IN THE MATTER THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE RULISON, PARACHUTE, AND GRAND VALLEY FIELDS, GARFIELD COUNTY, COLORADO Cause No. 440, 139, 510, 479 Order No. 139-40, 440-25, 479-12, 510-9

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 10:00 a.m. on August 18, 2003, in Petroleum Hall in the Green Center, Colorado School of Mines, 1500 Illinois Street, Golden, Colorado, on the amended application of Williams Production RMT Company for an order to increase the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group which constitute existing drilling units (or portion s thereof) to the equivalent of one Williams Fork Formation well per 10 acres for certain lands.

FINDINGS

The Commission finds as follows:

1. Williams Production RMT Company ("Williams") 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 and the terms of the Memorandum of Understanding ("MOU") between the Commission and the Bureau of Land Management ("BLM").

4. On March 8, 1990, the Commission issued Order No. 139-14 establishing 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the upper portion of the Mesaverde Formation and the lower portion of the Mesaverde Formation including the Cameo, Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons underlying the below-listed lands:

Township 6 South, Range 93 West, 6th P.M. Sections 5 through 8: All Sections 17 through 20: All

Township 6 South, Range 94 West, 6th P.M. Sections 1 though 3: All Sections 8 through 24: All Sections 27 through 33: All

5. On March 9, 1990, the Commission issued Order No. 440-11, which among other things, established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the upper portion of the Mesaverde Formation and the lower portion of the Mesaverde Formation including the Cameo, Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons underlying the below-listed lands:

Township 6 South, Range 95 West, 6th P.M. Sections 7 through 20: All Sections 22 through 28: All Sections 31 through 36: All

Township 7 South, Range 95 West, 6th P.M. Sections 5 and 6: All

6. On June 9, 1994, the Commission issued Order No. 510-1 which amended the Commission's Rule 316 (now Rule 318) to provide that permitted wells be located no closer than 400 feet from the boundaries of any lease line and no closer than 800 feet from any existing well drilled into and producing from the Williams Fork Formation of the Mesaverde Group for the below-listed lands:

Township 6 South, Range 96 West, 6th P.M. Section 19: N1/2, SE1/4 Section 20: W1/2 SW1/4 Section 29: NW1/4 NW1/4, N1/2 SW1/4, SW1/4 SW1/4 Section 30: NE1/4 Section 32: NW1/4 NW1/4, S1/2 S1/2 Section 33: S1/2 SW1/2

Township 7 South, Range 96 West, 6th P.M. Section 3: S1/2, NW1/4 Section 4: S1/2, NW1/4, S1/2 NE1/4, NW1/4 NE1/4 Section 5: SE1/4 Section 8: E1/2 Section 9: N1/2 Section 10: N1/2, SE1/4 Section 11: W1/2, W1/2 E1/2, SE1/4 NE1/4 Section 14: NE1/4, W1/2, NW1/4 SE1/4 Section 15: S1/2, NE1/4

7. On March 15, 1995 (corrected February 17, 2000), the Commission issued Order Nos. 440-16, 479-5 and 139-28 allowing up to eight (8) wells to be drilled into and produced from the existing 320-acre drilling and spacing units from the Williams Fork Formation of the Mesaverde Group for the below-listed lands:

Township 6 South, Range 94 West, 6th P.M. Section 2: S1/2 SW1/4, NE1/4 SW1/4, SW1/4 SE1/4 Section 3: S1/2 S1/2, NE1/4 SE1/4, NW1/4 SW1/4 Section 9: All Section 10: N1/2, SW1/4, S1/2 SE1/4 Section 11: E1/2, N1/2 NW1/4, SW1/4 SW1/4 Section 12: W1/2 W1/2, SE1/4 NW1/4 Section 13: N1/2 NW1/4 Section 16: S1/2 SW1/4 Section 17: SE1/4 SE1/4 Section 20: S1/2, NE1/4 NE1/4, S1/2 NE1/4 Section 26: NW1/4, N1/2 SW1/4 Section 27: N1/2, N1/2 S1/2, SE1/4 SE1/4 Section 28: NE1/4, N1/2 SE1/4, W1/2 W1/2 Section 31: N1/2, SW1/4, N1/2 SE1/4, SW1/4 SE1/4 Section 32: NW1/4, N1/2 NE1/4, SW1/4 NE1/4

