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 for an order to pool all nonconsenting interests in the three proposed wellbore spacing units (“WBSU”) which may be established for:  (1) the 320-acre WBSU for the W½ E½ and E½ W½ of Section 28, Township 1 North, Range 66 West, 6^th P.M. to accommodate the planned Marrs #28C-28HZ Well; (2) the 320-acre WBSU for the E½ W½ and W½ E½ of said Section 28 to accommodate the planned Marrs #3N-28HZ Well; and, (3) the 160-acre WBSU for the W½ E½ of said Section 28 to accommodate the planned Marrs #2N-28HZ Well, for the development and operation of the Codell or Niobrara Formations.

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 Codell Formation.

7.     On April 28, 2011, Kerr-McGee filed an application, designated as Docket No. 1108-SP-62, seeking an order to establish an approximate 320-acre wellbore spacing unit for the below-listed lands, and approve one horizontal well within the unit (to accommodate the planned Marrs #28C-28HZ Well), for the production of oil, gas and associated hydrocarbons from the Codell Formation:

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

Section 28:      W½ E½ and E½ W½.

8.     On April 28, 2011, Kerr-McGee filed an application, designated as Docket No. 1108-SP-63, seeking an order to establish an approximate 320-acre wellbore spacing unit for the below-listed lands, and approve one horizontal well within the unit (to accommodate the planned Marrs #3N-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.

Section 28:      E½ W½ and W½ E½.

9.     On April 28, 2011, Kerr-McGee filed an application, designated as Docket No. 1108-SP-64, seeking 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:

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

Section 28:      W½ E½.

10.   On September 19, 2011, the Commission may consider the three above-referenced docket matters, each seeking a respective wellbore spacing unit, along with the statutory pooling application set forth herein.  All three of the above-referenced applications stated that Kerr-McGee does not request any change in 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 each horizontal well based on the size of the wellbore spacing unit established by the Commission.  Each of the above-referenced April 28, 2011 Kerr-McGee spacing applications were continued to the September 19, 2011 Commission meeting.

11.   On June 9, 2011, Kerr-McGee, by its attorneys, filed with the Commission a verified application (the “Application”) for an order to pool all nonconsenting interests in the three proposed wellbore spacing units (“WBSU”) which may be established for the below-described lands, to accommodate wells associated with the below-described lands, for the development and operation of the Codell or Niobrara Formations, retroactive to the earliest date costs are incurred for the Well, or the date of the Application, whichever is earlier:

(1)  The 320-acre WBSU for the planned Marrs #28C-28HZ Well – Codell Formation

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

(2)  The 320-acre WBSU for the planned Marrs #3N-28HZ Well – Niobrara Formation

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

(3)  The 160-acre WBSU for the planned Marrs #2N-28HZ Well – Niobrara Formation

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

12.   On September 6, 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.

13.  Testimony and exhibits submitted in support of the Application by Nancy McDonald, Landman for Kerr-McGee, showed that: 1) all surface pads are located within authorized drilling windows pursuant to Rule 318A.a.; 2) Kerr-McGee owns 100% of the working mineral interests in all three wellbore spacing units, so there are no nonconsenting mineral interest owners; 3) there are no unleased mineral owners; 4)   Kerr McGee only seeks to involuntary pool only royalty owners;  and 5) all royalty interest holders have received notice of the Application.

14.  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 hydrocarbons, and will not violate correlative rights.

15.   Kerr-McGee agreed to be bound by oral order of the Commission. 

16.   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 pool all nonconsenting interests in the three proposed wellbore spacing units (“WBSU”) which may be established for:  (1) the 320-acre WBSU for the W½ E½ and E½ W½ of Section 28, Township 1 North, Range 66 West, 6^th P.M. to accommodate the planned Marrs #28C-28HZ Well; (2) the 320-acre WBSU for the E½ W½ and W½ E½ of said Section 28 to accommodate the planned Marrs #3N-28HZ Well; and, (3) the 160-acre WBSU for the W½ E½ of said Section 28 to accommodate the planned Marrs #2N-28HZ Well, for the development and operation of the Codell and Niobrara Formations.

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, all royalty interest holders in the three proposed wellbore spacing units (“WBSU”) which may be established for the below-described lands are hereby pooled, to accommodate wells associated with the below-described lands, for the development and operation of the Codell or Niobrara Formations, retroactive to the earliest date costs are incurred for the Well, or the date of the Application, whichever is earlier:

(1)  The 320-acre WBSU for the planned Marrs #28C-28HZ Well – Codell Formation

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

(2)  The 320-acre WBSU for the planned Marrs #3N-28HZ Well – Niobrara Formation

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

(3)  The 160-acre WBSU for the planned Marrs #2N-28HZ Well – Niobrara Formation

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

2.     The production obtained from the wellbore spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such owner’s tract bears to the total number of mineral acres within the wellbore spacing unit; each owner of an interest in the wellbore spacing unit shall be entitled to receive its share of the production of the Well located on the wellbore spacing unit applicable to its interest in the wellbore spacing unit.

3.     The operator of the well drilled on each above-described wellbore spacing unit shall furnish the applicable royalty 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.

4.     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    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