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

REPORT OF THE COMMISSION

            The Commission heard this matter on January 7, 2013, at the Sheraton Denver Downtown Hotel, 1550 Court Place, Denver, Colorado, upon application for an order to vacate two approximate 640-acre drilling and spacing units established by Order No. 421-3 for Sections 19 and 30, Township 12 North, Range 63 West, 6^th P.M., and establish an approximate 1290-acre stand-up exploratory drilling and spacing unit consisting of Sections 18, 19 and 30, Township 12 North, Range 63 West 6^th P.M., and approve up to ten wells within the unit, for production of oil, gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.            EOG Resources, Inc. (“EOG” or “Applicant’), 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.  The portion of Section 18, Township 12 North, Range 63 West, 6^th P.M. which lies in Colorado is subject to this Rule for the Niobrara Formation.

5.            On October 21, 2010, the Commission entered Order No. 421-3 which, among other things, established 640-acre drilling and spacing units, and approved one horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Sections 19 and 30, Township 12 North, Range 63 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

6.            On September 17, 2012 (amended October 5, 2012), EOG, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S.,  a verified application (“Application”) for an order to vacate two approximate 640-acre drilling and spacing units established by Order 421-3 for Sections 19 and 30, Township 12 North, Range 63 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation; and establish an approximate 1,290-acre stand-up exploratory drilling and spacing unit consisting of the below-described lands (“Application Lands”), for horizontal and vertical well development, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, and that any wells drilled under the Application should be drilled from a new, common or existing well pad, with not more than one well pad per quarter quarter section, with the bottomhole locations not less than 600 feet from the boundary of the proposed drilling unit and not less than 460 feet from any other well or treated interval of a well producing from the Niobrara Formation, without exception being granted by the Director:

Township 12 North, Range 63 West, 6^th P.M.

7.            On November 9, 2012, EOG, by its attorneys, filed with the Commission a written request to approve the Application based on its merits of the verified application and the supporting exhibits.  Sworn written testimony and exhibits were submitted in support of the Application.

8.            Land testimony and exhibits submitted in support of the Application by Jason McLaren, Landman for EOG, showed that EOG holds a leasehold interest in the Application Lands.

9.            Geologic testimony and exhibits submitted in support of the Application by John H. Melby, Petroleum Geologist for EOG, showed the regional dip for the Niobrara Formation underlying the Application Lands is approximately 40 feet per mile to the west-southwest across the proposed spaced area and that the Niobrara Formation exists under all of the Application Lands. Additional testimony showed that the total thickness of the Niobrara Formation under the Application Lands is 265 to 275 feet with the thickest area in the southern portion of the proposed spaced area.

10.         Engineering testimony and exhibits submitted in support of the Application by Osman G. Apaydin, Reservoir Engineer for EOG, showed analogous EOG horizontal wells in 640-acre drilling and spacing units have a recovery factor of 5%.  Additional testimony showed that the average drainage area for a short lateral well is 99 acres; however, the average drainage area for a long lateral well is 168 acres, resulting in an improvement of 70%.  The testimony concluded that by maximizing horizontal well length, the longer lateral well will have the increased possibility of crossing fault/fracture-like features which will lead to substantially larger recovery of hydrocarbons.

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

12.         EOG has agreed to be bound by the oral order of the Commission. 

13.         Based on the facts stated in the Application, having received no protests, and based on the Hearing Officer review under Rule 511, the Commission should enter an order to vacate two approximate 640-acre drilling and spacing units established by Order No. 421-3 for Sections 19 and 30, Township 12 North, Range 63 West, 6^th P.M., and establish an approximate 1290-acre stand-up exploratory drilling and spacing unit consisting of Sections 18, 19 and 30, Township 12 North, Range 63 West 6^th P.M., and approve up to ten wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

            NOW, THEREFORE, IT IS ORDERED, that two approximate 640-acre drilling and spacing units established by Order 421-3 for Sections 19 and 30, Township 12 North, Range 63 West, 6^th P.M., are hereby vacated, and one approximate 1290-acre stand-up exploratory drilling and spacing unit for the below-described lands, is hereby established, and up to ten wells within the unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the bottomhole locations not less than 600 feet from the boundary of the proposed drilling unit and not less than 460 feet from any other well or treated interval of a well producing from the Niobrara Formation, without exception being granted by the Director:

Township 12 North, Range 63 West, 6^th P.M.

IT IS FURTHER ORDERED, 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 of 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 January, 2013, as of January 7, 2013.

OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

By:__________________________________

            Robert J. Frick, Secretary