Township 7 South, Range 95 West, 6th P.M. Section 6: NW1/4 NW1/4

8. On March 15, 1995 (corrected February 17, 2000), the Commission issued Order Nos. 479-5, 440-16 and 139-28 allowing up to four (4) wells to be drilled into and produced from the existing 160-acre drilling and spacing units from the Williams Fork Formation of the Mesaverde Group for the below-listed lands:

Township 6 South, Range 96 West, 6th P.M. Section 36: N1/2

9. On May 2, 2001, the Commission issued Order Nos. 139-35, 440-20, 479-8 and 510-5 which allowed additional wells to be drilled for the production of gas and associated hydrocarbons in certain lands from the Williams Fork Formation of the Mesaverde Group on the basis of one well per 20 acres; provided that as to the lands which constitute an existing drilling and spacing unit, the permitted well shall be located no closer than 200 feet fro m the boundaries of a drilling unit and no closer than 400 feet from any existing Williams Fork Formation well or wells; provided that in cases where the lands constituted only a portion of an existing drilling and spacing unit that each Williams Fork well shall be located no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the application lands and no closer than 400 feet from any existing Wil liams Fork well; and provided that, as to those lands which are no part of an existing drilling and spacing unit, the permitted well shall be no closer than 200 feet from the boundaries of any lease line and no closer than 400 feet from an existing Williams Fork well, including the below listed lands:

Township 6 South, Range 94 West, 6th P.M. Section 2: S1/2 SW1/4, NE1/4 SW1/4, SW1/4 SE1/4 Section 3: S1/2 S1/2, NE1/4 SE1/4, NW1/4 SW1/4 Section 7: SE1/4 Section 8: S1/2 Section 9: All Section 10: N1/2, SW1/4, S1/2 SE1/4 Section 11: E1/2, N1/2 NW1/4, SW1/4 SW1/4 Section 12: W1/2 W1/2, SE1/4 NW1/4 Section 13: N1/2 NW1/4 Section 16: W1/2 NW1/4 Section 17: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 18: W1/2, NE1/4, NE1/4 SE1/4 Section 19: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 20: E1/2 NW1/4 Section 21: N1/2 NW1/4

Township 6 South, Range 95 West, 6th P.M. Section 16: S1/2 SW1/4 Section 17: SE1/4 SE1/4 Section 20: S1/2, NE1/4 NE1/4, S1/2 NE1/4 Section 21: All Section 26: NW1/4, N1/2 SW1/4 Section 27: N1/2, N1/2 S1/2, SE1/4 SE1/4 Section 28: NE1/4, N1/2 SE1/4, W1/2 W1/2 Section 29: All Section 30: S1/2, NE1/4, S1/2 NW1/4 Section 31: N1/2, SW1/4, N1/2 SE1/4, SW1/4 SE1/4 Section 32: NW1/4, N1/2 NE1/4, SW1/4 NE1/4 Section 33: NW1/4 NW1/4, SE1/4 NW1/4

Township 6 South, Range 96 West, 6th P.M. Section 19: N1/2, SE1/4 Section 20: W1/2 SW1/4 Section 24: SE1/4 Section 25: All Section 26: SE1/4, S1/2 NE1/4, S1/2 NW1/4, NE1/4 NW1/4, SE1/4 SW1/4 Section 27: SE1/4 SE1/4 Section 29: NW1/4 NW1/4, N1/2 SW1/4, SW1/4 SW1/4 Section 30: NE1/4 Section 32: NW1/4 NW1/4, S1/2 S1/2 Section 33: S1/2 SW1/4 Section 34: S1/2 NE1/4, NE1/4 NE1/4 Section 35: N1/2, N1/2 S1/2, SE1/4 SW1/4, SW1/4 SE1/4 Section 36: N1/2, E1/2 SE1/4

Township 7 South, Range 95 West, 6th P.M. Section 6: NW1/4 NW1/4

Township 7 South, Range 96 West, 6th P.M. Section 1: NE1/4 NE1/4 Section 3: S1/2, NW1/4 Section 4: S1/2, NW1/4, S1/2 NE1/4 Section 5: SE1/4 Section 8: E1/2 Section 9: N1/2 Section 10: N1/2, SE1/4 Section 11: W1/2, W1/2 E1/2, SE1/4 NE1/4 Section 14: NE1/4, W1/2, NW1/4 SE1/4 Section 15: S1/2, NE1/4

