BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF COMMISSION

                        The Commission heard this matter on September 19, 2011, at the Broomfield City & County Building, One Descombes Drive, Broomfield, Colorado 80020, upon application to establish an approximate 160-acre wellbore spacing unit for certain lands located in Section 28, Township 1 North, Range 66 West, 6th P.M., and approve one horizontal well within the unit to accommodate the planned Marrs 2N-28HZ Well.

FINDINGS

The Commission finds as follows:

1.    Kerr-McGee Oil & Gas Onshore LP (“Kerr-McGee” 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.  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 28, Township 1 North, Range 66 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 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 28, Township 1 North, Range 66 West, 6^th P.M., with the permitted well locations in accordance with the provisions of Order No. 407-1.

6.  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.  Pursuant to Rule 318A.j., Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.  Rule 318A.d. provides that an operator may allocate production to any drilling and spacing unit with respect to a particular Cretaceous Age Formation consistent with the provisions of Rule 318A.  Section 28, Township 1 North, Range 66 West, 6^th P.M. is subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

7.  On April 28, 2011, Kerr-McGee, by its attorneys, filed with the Commission a verified application (“Application”) for an order to establish an approximate 160-acre wellbore spacing unit for the below-listed lands, and approve of one horizontal well within the unit (to accommodate the planned Marrs 2N-28HZ Well), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore for the permitted well to be located no closer than 460 feet from the boundary of the unit, without exception being granted by the Director of the Commission:

Township 1 North, Range 66 West, 6^th P.M.

Kerr-McGee states that this application is not requesting the change of any established 80-acre drilling and spacing units or the established distribution of proceeds for any existing vertical Niobrara Formation wells.  Kerr-McGee will allocate and distribute proceeds from the horizontal well on a 160-acre basis.

8.  On July 26, 2011 the matter was continued to the September 19, 2011Commission meeting at the request of Kerr-McGee.

9.  On September 9, 2011, 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 exhibits were submitted in support of the Application.

10.  Land testimony and exhibits submitted in support of the Application by Mathew Miller, Landman for Kerr-McGee, shows that the surface location for the Well is located within an established drilling window pursuant to Commission Rule 318A.a.  The testimony further showed that Kerr-McGee has majority ownership interest in the Application Lands, and the surface estate is either fee, federal or state owned.

11.  Geology testimony and exhibits submitted in support of the Application by Thomas Birmingham, Geologist for Kerr-McGee, shows that the Niobrara Formation exists under all of the Application Lands, and is a common source of supply.  Total thickness ranges from approximately 360 to 400 feet, with the thickest area in the Southeastern portion of the Application Lands.  The regional dip is approximately 30 feet per mile to the West.  Total thickness of the Codell Formation ranges from 10 to 20 feet, with a regional dip of 100 feet per mile to the West. The testimony requested administrative notice of testimony of the Rule 318A rulemaking hearing in Docket No. 1108-RM-02, held August 8, 2011, which showed that oil and gas reserves in the Greater Wattenberg Area, which includes the Application Lands, are characterized by very low permeabilities, stratigraphic compartmentalization and structural compartmentalization. Evidence was also presented showing that the advancement of geological and engineering science has resulted in the opportunity to use horizontal well drilling technology to produce bypassed oil and gas reserves in the Greater Wattenberg Area.

12.  Engineering testimony and exhibits submitted in support of the Application by Brian Smith, Engineer for Kerr-McGee, requested administrative notice of testimony of the Rule 318A rulemaking hearing in Docket No. 1108-RM-02, held August 8, 2011, which showed that infill horizontal wells can prevent waste and increase the recovery of oil and gas reserves in the Greater Wattenberg Area (“GWA”).

13.  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.

14.  Kerr-McGee 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., the Commission should enter an order to establish an approximate 160-acre wellbore spacing unit for certain lands located in Section 28, Township 1 North, Range 66 West, 6th P.M., and approve one horizontal well within the unit (to accommodate the planned Marrs 2N-28HZ Well).

ORDER

                        NOW, THEREFORE IT IS ORDERED, that an approximate 160-acre wellbore spacing unit is hereby established for the below-listed lands, and one horizontal well is hereby approved within the unit to accommodate the planned Marrs 2N-28HZ Well, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation:

Township 1 North, Range 66 West, 6^th P.M.

                        IT IS FURTHER ORDERED, that the treated interval of the wellbore for the permitted well to be located no closer than 460 feet from the boundary of the unit, without exception being granted by the Director of the Commission.

IT IS FURTHER ORDERED, that nothing in this Order shall change of any established 80-acre drilling and spacing units or the established distribution of proceeds for any existing vertical Niobrara Formation wells.  Kerr-McGee will allocate and distribute proceeds from the horizontal well on a 160-acre basis.

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   23^rd   day of September 2011, as of September 19, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

September 23, 2011