BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                     CAUSE NO. 407

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE WATTENBERG FIELD,                                       )                     ORDER NO. 407-293

WELD COUNTY, COLORADO                                                                  )

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 9:00 a.m. on November 27, 2006, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish a 160-acre drilling and spacing unit consisting of the NEĽ of Section 24, Township 5 North, Range 66 West, 6th P.M. and to pool all nonconsenting interests in the unit for the development and operation of the Codell and Niobrara Formations.

FINDINGS

                        The Commission finds as follows:

                        1. Kerr-McGee Oil & Gas Onshore LP ("Kerr-McGee"), as applicant herein, is an interested party in the subject matter of the above-referenced hearing and is the only working interest owner in the designated drilling and spacing unit.

                        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 Gs Conservation Act.

                        4. On December 20, 1983, the Commission issued Order No. 407-1, which among other things established 80-acre drilling and spacing units for certain lands including Section 24, Township 5 North, Range 66 West, 6th P.M., for the production of gas and associated hydrocarbons from the Codell Formation.

                        5. On August 20, 1984, the Commission issued Order No. 407-4, establishing among other things, 80-acre drilling and spacing units including Section 24, Township 5 North, Range 66, West, 6th P.M., for the production of gas and associated hydrocarbons from the Niobrara Formation.

                        6. On September 5, 2006, Kerr-McGee, by its attorney, filed with the Commission a verified application for an order in accordance with Rule 318A.a.(4)c. to designate a 160-acre drilling and spacing unit consisting of the NEĽ of Section 24, Township 5 North, Range 66 West, 6th P.M. and to pool all nonconsenting interests in the 160-acre drilling and spacing unit, for the development and operation of the Codell and Niobrara Formations. The applicant plans to drill the SEGL 17-24 Well at a proposed bottomhole location of 1240 feet from the north line and 1480 feet from the east line for production from the Codell and Niobrara Formations. Offers to lease or to participate have been made to the mineral owners or the leasehold owners but as of the date the application was filed, these attempts have been partially unsuccessful.

                        7. On November 7, 2006, Kerr-McGee, 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 four (4) exhibits were submitted in support of the application.

                        8. Testimony and exhibits submitted in support of the application showed that Kerr-McGee designated this 160-acre unit and proposes to drill the SEGL 17-24 Well directionally with a bottomhole location 1240 feet from the north line and 1480 feet from the east line of said Section 24.

                        9. Testimony and exhibits submitted in support of the application showed a list of all consenting and nonconsenting parties, indicating that Kerr-McGee has over 46.66% of the unit leased but that there are approximately eighteen (18) unleased nonconsenting tracts located within the unit that are the subject of the pooling request.

                        10. Testimony and exhibits submitted in support of the application showed that offers to lease or to participate were sent to the nonconsenting owners. Additional testimony submitted showed that the offers and the Authorization of Expenditure ("AFE") were fair and reasonable, and similar to those prevailing in the area. Further testimony submitted showed that the nonconsenting owners for whom Kerr-McGee have addresses received the offer via certified mail between March 30, 2006 and June 9, 2006.

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

                        12. No protests to the application have been filed with the Commission or the Applicant.

                        13. Kerr-McGee Oil & Gas Onshore LP, agreed to be bound by oral order of the Commission.

                        14. 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 designating a 160-acre drilling and spacing unit consisting of the NEĽ of Section 24, Township 5 North, Range 66 West, 6th P.M., and pooling all nonconsenting interests in the unit, for the development and operation of the Codell and Niobrara Formations.

ORDER

 

                        NOW, THEREFORE IT IS ORDERED that, a 160-acre drilling and spacing unit consisting of the NEĽ of Section 24, Township 5 North, Range 66 West, 6th P.M. is hereby established for the production of gas and associated hydrocarbons from the 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 160-acre drilling and spacing unit consisting of the NEĽ of Section 24, Township 5 North, Range 66 West, 6th P.M., are hereby pooled for the development and operation of the Codell and Niobrara Formations.

                        2. The production obtained from each drilling 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 drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling 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 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 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 ______ day of December, 2006, as of November 27, 2006.

                                            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

December 8, 2006