10. On July 2, 2003, Williams Production RMT Company ("Williams"), by its attorney, filed with the Commission a verified application requesting an order to increase the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group which constitute existing drilling units (or portions thereof) to the equivalent of one Williams Fork Formation well per 10 acres for the lands described below ("Application Lands"). The surface estate and the oil and gas mineral estate of the Application Lands are owned by the United States of America. Williams requested that wells 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. For lands that the Commission has not at the time of the drilling permit application granted the right to drill 10 acre density, 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. Williams also requested that as to those Application Lands which are unspaced, all future Williams Fork Formation wells should be located downhole anywhere upon the Application Lands but no closer than 100 feet from the boundar ies of any lease line unless such lease line abuts or corners lands in respect of which the Commission has no at the time of a drilling application granted the right to drill 10 acre density wills in which event the wells should be drilled downhole no closer than 200 feet form the lease line which so abuts or corners the lands in respect of which 10 acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission. I t is not intended by the application to drill more than four (4) Williams Fork Formation wells per quarter quarter section.

Township 6 South, Range 94 West, 6th P.M. Section 2: S1/2 SW1/4, NE1/4 SW1/4, SW1/4 SE1/4 Section 3: S1/2 S1/2, NE1/4 SE1/4, NW1/4 SW1/4 Section 7: SE1/4 Section 8: S1/2 Section 9: All Section 10: N1/2, SW1/4, S1/2 SE1/4 Section 11: E1/2, N1/2 NW1/4, SW1/4 SW1/4 Section 12: W1/2 W1/2, SE1/4 NW1/4 Section 13: N1/2 NW1/4 Section 16: W1/2 NW1/4 Section 17: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 18: W1/2, NE1/4, NE1/4 SE1/4 Section 19: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 20: E1/2 NW1/4, N1/2 NE1/4 Section 21: N1/2 NW1/4

Township 6 South, Range 95 West, 6th P.M. Section 16: S1/2 SW1/4 Section 17: SE1/4 SE1/4 Section 20: S1/2, NE1/4 NE1/4, S1/2 NE1/4 Section 21: All Section 26: NW1/4, N1/2 SW1/4 Section 27: N1/2, N1/2 S1/2, SE1/4 SE1/4 Section 28: NE1/4, N1/2 SE1/4, W1/2 W1/2 Section 29: All Section 30: S1/2, NE1/4, S1/2 NW1/4 Section 31: N1/2, SW1/4, N1/2 SE1/4, SW1/4 SE1/4 Section 32: NW1/4, N1/2 NE1/4, SW1/4 NE1/4 Section 33: NW1/4 NW1/4, SE1/4 NW1/4

Township 6 South, Range 96 West, 6th P.M. Section 19: N1/2, SE1/4 Section 20: W1/2 SW1/4 Section 24: SE1/4 Section 25: All Section 26: SE1/4, S1/2 NE1/4, S1/2 NW1/4, NE1/4 NW1/4, SE1/4 SW1/4 Section 27: SE1/4 SE1/4 Section 29: NW1/4 NW1/4, N1/2 SW1/4, SW1/4 SW1/4 Section 30: NE1/4 Section 32: NW1/4 NW1/4, S1/2 S1/2 Section 33: S1/2 SW1/4 Section 34: S1/2 NE1/4, NE1/4 NE1/4 Section 35: N1/2, N1/2 S1/2, SE1/4 SW1/4, SW1/4 SE1/4 Section 36: N1/2, E1/2 SE1/4

Township 7 South, Range 95 West, 6th P.M. Section 6: NW1/4 NW1/4

Township 7 South, Range 96 West, 6th P.M. Section 1: NE1/4 NE1/4 Section 3: S1/2, NW1/4 Section 4: S1/2, NW1/4, S1/2 NE1/4, NW1/4 NE1/4 Section 5: SE1/4 Section 8: E1/2 Section 9: N1/2 Section 10: N1/2, SE1/4 Section 11: W1/2, W1/2 E1/2, SE1/4 NE1/4 Section 14: NE1/4, W1/2, NW1/4 SE1/4 Section 15: S1/2, NE1/4

11. Testimony and exhibits presented at the administrative hearing showed that the United States of America owns 100% of the surface estate and the mineral estate within the application lands, and that Williams owns a leasehold interest in the application lands. The application lands consist of approximately sixteen thousand (16,000) acres. Additional testimony showed the location of the two (2) previously approved one hundred and sixty ( 160) acre ten (10) acre density pilot lands in the Grand Valley and Rulison Fields. Further testimony showed that all application lands had been previously approved for 20 acre density drilling and production from the Williams Fork Formation of the Mesaverde Group with the exception of one 40 acre parcel in the Grand Valley Field and one 80 acre parcel in the Rulison Field.

