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

REPORT OF THE COMMISSION

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order: 1) establishing four  approximate 640 acre drilling and spacing units; 2) establishing two approximate 1280 acre drilling and spacing units; 3) vacating pooling granted by Order No. 535-27; 4) vacating spacing granted by Order Nos. 535-13, 407-501 and 407-528;  5) modifying spacing under Order 407-559: and 6) establishing subsurface well location, density and setback rules applicable to the drilling and production of gas and associated hydrocarbons from the Niobrara Formation underlying certain described lands in Weld County, Colorado.

FINDINGS

The Commission finds as follows:

1.         Marathon Oil Company (“Marathon” 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 May 16, 2011, the Commission entered Order No. 535-13 which, among other things, established eleven approximate 640-acre drilling and spacing units for certain lands located in Townships 5 through 9 North, Ranges 60 and 61 West, 6^th P.M., and approved up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. Section 28, Township 7 North, Range 60 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On May 16, 2011, the Commission entered Order No. 535-27 which, among other things, pooled all nonconsenting interests in an approximate 640-acre drilling and spacing unit established for Section 28, Township 7 North, Range 60 West, 6^th P.M., for the development and operation of the Niobrara Formation. 

6.         On June 27, 2011, the Commission entered Order No. 407-559 (formerly Order No. 535-43) which, among other things, established seven approximate 640-acre drilling and spacing units for certain lands located in Township 7 North, Ranges 61 and 62 West, 6^th P.M., and approved a horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. Section 24, Township 7 North, Range 62 West, 6^th P.M., and Sections 30 through 33, Township 7 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

7.         On October 31, 2011, the Commission entered Order No. 407-501 which, among other things, established twelve approximate 640-acre drilling and spacing units for certain lands located in Townships 6 and 7 North, Ranges 61 and 62 West, 6^th P.M., and approved a horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. Section 31, Township 7 North, Range 61 West, 6^th P.M. and Sections 13, 22, 23, 26, 27 and 35, Township 7 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

8.         On December 12, 2011, the Commission entered Order No. 407-528 which, among other things, established 51 approximate 640-acre drilling and spacing units for certain lands located in Section 25, Township 7 North, Range 62 West, 6^th P.M., and approved up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation. Section 25, Township 7 North, Range 62 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

9.         On April 27, 1998, the Commission adopted Rule 318A., the Greater Wattenberg Well Location Rule (“GWA Rule”), 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.  The Application Lands are subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

10.       On March 30, 2012 (AMENDED May 2, 2012 to withdraw Section 15, Township 7 North, Range 62 West, 6^th P.M.), Marathon, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1)       amend Order No. 407-501 to authorize drilling up to four wells within each unit, for the below-described lands for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 61 West, 6^th P.M.
Section 31:    All                   (Prior DSU #1 – 640-acres)

Township 7 North, Range 62 West, 6^th P.M.
Section 13:    All                   (Prior DSU #2 – 640-acres)
Section 22:    All                   (Prior DSU #3 – 640-acres)
Section 23:    All                   (Prior DSU #4 – 640-acres)
Section 26:    All                   (Prior DSU #5 – 640-acres)
Section 27:    All                   (Prior DSU #6 – 640-acres)
Section 35:    All                   (Prior DSU #7 – 640-acres)

2) amend Order No. 407-559 to authorize drilling up to four wells within each unit, for the below-described lands for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 62 West, 6^th P.M.
Section 30:    All                   (Prior DSU #8 – 640-acres)
Section 31:    All                   (Prior DSU #9 – 640-acres)
Section 32:    All                   (Prior DSU #10 – 640-acres)
Section 33:    All                   (Prior DSU #11 – 640-acres)

3) amend Commission Order No. 407-559 to vacate the spacing for Section 24, Township 7 North, Range 62 West, 6^th P.M.; 4) amend Commission Order No. 407-501 to vacate the spacing for Section 25, Township 7 North, Range 62 West, 6^th P.M.; 5) amend Commission Order No. 407-528 to vacate the spacing for Section 25, Township 7 North, Range 62 West, 6^th P.M.; 6) amend Commission Order No. 535-13 to vacate the spacing and well density for Section 28, Township 7 North, Range 60 West, 6^th P.M.; 7) vacate Commission Order No. 535-27, which pooled all nonconsenting interests for Section 28, Township 7 North, Range 60 West, 6^th P.M.; 8) establish four approximate 640-acre and two approximate 1280-acre drilling and spacing units for the below-described lands, and authorize up to four horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 60 West, 6^th P.M.
Section 13:    All                   (DSU #A – 640-acres)
Section 32:    All                   (DSU #B – 640-acres)

Township 7 North Range 62 West, 6^th P.M.
Section 3:      All                   (DSU #C – 640-acres)
Section 18:    All                   (DSU #D – 640-acres)

Township 7 North, Range 60 West, 6^th P.M.
Section 28:    All                              
Section 33:    All                   (DSU #E – 1280-acres)

Township 7 North, Range 62 West, 6^th P.M.
Section 24:    All                              
Section 25:    All                   (DSU #F – 1280-acres)

Collectively, all lands described in this paragraph 10, are referred to as the Application Lands.

