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 on April 4, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to pool all nonconsenting interests in a designated approximate 80-acre drilling and spacing unit for the W½ SE¼ of Section 32, Township 6 North, Range 65 West, 6^th P.M., for the development and operation of the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, effective as of the spud date of two proposed wells.

FINDINGS

The Commission finds as follows:

1.    Mineral Resources, Inc. (“Mineral Resources” or “Applicant”), 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.  Section 32, Township 6 North, Range 65 West, 6^th P.M. is subject to this Rule for the Sussex, “J” Sand, and Dakota Formations.

5.    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 32, Township 6 North, Range 65 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.

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 32, Township 6 North, Range 65 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.  The W½ SE¼ of Section 32, Township 6 North, Range 65 West, 6^th P.M. is subject to this Rule for the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations.

8.    On December 9, 2010, Mineral Resources, by its attorney, filed with the Commission a verified application (the “Application”) to pool all nonconsenting interests in a designated approximate 80-acre drilling and spacing unit for the below-listed lands, for the development and operation of the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, effective as of the spud date of two proposed wells:

Township 6 North, Range 65 West, 6^th P.M.

9.    On February 8, 2011, Mineral Resources, 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 by Rule 511.  Sworn written testimony and exhibits were submitted in support of the Application.

10.  On February 8, 2011, the Hearings Manager continued this matter to the April hearing.

11.  Testimony and exhibits submitted in support of the Application by Logan Richardson, Land Director for Mineral Resources, showed that pursuant to Rule 530., the Applicant sent an Authority for Expenditure (“AFE”) and offers to participate in two proposed wells to each of the nonconsenting owners, who comprise approximately 8.9509 acres of the approximate 79.362-acre drilling and spacing unit.  Additional testimony showed that the AFE sent by Applicant to the nonconsenting owners was a fair and reasonable estimate of the costs of the proposed drilling and completions costs for the wells, and that the offers were sent via mail and all were received at least thirty (30) days prior to the April 4, 2011 hearing date.

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

12.  Mineral Resources agreed to be bound by oral order of the Commission. 

13.  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 pooling all nonconsenting interests in a designated approximate 80-acre drilling and spacing unit for the W½ SE¼ of Section 32, Township 6 North, Range 65 West, 6^th P.M., for the development and operation of the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, effective as of the spud date of two proposed wells.

ORDER

NOW, THEREFORE IT IS ORDERED, that:

1.    Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, the nonconsenting owners in the designated approximate 80-acre drilling and spacing unit for the below-listed lands, are hereby pooled, for the development and operation of the Sussex, Codell, Niobrara, “J” Sand, and Dakota Formations, effective as of the spud date of two proposed wells:

Township 6 North, Range 65 West, 6^th P.M.

2.    The production obtained from the drilling and 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 the drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3.  The nonconsenting owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the well (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

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

5.    Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each 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, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the well, surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the well as if it had originally agreed to the drilling.

6.    The operator of the well drilled on the above-described drilling and spacing unit shall furnish the 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.

7.    Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.

                        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 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  15^th  day of April, 2011, as of April 4, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

April 15, 2011