12. Testimony and exhibits presented at the administrative hearing showed the geologic development in the area, and that the Williams Fork Formation consists of many vertically stacked, fluvial, and meander belt point bar sand bodies that are discontinuous and compartmentalized across the Application Lands. Additional testimony indicated that wells drilled under setbacks equivalent to ten (10) acre density intersect very few, if any, of the same sand bodies, and that only gas from the sand bodies that are intersected by a well is produced into the well. Further testimony indicated that even under ten (10) acre density there are many partially drained and undrained gas reservoirs left in place.

13. Testimony and exhibits presented at the administrative hearing utilized findings from the Multiwell Experiment project which described the abundant natural fracture systems in the Williams Fork Formation and showed that these systems do not communicate vertically. Williams Fork Formation point bar sand bodies are naturally isolated from each other, and drainage from a well is limited to the aerial extent of the point bar sand bodies. A dditional testimony indicated that waste will occur if ten (10) acre density is not approved for the Application Lands.

14. Testimony and exhibits presented at the administrative hearing confirmed that both hydraulic and natural fracture orientations are approximately the same, which are generally in an east-west orientation in both the Grand Valley and the Rulison Fields. Additional testimony indicated that knowledge of the fracture orientation is critical to planning bottom hole locations of wells for optimum reservoir drainage. Further testimony indicat ed that the flexibility in the well setbacks being requested in the application would allow the wells to be drilled taking into account the fracture orientation in the application lands.

15. Testimony and exhibits presented at the administrative hearing showed that in general, the ten (10) acre density wells performed as well as the forty (40) acre density wells and the twenty (20) acre density wells.

16. Testimony and exhibits presented at the administrative hearing indicated that the gas in place is one hundred five (105) BCF per 640-acres for the Grand Valley Field, one hundred twenty (120) BCF per 640-acres for the Parachute Field, and one hundred thirty-five (135) BCF per 640-acres for the Rulison Field. Additional testimony indicated an average recovery on ten (10) acre well density of seventy-nine percent (79%) in the Grand Valley Fiel d, eighty percent (80%) in the Parachute Field, and seventy-eight percent (78%) in the Rulison Field.

17. Testimony and exhibits presented at the administrative hearing showed that drilling ten (10) acre density wells in the application area will yield an economic rate of return acceptable to Williams, and that the ten (10) acre density wells would produce economically recoverable gas that would otherwise not be produced.

18. The proposed density will allow more efficient drainage, will prevent waste, will not violate correlative rights and will assure a greater ultimate recovery of gas and associated hydrocarbons.

19. Williams commits that wells to be drilled in the application lands within a given quarter quarter section will be drilled from the surface either vertically or directionally from one pad located on that quarter quarter section.

20. No protests to the application have been filed with the Commission or the Applicant.

21. A letter was received by the Colorado Oil and Gas Conservation Commission staff from the Grand Valley Citizens Alliance dated August 4, 2003 referencing the provision in the application in which Williams commits that wells to be drilled in the application lands within a given quarter quarter section will be drilled from the surface either vertically or directionally from one pad located on that quarter quarter section unless exception i s granted by the Director of the Colorado Oil and Gas Conservation Commission. The Grand Valley Citizens Alliance letter requested that no exceptions to the one pad per quarter quarter section drilling pattern be granted. Williams has agreed to remove the provision for the exception granted by the Director from the application.

22. At the time of the administrative hearing, Williams agreed to be bound by oral order of the Commission.

23. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommends approval, the Commission should enter an order to allow additional wells to be optionally drilled for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group, the equivalent of one (1) well per 10 acres for the application lands described above in Finding No. 10. Wells 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. For lands that the Commission has not at the time of the drilling permit application granted the right to drill 10 acre density, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the drilling unit so abutting or cornering s uch lands without exception being granted by the Director. Williams also requested that as to those Application Lands which are unspaced, all future Williams Fork Formation wells should be located downhole anywhere upon the Application Lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands in respect of which the Commission has no at the time of a drilling application granted the right to dri ll 10 acre density wills in which event the wells should be drilled downhole no closer than 200 feet form the lease line which so abuts or corners the lands in respect of which 10 acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Cause Nos. 139, 440, 479 and 510 are hereby amended to allow additional wells to be drilled for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group, the equivalent of one (1) well per 10 acres for the application lands described below:

