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 ) CAUSE NOS. 232 AND 407

ESTABLISHMENT OF FIELD RULES TO GOVERN )

OPERATIONS IN THE WATTENBERG FIELD, ) ORDER NOS. 232-248 AND 407-313

BROOMFIELD AND WELD COUNTIES, COLORADO )

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on June 11, 2008, in the Colorado River Room, Two Rivers Convention Center, 159 Main Street, Grand Junction, Colorado, for an order to establish a 160-acre wellbore spacing unit in the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M., for the production of oil and associated hydrocarbons from the “J” Sand, Codell and Niobrara Formations, 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. EnCana Oil and Gas (USA), Inc. (“EnCana”), 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 October 19, 1981, the Commission issued Order No. 232-23 which, among other things, amended Order No. 232-20 to establish additional 320-acre drilling and spacing units and allow a second well to be drilled for production of gas and associated hydrocarbons from the “J” Sand Formation, for certain lands, including the Section 34, Township 1 North, Range 68 West, 6^th P.M.

5. On November 21, 1983, the Commission issued Order No. 407-1, which, among other things, established 80-acre drilling and spacing units for certain lands, including Section 34, Township 1 North, Range 68 West, 6^th P.M., for production of gas and associated hydrocarbons from the Codell Formation.

6. On April 7, 1992, amended August 20, 1993, the Commission issued Order No. 407-87, which, among other things, established 80-acre drilling and spacing units for certain lands including Section 34, Township 1 North, Range 68 West, 6^th P.M., for production of gas and associated hydrocarbons from the Niobrara Formation.

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. Section 34, Township 1 North, Range 68 West, 6^th P.M. was included in this Rule.

8. On April 21, 2008, EnCana, by its attorney, filed with the Commission a verified application for an order to establish a 160-acre wellbore spacing unit in the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M., for the production of oil and associated hydrocarbons from the “J” Sand, Codell and Niobrara Formations, and to pool all nonconsenting interests in said unit for the development and operation of the “J” Sand, Codell and Niobrara Formations.

9. On May 28, 2008, EnCana, 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 EnCana intends to drill the Bickler 4-4-34 Well from a surface location in the NE¼ SW of Section 34, Township 1 North, Range 68 West, 6^th P.M.

11. Testimony and exhibits submitted in support of the application showed a list of all consenting and nonconsenting parties within the proposed 160-acre wellbore spacing unit. Additional testimony indicated that there are approximately 45.04 acres for which named mineral owners have elected not to sign leases or to participate, such that 28.08% of the approximate 160.40 acres consisting of the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M. remain unleased.

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 showed that the offers and the Authorizations for Expenditures were fair and reasonable, and similar to those prevailing in the area. Further testimony showed the offers were sent via mail and all were received at least thirty (30) days prior to the June 11, 2008 hearing date.

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

14. EnCana Oil and Gas (USA), Inc. 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.b., the Commission should enter an order to establish a 160-acre wellbore spacing unit in the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M., for the production of oil and associated hydrocarbons from the “J” Sand, Codell and Niobrara Formations, 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 in the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M., for the production of oil and associated hydrocarbons 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 160-acre wellbore spacing unit consisting of the SE¼ NW¼, SW¼ NE¼, NE¼ SW¼, and NW¼ SE¼ of Section 34, Township 1 North, Range 68 West, 6^th P.M. 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 wellbore spacing 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 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__________day of June, 2008, as of June 11, 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

June 30, 2008