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 February 22, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish an approximate 885.16-acre drilling and spacing unit for certain lands located in Sections 19 and 30, Township 9 South, Range 93 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork, Iles Formations of the Mesaverde Group and the Mancos, Niobrara, Frontier, and Mowry Formations.

FINDINGS

The Commission finds as follows:

1.    Laramie Energy II, LLC (“Laramie”), 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, unless otherwise approved by an order of the Commission.  Certain lands located in Sections 19 and 30, Township 9 South, Range 93 West, 6^th P.M. are subject to this rule.

5.    On December 12, 2007, the Commission issued Order No. 429-6 which, among other things, allowed the equivalent of one well per 10 acres for certain lands located in Sections 19 and 30, Township 9 South, Range 93 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Mesaverde Formation. 

6.    On September 22, 2008, the Commission issued Order No. 429-10 which, among other things, approved the equivalent of one well per ten acres for certain lands in Section 19 Township 9 South, Range 93 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

7.    On October 8, 2010, (amended December 22, 2010), Laramie, by its attorney, filed with the Commission a verified application (the “Application”) for an order to establish an approximate 885.16-acre drilling and spacing unit for the below-described lands (the “Application Lands”), for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group and the Mancos, Niobrara, Frontier, Mowry, and Dakota Formations (“Deep Formations”):

Township 9 South, Range 93 West, 6^th P.M.

All future Williams Fork, Iles, and Deep Formation wells to be drilled upon said drilling and spacing unit should be located downhole anywhere in the drilling and spacing unit but no closer than 100 feet from the boundaries of the unit without exception being granted by the Director of the Commission.  It is provided however that in cases where the lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill ten-acre density Williams Fork Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the drilling unit so abutting or cornering such lands without exception being granted by the Director of the Commission.

Except as previously authorized by order of the Commission, wells to be drilled under this order should be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter section (or lots or parcels approximately equivalent thereto), and that Iles Formation wells shall be drilled and completed only in association with the drilling and completing of wells in the Williams Fork Formation, unless exception is granted by the Commission pursuant to application made for such exception.

8.    On December 28, 2010, EnCana Oil & Gas (USA) Inc. (“EnCana”), by its attorney, filed with the Commission a protest in this matter.

9.    On January 5, 2011, Laramie, by its attorney, requested a continuance of the matter to the February Commission hearing; the matter was continued to the February hearing.

10.  On February 1, 2011, EnCana, by its attorney, filed with the Commission a Withdrawal of Protest due to Laramie’s withdrawal of the Dakota Formation from its Application.

11.  On February 1, 2011, Laramie, 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. In its request, Laramie requested to withdraw the Dakota Formation from its Application. Sworn written testimony and exhibits were submitted in support of the Application.

12.  Testimony and exhibits submitted in support of the Application by Mark Petry, Vice President for Business Development for Laramie, showed that Laramie holds oil and gas leases covering an approximate undivided 93% of the oil and gas mineral interests in all of the Application Lands.

13.  Testimony and exhibits submitted in support of the Application by Joan Tilden, Senior Geoscientist-Project Manager for Laramie, showed that the Williams Fork Formation, Iles Formation, and Mancos Group Formation (which include the Mancos Shale, Niobrara, Frontier and Mowry Formations) underlie and are drilling objectives for wells drilled on the Application Lands.   Additional testimony showed that the Williams Fork Formation consists of sand bodies that are highly discontinuous in nature, and wells drilled on ten acre density will therefore statistically be unlikely to encounter the same sand bodies.  Further testimony stated that data collected for the Mancos Group in offset wells can be used as a geologic analogy for the Application Lands. 

14.  Testimony and exhibits submitted in support of the Application by John Seidel, Reservoir Engineer for Laramie, showed that the Application Lands are bordered by acreage previously approved by the Commission for 10-acre density drilling in the Williams Fork and Iles Formations, and there are no known differences in these formations between the Application Lands and the areas already approved by the Commission for 10-acre density.  Additional testimony showed that nearby Williams Fork Formation wells are draining, on average, approximately 10 acres per well.  These wells are likely to be economic, and drilling at 20-acre density would leave significant undrained areas behind and create waste.  Further testimony stated that wells drilled to the Iles Formation only drain on average 20 acres, and are not likely to be economic.  Therefore, the best way to recover Iles Formation reserves is through joint development with the Williams Fork Formation.  Additional testimony stated that wells drilled into the Mancos Group Formations will drain approximately 9.9 acres, and that drilling at 20-acre density would leave significant undrained areas behind and create waste.  Developing the Williams Fork, Iles, and Mancos Group Formations in common wellbores drilled on 10-acre density is the most efficient and economical way to recover the gas reserves, and would not result in the drilling of unnecessary wells.

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 gas, and will not violate correlative rights.

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

17.  Based on the facts stated in the verified Application, having received no unresolved protests, and based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order to establish an approximate 885.16-acre drilling and spacing unit for certain lands located in Sections 19 and 30, Township 9 South, Range 93 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group and the Mancos, Niobrara, Frontier, Mowry Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 885.16-acre drilling and spacing unit, is hereby established, for the below-described Application Lands, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations of the Mesaverde Group and the Mancos, Niobrara, Frontier, and Mowry Formations (“Amended Deep Formations”):

Township 9 South, Range 93 West, 6^th P.M.

IT IS FURTHER ORDERED, that all future Williams Fork Formation, Iles Formation, and Amended Deep Formations wells to be drilled upon said drilling and spacing unit should be located downhole anywhere in the drilling and spacing unit but no closer than 100 feet from the boundaries of the unit without exception being granted by the Director of the Commission.  It is provided however that in cases where the lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill ten-acre density Williams Fork Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the drilling unit so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

Except as previously authorized by order of the Commission, wells to be drilled under this order should be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter-quarter section (or lots or parcels approximately equivalent thereto), and that Iles Formation wells shall be drilled and completed only in association with the drilling and completing of wells in the Williams Fork Formation, unless exception is granted by the Colorado Oil and Gas Conservation Commission pursuant to application made for such exception.

IT IS FURTHER ORDERED, that 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 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  8^th  day of March, 2011, as of February 22, 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

March 8, 2011