Township 6 South, Range 94 West, 6th P.M. Section 2: S1/2 SW1/4, NE1/4 SW1/4, SW1/4 SE1/4 Section 3: S1/2 S1/2, NE1/4 SE1/4, NW1/4 SW1/4 Section 7: SE1/4 Section 8: S1/2 Section 9: All Section 10: N1/2, SW1/4, S1/2 SE1/4 Section 11: E1/2, N1/2 NW1/4, SW1/4 SW1/4 Section 12: W1/2 W1/2, SE1/4 NW1/4 Section 13: N1/2 NW1/4 Section 16: W1/2 NW1/4 Section 17: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 18: W1/2, NE1/4, NE1/4 SE1/4 Section 19: N1/2, SE1/4, N1/2 SW1/4, SE1/4 SW1/4 Section 20: E1/2 NW1/4, N1/2 NE1/4 Section 21: N1/2 NW1/4

Township 6 South, Range 95 West, 6th P.M. Section 16: S1/2 SW1/4 Section 17: SE1/4 SE1/4 Section 20: S1/2, NE1/4 NE1/4, S1/2 NE1/4 Section 21: All Section 26: NW1/4, N1/2 SW1/4 Section 27: N1/2, N1/2 S1/2, SE1/4 SE1/4 Section 28: NE1/4, N1/2 SE1/4, W1/2 W1/2 Section 29: All Section 30: S1/2, NE1/4, S1/2 NW1/4 Section 31: N1/2, SW1/4, N1/2 SE1/4, SW1/4 SE1/4 Section 32: NW1/4, N1/2 NE1/4, SW1/4 NE1/4 Section 33: NW1/4 NW1/4, SE1/4 NW1/4

Township 6 South, Range 96 West, 6th P.M. Section 19: N1/2, SE1/4 Section 20: W1/2 SW1/4 Section 24: SE1/4 Section 25: All Section 26: SE1/4, S1/2 NE1/4, S1/2 NW1/4, NE1/4 NW1/4, SE1/4 SW1/4 Section 27: SE1/4 SE1/4 Section 29: NW1/4 NW1/4, N1/2 SW1/4, SW1/4 SW1/4 Section 30: NE1/4 Section 32: NW1/4 NW1/4, S1/2 S1/2 Section 33: S1/2 SW1/4 Section 34: S1/2 NE1/4, NE1/4 NE1/4 Section 35: N1/2, N1/2 S1/2, SE1/4 SW1/4, SW1/4 SE1/4 Section 36: N1/2, E1/2 SE1/4

Township 7 South, Range 95 West, 6th P.M. Section 6: NW1/4 NW1/4

Township 7 South, Range 96 West, 6th P.M. Section 1: NE1/4 NE1/4 Section 3: S1/2, NW1/4 Section 4: S1/2, NW1/4, S1/2 NE1/4, NW1/4 NE1/4 Section 5: SE1/4 Section 8: E1/2 Section 9: N1/2 Section 10: N1/2, SE1/4 Section 11: W1/2, W1/2 E1/2, SE1/4 NE1/4 Section 14: NE1/4, W1/2, NW1/4 SE1/4 Section 15: S1/2, NE1/4

IT IS FURTHER ORDERED, that the permitted downhole location for each new Williams Fork Formation well drilled upon the application lands shall 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. For lands that the Commission has not at the time of the drilling permit application granted the right to drill 10 acre density, t he 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.

IT IS FURTHER ORDERED, that the permitted downhole location for each new Williams Fork Formation well drilled upon application lands which are unspaced shall be located anywhere upon the Application Lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands in respect of which the Commission has not at the time of a drilling application granted the right to drill 10-acre density well s in which event the wells should be drilled downhole no closer than 200 feet from the lease line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission.

IT IS FURTHER ORDERED, that wells drilled in the application lands within a given quarter quarter section shall be drilled from the surface either vertically or directionally from one pad located on that quarter quarter section.

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.

ENTERED this day of September, 2003, as of August 18, 2003.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dated at Suite 801 Patricia C. Beaver, Secretary 1120 Lincoln Street Denver, Colorado 80203 September 2, 2003

7 (139#40)

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