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

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

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE BUZZARD FIELD, MESA COUNTY, COLORADO

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CAUSE NO. 371

ORDER NO. 371-10

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on January 13, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to: (1) vacate the 160-acre drilling and spacing units, established under Order No. 371-1, for Section 24, Township 9 South, Range 95 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Mesaverde Formation, (2) designate the lands in said Section 24 as unspaced, under Rule 318.a., and (3) approve the equivalent of one well per 10 acres for said Section 24, for the production of gas and associated hydrocarbons from the Williams Fork, Iles, and Deep Formations (the Mancos, Niobrara, Frontier, and Mowry Formations).

FINDINGS

The Commission finds as follows:

1. Laramie Energy II, LLC (“Laramie”), 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, unless otherwise approved by an order of the Commission. Section 24, Township 9 South, Range 95 West, 6^th P.M. is subject to this Rule for the Mancos, Niobrara, Frontier, and Mowry Formations (“Deep Formations”).

5. On June 15, 1981, the Commission entered Order No. 371-1, which among other things, established 160-acre drilling and spacing units for certain lands including Section 24, Township 9 South, Range 95 West, 6^th P.M., for the production of gas associated hydrocarbons from the Mesaverde Formation.

6. On October 8, 2010, Laramie, by its attorney, filed with the Commission a verified application (the “Application”) for an order to: (1) vacate the 160-acre drilling and spacing units, established under Order No. 371-1, for the below-listed lands (the “Application Lands”), for the production of gas and associated hydrocarbons from the Mesaverde Formation, (2) designate the lands in said Section 24 as unspaced, under Rule 318.a., for the production of gas and associated hydrocarbons for the Williams Fork and Iles Formations of the Mesaverde Group, and (3) approve the equivalent of one well per 10 acres for said Section 24, for the production of gas and associated hydrocarbons from the Williams Fork, Iles, and Deep Formations.

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

Section 24: All

All future Williams Fork and Iles Formation wells to be drilled under this Application should be located downhole anywhere upon the Application Lands, but no closer than 100 feet from the boundaries of any leaseline 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 Formation wells, the well should be located downhole no closer than 200 feet from any leaseline so abutting or cornering such lands without exception being granted by the Director of the Commission.

Further, all future Deep Formation wells to be drilled under this Application should be located downhole anywhere upon the Application Lands, but no closer than 600 feet from the boundaries of any leaseline without exception being granted by the Director of the Commission.

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.

7. On December 30, 2010, Axia Energy, LLC, by its attorney, filed written letter with the Commission protesting the granting of the Application. On January 5, 2011, said protest was withdrawn.

8. On January 5, 2011, Laramie, 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.

9. On January 6, 2011, the Bureau of Land Management (“BLM”), by its representative, filed a written protest relating to the Application. On January 10, 2011, said protest was withdrawn due to Laramie, by its attorney, filing an amended application which requested that the Dakota Formation be stricken from the Application, and, as to wells drilled and completed in Deep Formation, such wells should be located downhole anywhere upon the Application Lands, but no closer than 600 feet from the boundaries of any leaseline or the outside boundaries of the Application Lands, unless exception is granted by the Commission pursuant to application made for such exception.

10. Testimony and exhibits submitted in support of the Application by Mark R. Petry, Landman for Laramie, showed that Laramie is the majority leasehold owner of the Application Lands. Additional testimony showed that lands adjacent to the Application Lands have been approved for 10-acre well density for the Williams Fork and Iles Formation. Further testimony indicated that the relief requested in the Application is necessary to efficiently develop the Williams Fork, Iles and Deep Formations underlying the Application Lands due to Laramie’s leasehold being located within a conservation easement in favor of the Colorado Department of Wildlife, and to comply with this easement Laramie may utilize no more than three well pads on said approximate 386-acre easement, which given the existing 160-acre spacing order places Laramie’s acreage in four separate spacing units.

11. Testimony and exhibits submitted in support of the Application by Joan Tilden, Consulting Geoscientist for Laramie, showed that the Williams Fork Formation geological model is well understood and consists of sand bodies that are highly discontinuous in nature with microdarcy permeability and between 6-10% porosity, and wells drilled on 10-acre density may not encounter the same sand bodies. Additional testimony showed that the Mancos Formation is characterized by laterally continuous, and low porosity with nanodarcy permeability, shales, having been deposited in a deepwater marine environment.

12. Testimony and exhibits submitted in support of the application by John P. Seidle, Reservoir Engineer for Laramie, showed that decline curve analysis of area wells near the Application Lands, completed in both the Williams Fork and Iles Formations, suggests a typical ultimate recovery of 600.3 MMCF gas per well (435.9 MMCF gas attributable to the Williams Fork Formation). Additional testimony indicated that the typical drainage area for a Williams Fork Formation well in the area of the Application Lands is approximately 10.5 acres, while wells completed in the Deep Formations may drain approximately 9.9 acres and recover an additional 1,444 MMCF gas. Further testimony showed that developing the Williams Fork, Iles, and Deep Formations in common wellbores drilled on 10-acre density drilling is the most efficient and unobtrusive method to recover the reserves underlying the Application Lands, while drilling at 20-acre density would leave significant undrained areas behind and create waste.

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

14. Laramie 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., the Commission should enter an order: (1) vacating the 160-acre drilling and spacing units, established under Order No. 371-1, for Section 24, Township 9 South, Range 95 West, 6th P.M., for the production of gas and associated hydrocarbons from the Mesaverde Formation, (2) designating the lands in said Section 24 as unspaced, under Rule 318.a., and (3) approve the equivalent of one well per 10 acres for said Section 24, for the production of gas and associated hydrocarbons from the Williams Fork, Iles, and Deep Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the 160-acre drilling and spacing units, previously established under Order No. 371-1 for the below-listed lands, are hereby vacated, for the production of gas and associated hydrocarbons from the Mesaverde Formation, and that said Section 24 is designated as unspaced under Rule 318.a.:

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

Section 24: All

IT IS FURTHER ORDERED, that the below-listed lands are hereby approved for the equivalent of one well per 10 acres, for the production of gas and associated hydrocarbons from the Williams Fork, Iles, and Deep Formations (the Mancos, Niobrara, Frontier, and Mowry Formations):

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

Section 24: All

IT IS FURTHER ORDERED, that all future Williams Fork and Iles Formation wells to be drilled under this application shall be located downhole anywhere upon the Application Lands, but no closer than 100 feet from the boundaries of any leaseline 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 Formation wells, the well shall be located downhole no closer than 200 feet from any leaseline so abutting or cornering such lands without exception being granted by the Director of the Commission.

IT IS FURTHER ORDERED, that all future Deep Formation wells to be drilled under this Application shall be located downhole anywhere upon the Application Lands, but no closer than 600 feet from the boundaries of any leaseline or the outside boundaries of the Application Lands, unless exception is granted by the Commission pursuant to application made for such exception.

IT IS FURTHER ORDERED, 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 shall be drilled and completed only in association with the drilling and completion of wells in the Williams Fork Formation, unless exception is granted by the Commission pursuant to application made for such exception.

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 2^nd day of February 2011, as of January 13, 2011.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Rob A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 2, 2011