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 vacate the existing 160-acre drilling and spacing unit for the Niobrara Formation in the SW ¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M. and in lieu thereof establish two 80-acre drilling and spacing units for the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.    Augustus Energy Partners, L.L.C. (“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 this order pursuant to the Oil and Gas Conservation Act.

4.  On November 21, 1977, the Commission issued Order No. 318-2, which among other things, established 640-acre drilling and spacing units for certain lands, including Section 18, Township 1 North, Range 44 West, 6^th P.M., for the production of gas from the Niobrara Formation, with the permitted well to be located no closer than 990 feet from the boundaries of unit.

5.  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 the SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M., for the production of gas from the Niobrara Formation, with the permitted well to be located no closer than 900 feet from the boundaries of the unit.

6.  On June 20, 1994, the Commission issued Order No. 318-5, which among other things, approved an additional well for certain drilling and spacing units, including the SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M., for the production of gas from the Niobrara Formation, with any additional well to be located no closer than 560 feet from the boundaries of the unit.

7.  On July 30, 2006, the Commission adopted Rule 318B., for certain lands, including the SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M., for wells drilled and completed in the Niobrara Formation.  Rule 318B. provides that:

(a)  Four Niobrara Formation wells may be drilled in any quarter section.

(b)  No more than one well may be located in any quarter-quarter section.

(c)            No minimum distance shall be required between wells producing from the Niobrara Formation.

(d)            Wells shall be located at least 300 feet from the boundary of the quarter section, and any well shall be located no less than 900 feet from any producible well drilled to the Niobrara Formation prior to July 30, 2006 that is located in a contiguous or cornering quarter section.

8.  On April 10, 2010, Augustus, by its attorneys, filed with the Commission a verified application to:

(a)   Vacate the existing 160-acre drilling and spacing unit established for the SW¼ 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; and

(b)   Establish two stand-up approximately 80-acre drilling and spacing units for the E½ SW¼ and the W½ SW¼ of said Section 18, for the production of gas and associated hydrocarbons from the Niobrara Formation, with setback and development rules in accordance with Rule 318B.

9.    On May 18, 2010, Augustus, 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.

10.  Testimony and exhibits submitted in support of the application indicated that there is divided leasehold ownership for the SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.; Tract I is comprised of the E½ SW¼ and Tract II is comprised of the W½ SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.  Further testimony indicated that Augustus, along with three other working interest owners, are lessees of 80 acres, more or less, of Tract I, and that Augustus has drilled the Jones #23-18 Well, located in the NE¼ SW¼ of Section 18, Township 1 North, Range 44 West, 6^th P.M.  Additional testimony showed that Petroleum Development Corporation (“PDC”) is the lessee of 80 acres, more or less, of Tract II and that PDC has drilled the Deterding #14-18 Well, located in the SW¼ SW¼ of Section 18, Township 1 North, Range 44 West.  Testimony also showed that Augustus and PDC have been operating the Jones #23-18 and the Deterding #14-18 Wells on a divided leasehold ownership basis since the date each acquired its interests in each respective well, as did their predecessors.  Testimony and exhibits also indicated that the three other working interest owners in Tract I and PDC, the sole lessee of Tract II, have indicated their approval or consent to the application.

11.       Testimony and exhibits submitted in support of the application showed a subtle structural closure across the application lands with total thickness of the productive Niobrara Chalk Formation of 36 to 37 feet.  A stratigraphic cross section constructed through two wells showed approximately 35 feet of Niobrara reservoir that is consistent in thickness across the application lands. 

12.  Testimony submitted in support of the application indicated the production and reservoir characteristics of the application lands are consistent with the surrounding areas where the development from the Niobrara Formation is based on a well density of one well per forty acres.

13.   The above-referenced testimony and exhibits showed that the proposed spacing will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

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

15.       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.a., the Commission should enter an order to vacate an existing 160-acre drilling and spacing unit for the Niobrara Formation and in lieu thereof establish two (2) 80-acre drilling and spacing units in the Application Lands.

ORDER

NOW, THEREFORE IT IS ORDERED, that the 160-acre drilling and spacing unit established for the for the production of gas and associated hydrocarbons from the Niobrara Formation for the following lands pursuant to Order No. 318-3 is hereby vacated:

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

            Section 18:  SW¼

IT IS FURTHER ORDERED, that two stand-up approximate 80-acre drilling and spacing units are hereby established for the production of gas and associated hydrocarbons from the Niobrara Formation for the following lands:

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

            Section 18:  E½ SW¼, W½ SW¼  

IT IS FURTHER ORDERED, that the density rules applicable to the above-described approximate 80-acre drilling and spacing units shall remain the same.    

IT IS FURTHER ORDERED, that the requirements set forth in Rule 318B, specifically the permissible well locations, number of wells that may be drilled in a quarter section, and the setbacks, continue to apply to the above-described approximate 80-acre 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 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