lots 5, 6 and 7

Section 32:  W½ of Tract 66, Lot 3

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   7^th  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