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 establish two approximate 40-acre drilling and spacing units for the SW¼ SE¼ and the SE¼ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.   Orr Energy, LLC ("Orr"), 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 December 19, 1983, the Commission issued Order No. 407-1 (amended on March 29, 2000 in accordance with Order No. 407-17, entered November 18, 1985), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands, including Section 25, Township 6 North, Range 67 West, 6^th P.M., with the drilling and spacing unit to be designated by the operator drilling the first well in the quarter section, (or the Director, if the operator fails to designate).  The permitted well shall be located in the center of either 40-acre tract within the drilling and spacing unit with a tolerance of 200 feet in any direction.  The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.

5.  On February 18, 1985, the Commission issued Order No. 407-10, which among other things, approved of the commingling of production from the Codell and Niobrara Formations, and established the same drilling and spacing units and well location rules for the Niobrara Formation as was provided for the Codell Formation under Order No. 407-1.  Section 25, Township 6 North, Range 67 West, 6^th P.M. is subject to the provisions of Order No. 407-10.

6.  On February 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas from the Codell and Niobrara Formations underlying certain lands, including Section 25, Township 6 North, Range 67 West, 6^th P.M., with the permitted well locations in accordance with the provisions of Order No. 407-1.

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.  Section 25, Township 6 North, Range 67 West, 6^th P.M. is subject to this Rule for the Codell and Niobrara Formations.

8.  On April 13, 2010, Orr, by its attorney, filed with the Commission a verified application to establish two approximate 40-acre drilling and spacing units for the SW¼ SE¼ and the SE¼ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the permitted well to be located in the center of the drilling and spacing unit with a tolerance of 200 feet in any direction.

9.  On May 17, 2010, Orr, 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 submitted in support of the application showed that Orr is a leasehold owner in the application lands.  Further testimony indicated that the Director of the Commission has issued Orr a permit to drill the Hall #25-34 Well in the SW¼ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M. for the production of oil and gas and associated hydrocarbons from the Codell and Niobrara Formations.  Additional testimony showed that through the adoption of Rule 318A, which allows the drilling of one Codell and Niobrara Formation well in each 40-acre governmental quarter-quarter, the Commission has necessarily found that 40 acres are not less than the maximum area that can be efficiently and economically drained by a single well producing from the Codell and Niobrara Formations underlying the S½ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M. 

11.  Prior to the issuance of Order No. 407-87, the Commission issued Order No. 407-51 that created two 40-acre drilling and spacing units for the production of Codell and Niobrara Formations for the NW¼ SE¼ and the NE¼ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M., which are lands adjacent to the application lands.

12.  The above-referenced testimony 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.

13.  Orr 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 to establish two approximate 40-acre drilling and spacing units for the SW¼ SE¼ and the SE¼ SE¼ of Section 25, Township 6 North, Range 67 West, 6^th P.M, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

ORDER

NOW, THEREFORE, IT IS ORDERED, that two 40-acre drilling and spacing units are hereby established for the below-listed lands for the production of oil and gas and associated hydrocarbons from the Codell and Niobrara Formations:

Township 6 North, Range 67 West, 6^th P.M.

                                    Section 25:  SW¼ SE¼, SE¼ SE¼

IT IS FURTHER ORDERED, that the requirements set forth in Rule 318A, including, without limitation, the permissible well locations, number of wells that may be drilled in a quarter-quarter section, the setbacks, and the ability to commingle production continue to apply to the above-described approximate 40-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