11.       On May 15, 2012, Marathon, by its attorneys, 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.

                        12.       Land testimony and exhibits submitted in support of the Application by Tricia Clarke, Land Professional for Marathon, showed that the Applicant has either partially or fully leased the mineral interests in each section of the Application Lands (with the exception of Section 28, Township 7 North, Range 62 West, 6th P.M. which is located in a proposed 1280-acre unit including that section), that the Application Lands are either State of Colorado or fee leases and that the interested parties received notice of the Application at least 30 days prior to the May 29, 2012 hearing date.

                        13.       Geologic testimony and exhibits in support of the Application by Amy Ondrus, Geologist for Marathon, showed that the Niobrara Formation underlies most of the DJ Basin in eastern Colorado, southeastern Wyoming, and western Nebraska.  An isopach map of the Niobrara Formation showed total thickness of the Niobrara Formation ranges from 180 to 300 feet in the Application Lands.  A type log for the Niobrara Formation showed that it consists of two members, the Smoky Hill Chalk and the Fort Hayes Limestone.  A stratigraphic cross-section of the Application Lands showed the Niobrara Formation to be consistent, continuous, and underlying all of the Application Lands as a common source of supply.

                        14.       Engineering testimony and exhibits in support of the Application by Tara Watson, Reservoir Engineer for Marathon, showed analysis of a number of wells within the Application Lands demonstrated a range estimated ultimate recovery ("EUR”) values from 40 to 472 MBO; a range of original oil-in-place ("OOIP”), from 794 to 9,446 MBO; and a drainage area ranging from 46 to 534-acres, with an average of 177-acres. The Silo Field, north of the Application Lands in southern Wyoming, is a major field producing from the Niobrara Formation.  EUR and drainage estimates (which vary from 29 to 507-acres for horizontal wells) for the Silo Field were included in Applicant's engineering analysis. Additional testimony indicated granting the proposed spacing application will result in efficient and economic development of Application Lands.

15.       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.

16.       Marathon agreed to be bound by oral order of the Commission. 

17.       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: 1) establishing four  approximate 640 acre drilling and spacing units; 2) establishing two approximate 1280 acre drilling and spacing units; 3) vacating pooling granted by Order No. 535-27; 4) vacating spacing granted by Order Nos. 535-13, 407-501 and 407-528;  5) modifying spacing under Order 407-559; and 6) establishing subsurface well location, density and setback rules applicable to the drilling and production of gas and associated hydrocarbons from the Niobrara Formation underlying the Application Lands.

ORDER

NOW, THEREFORE IT IS ORDERED, that

1.         Order No. 407-501 is hereby amended to authorize drilling up to four wells within each of the established twelve approximate 640-acre drilling and spacing units for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 61 West, 6^th P.M.
Section 31:    All                   (Prior DSU #1 – 640-acres)

Township 7 North, Range 62 West, 6^th P.M.
Section 13:    All                   (Prior DSU #2 – 640-acres)
Section 22:    All                   (Prior DSU #3 – 640-acres)
Section 23:    All                   (Prior DSU #4 – 640-acres)
Section 26:    All                   (Prior DSU #5 – 640-acres)
Section 27:    All                   (Prior DSU #6 – 640-acres)
Section 35:    All                   (Prior DSU #7 – 640-acres)

2.         Order No. 407-559 is hereby amended to authorize drilling up to four wells within each of the established twelve approximate 640-acre drilling and spacing units for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 62 West, 6^th P.M.
Section 30:    All                   (Prior DSU #8 – 640-acres)
Section 31:    All                   (Prior DSU #9 – 640-acres)
Section 32:    All                   (Prior DSU #10 – 640-acres)
Section 33:    All                   (Prior DSU #11 – 640-acres)

3.         Order No. 407-559 is hereby amended to vacate the spacing for Section 24, Township 7 North, Range 62 West, 6^th P.M.

4.         Order No. 407-501 is hereby amended to vacate the spacing for Section 25, Township 7 North, Range 62 West, 6^th P.M.

5.         Order No. 407-528 is hereby amended to vacate the spacing for Section 25, Township 7 North, Range 62 West, 6^th P.M.

6.         Order No. 535-13 is hereby amended to vacate the spacing and well density for Section 28, Township 7 North, Range 60 West, 6^th P.M.

7.         Order No. 535-27, pooling all nonconsenting interests in Section 28, Township 7 North, Range 60 West, 6th P.M., is hereby vacated.

IT IS FURTHER ORDERED, that four approximate 640-acre drilling and spacing units and two approximate 1280-acre drilling and spacing units for the below-described lands, are hereby established, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, and up to four horizontal wells are authorized within each unit, with the treated interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, without exception being granted by the Director:

Township 7 North, Range 60 West, 6^th P.M.
Section 13:    All                   (DSU #A – 640-acres)
Section 32:    All                   (DSU #B – 640-acres)

Township 7 North Range 62 West, 6^th P.M.
Section 3:      All                   (DSU #C – 640-acres)
Section 18:    All                   (DSU #D – 640-acres)

Township 7 North, Range 60 West, 6^th P.M.
Section 28:    All                              
Section 33:    All                   (DSU #E – 1280-acres)

Township 7 North, Range 62 West, 6^th P.M.
Section 24:    All                              
Section 25:    All                   (DSU #F – 1280-acres)

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   4^th  day of June, 2012, as of May 29, 2012.

                                                                        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

June 4, 2012