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 ) CAUSE NO. 381

AND ESTABLISHMENT OF FIELD RULES TO )

GOVERN OPERATIONS IN THE BRACEWELL ) ORDER NO. 381-9

FIELD, WELD COUNTY, COLORADO ) CORRECTED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on May 8, 2008, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish a 160-acre wellbore spacing unit consisting of the SE¼ SW¼ and SW¼ SE¼ of Section 23, and the NE¼ NW¼ and NW¼ NE¼ of Section 26, both in Township 6 North, Range 66 West, 6th P.M., and to pool all nonconsenting interests in said unit, for the development and operation of the “J” Sand, Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1. Foundation Energy Management, LLC. (“Foundation”), 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 June 27, 1983, the Commission issued Order No. 381-1, which among other things, established 80-acre drilling and spacing units for certain lands including Sections 23 and 26, Township 6 North, Range 66 West, 6th P.M., for production of oil and associated hydrocarbons from the Codell Formation.

5. On June 18, 1984, the Commission issued Order No. 381-2, which among other things, established 80-acre drilling and spacing units for certain lands including Sections 23 and 26, Township 6 North, Range 66 West, 6th P.M., for production of oil and associated hydrocarbons from the Niobrara Formation.

6. On February 18, 1985, the Commission issued Order No. 381-5, which among other things, allowed the option to drill an additional well on each 80-acre drilling and spacing unit in the undrilled 40-acre tract for the production of oil and associated hydrocarbons from the Codell and Niobrara Formations underlying the lands in the Bracewell Field.

7. On April 27, 1998, the Commission adopted Rule 318A., which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface. On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established. Sections 23 and 26, Township 6 North, Range 66 West, 6th P.M. are subject to this Rule.

8. On March 19, 2008, Foundation, by its attorney, filed with the Commission a verified application for an order to establish a 160-acre wellbore spacing unit consisting of the SE¼ SW¼ and SW¼ SE¼ of Section 23, and the NE¼ NW¼ and NW¼ NE¼ of Section 26, both in Township 6 North, Range 66 West, 6th P.M., and to pool all nonconsenting interests in said unit for the drilling of the Barney 8 directional well with a surface location of 216 feet FSL and 1500 feet FWL and a proposed bottom hole location 100 feet FSL and 2840 feet FWL in said Section 23, for the development and operation of the “J” Sand, Codell and Niobrara Formations.

9. On April 25, 2008, Foundation, 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. Sworn written testimony and exhibits were submitted in support of the application.

10. Testimony and exhibits submitted in support of the application showed that Foundation intends to drill the Barney 8 Well to a projected bottomhole location of 100 feet FSL and 2852 feet FWL in Section 23, Township 6 North, Range 66 West, 6th P.M.

11. Testimony and exhibits submitted in support of the application showed a list of all consenting and nonconsenting parties within this wellbore spacing unit. Additional testimony indicated that the Applicant has a 25% working interest within the wellbore spacing unit and that the nonconsenting parties located within this unit comprise approximately 75% of the unit.

12. Testimony and exhibits submitted in support of the application showed that offers to lease or to participate were sent to nonconsenting owners. Additional testimony submitted showed that the offers and the Authorizations for Expenditures were fair and reasonable, and similar to those prevailing in the area. Further testimony submitted showed the offers were sent via certified mail and all were received at least thirty (30) days prior to the May 8, 2008 hearing date.

13. The testimony and exhibits submitted indicate that Foundation has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.

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

15. Foundation Energy Management, LLC. 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.b., the Commission should enter an order to establish a 160-acre wellbore spacing unit consisting of the SE¼ SW¼ and SW¼ SE¼ of Section 23, and the NE¼ NW¼ and NW¼ NE¼ of Section 26, both in Township 6 North, Range 66 West, 6th P.M., and to pool all nonconsenting interests in said unit, for the development and operation of the “J” Sand, Codell and Niobrara Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that a 160-acre wellbore spacing unit is hereby established consisting of the SE¼ SW¼ and SW¼ SE¼ of Section 23, and the NE¼ NW¼ and NW¼ NE¼ of Section 26, both in Township 6 North, Range 66 West, 6th P.M., for the proposed Barney 8 Well, for production from the “J” Sand, Codell and Niobrara Formations.

IT IS FURTHER ORDERED, that, 1. Pursuant to the provisions of §34-60-116 C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all of the nonconsenting interests in the above-described 160-acre wellbore spacing unit are hereby pooled for the development and operation of the “J” Sand, Codell and Niobrara Formations.

2. The production obtained from the wellbore spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within each wellbore spacing unit; each owner of an interest in each wellbore spacing unit shall be entitled to receive his/her share of the production of the well located on each wellbore spacing unit applicable to his/her interest in each wellbore spacing unit.

3. Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

4. Any nonconsenting unleased mineral owner within the wellbore spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116 (7)(b), C.R.S. as amended. After recovery of such costs, the nonconsenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

5. The operator of any well drilled on the above-described wellbore spacing unit shall furnish all nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

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 30^th day of May, 2008, as of May 8, 2008.

CORRECTED this _______ day of October, 2008 as of May 8, 2008.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By____________________________________

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

October 1, 2008