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 October 21, 2010, at West Garfield Campus, Colorado Mountain College, 3695  Airport Road, Rifle, Colorado 81650, for an order to vacate an existing 160-acre drilling and spacing unit and establish two approximate 80-acre laydown drilling and spacing units consisting of the N½ NE¼ of Section 18 and the S½ NE¼ of Section 18, Township 1 North, Range 44 West, 6th P.M., for the production of gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Augustus Energy Partners, LLC, (“Augustus”), 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 August 21, 1978, the Commission issued Order No. 318-3, which among other things, established 160-acre drilling and spacing units for certain lands including Section 18, Township 1 North, Range 44 West 6th P.M., for production of gas from the Niobrara Formation, with the permitted well to be located no closer than 900 feet from the boundaries of the quarter section upon which it is located.

5.         On June 20, 1994, (amended August 19, 1994), the Commission issued Order No. 318-5, which among other things, allowed an additional well to be drilled on each 160-acre drilling and spacing unit, with any subsequent well to be located no closer than 560 feet from the outer boundaries of the unit, for certain lands including Section 18, Township 1 North, Range 44 West 6th P.M., for the production of gas and associated hydrocarbons from the Niobrara Formation.

6.  On September 21, 2004, and amended on June 14, 2006, the Commission adopted Rule 318B., which among other things, allowed four (4) wells to be drilled in any quarter section, with no more than one (1) well per quarter-quarter section, located at least 300 feet from the outer boundary of said quarter section and no closer than 900 feet from any Niobrara Formation well, for certain lands including Section 18, Township 1 North, Range 44 West 6th P.M., for production from the Niobrara Formation. 

7.         Rule 318B. supersedes Commission Order Nos. 318-3 through 318-5 only to the extent that the existing orders relate to permissible well locations and number of wells that may be drilled in a quarter section.  By operation of section 318B. c., it does not supersede any existing drilling and spacing units established by such orders.  

8.         On July 28, 2010, Augustus, through its attorneys, filed with the Commission a verified application to vacate the existing 160-acre drilling and spacing unit established in Order No. 318-3, and establish two approximate 80-acre lay-down drilling and spacing units for the below listed lands, for the production of gas and associated hydrocarbons from the Niobrara Formation:

Township 1 North, Range 44 West,6th P.M.

Section 18:    N½ NE¼

Section 18:    S½ NE¼

Yuma County, Colorado

9.         On September 2, 2010, Augustus, through 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.

                        10.       According to the verified application:

a)   There is divided mineral interest ownership in the NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M. (“Application Lands”);

b)  Augustus, along with three other working interest owners, are lessees of 80 acres, more or less, on the S½ NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.   Augustus owns a 56% leasehold interest in the Application Lands.  The remaining leasehold is held by JGH Corporation, Robin Forte, and J. Marr Oil Company.  None of these companies protested the application. 

c)   The 80 acres of the N½ NE¼ of Section 18, Township 1 North, Range 44 West are unleased;

d)  The Colorado Department of Natural Resources, Division of Wildlife and Wildlife Commission own the mineral interests in 79.7 acres of the N½ NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M., and Yuma County, Colorado owns mineral interests in .3 acres of N½ NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.; and

e)  The Colorado Department of Natural Resources, Divisions of Wildlife and Wildlife Commission has informed Applicant that it does not intend to lease the N½ NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.   

                        11.       Testimony submitted by Joseph M. Owen, Vice President – Land, for Augustus, indicates that Augustus has a single permitted well site within the Application Lands, but there are no wells located within the Application Lands.

                        12.       Further testimony by Mr. Owen states that Augustus owns a 56% leasehold interest in the Application Lands.  The remaining leasehold is held by JGH Corporation, Robin Forte, and J. Marr Oil Company.  None of these entities protested the application. 

                        13.       Testimony and exhibits submitted by Kenneth J. Meister, Vice President – Engineering, for Augustus, states that based upon production in the area and reservoir characteristics, there is nothing that differentiates the Application Lands from the surrounding area where Niobrara Formation development is based on a well density of one (1) well per forty (40) acres. 

14.       The above-referenced testimony and exhibits show that granting the application will promote efficient reservoir drainage, will prevent waste, will allow greater ultimate recovery of oil and gas, will protect correlative rights, and that the requested drilling and spacing units are no smaller than the area that can be efficiently drained by one well.

            15.       Augustus agreed to be bound by oral order of the Commission.

16.       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 vacate an existing 160-acre drilling and spacing unit and establish two approximate 80-acre laydown drilling and spacing units consisting of the N½ NE¼ of Section 18 and the S½ NE¼ of Section 18, Township 1 North, Range 44 West, 6th P.M.

ORDER

NOW, THEREFORE IT IS ORDERED, that:

1)  The existing 160-acre drilling and spacing unit applicable to the NE¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Niobrara Formation is hereby vacated;

2)  Two approximate 80-acre laydown drilling and spacing units are hereby established for the production of gas and associated hydrocarbons from the Niobrara Formation described as:

Unit 1

Township 1 North, Range 44 West, 6^th P.M.

Section 18:    N½ NE¼

Unit 2

Township 1 North, Range 44 West, 6^th P.M.

Section 18:    S½ NE¼

Yuma County, Colorado

3)  The density rules applicable to the above-described drilling and spacing units, as prescribed by Rule 318B, shall remain the same; and    

4)   The permissible well locations, number of wells that may be drilled in a quarter section, and the setbacks as prescribed by Rule 318B., continue to apply to the above-described drilling and spacing units.

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 November, 2010, as of October 21, 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

November 19, 2010