BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                     CAUSE NOS. 139 and 440

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE PARACHUTE FIELD,                                          )                     ORDER NOS. 139-72 and 440-42

GARFIELD COUNTY, COLORADO                                                          )

                        This cause came on for hearing before the Commission at 9:00 a.m. on February 12, 2007, in the Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to vacate the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. and establish eight (8) 40-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Williams Fork Formation, allowing the option of up to two (2) wells per unit, with the permitted well to be located no closer than two hundred (200) feet from the unit boundary, and no closer than four hundred (400) feet from any existing Williams Fork Formation well without exception being granted by the Director of the Oil and Gas Conservation Commission.

                        The Commission finds as follows:

                        1. PetroHunter Energy Corporation ("PetroHunter"), 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 April 20, 1990, the Commission entered Order No. 440-12, which among other things, established 320-acre drilling and spacing units for the production of gas and hydrocarbons from the Mesaverde Formation for certain lands including the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M.

                        5. On July 30, 1997, the Commission issued Order Nos. 139-31 and 440-18, which among other things, allowed the optional drilling of up to eight (8) wells per 320-acre drilling and spacing unit, for the production of gas and associated hydrocarbons from the Williams Fork Formation for certain lands including the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M.

                        6. On April 24, 2006, the Commission issued Order No. 440-32, which among other things, allowed the drilling of one (1) well per twenty (20) acres per 320-acre drilling and spacing unit for the production of gas and associated hydrocarbons from the Williams Fork Formation for certain lands including the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M.

                        7. On December 19, 2006, PetroHunter, by its attorney, filed with the Commission a verified application for an order to vacate the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. established in Order No. 440-12, and to establish eight (8) 40-acre drilling and spacing units in the W½ of said Section 15 with the permitted wells being located in accordance with Order No. 440-32. The Commission has already approved 20-acre well density for these lands, so decreasing the size of the drilling and spacing units will not adversely affect correlative rights.

                        8. On January 30, 2007, PetroHunter, 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.

                        9. Testimony and exhibits submitted in support of the application indicated that the owners within the existing drilling and spacing unit to be affected by the application were sent copies of the application on December 19, 2006, by United States mail, postage prepaid.

                        10. Testimony and exhibits submitted in support of the application indicated that PetroHunter owns 100% of the leasehold interest in the NE¼ SW¼ of Section 15, Township 7 South, Range 95 West, 6^th P.M.

                        11. Testimony and exhibits submitted in support of the application indicated that EnCana Oil & Gas (USA) Inc. is the only owner, as defined by Commission rules, of the remaining portions of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. A letter dated January 29, 2007, from Mark Brown, Land Negotiator, at EnCana Oil & Gas (USA) Inc. demonstrated that EnCana Oil & Gas (USA) Inc. does not oppose the relief requested in this application.

                        12. Testimony and exhibits submitted in support of the application indicated that Mr. David Furr is the surface owner of the application lands in the NE¼ SW¼ of Section 15, Township 7 South, Range 95 West, 6^th P.M. Additional testimony and exhibits submitted demonstrated that Mr. Furr has signed a lease that addresses surface access and use of the lands in W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M.

                        13. Testimony and exhibits submitted in support of the application, as well as previous Commission Orders, indicate that the lands in Section 15, Township 7 South, Range 95 West, 6^th P.M. are located on a southern extension of the Parachute Field. The Williams Fork Formation sands are surrounded by impermeable shales, and, as previously determined by the Commission, increased well density is needed to recover gas reserves from these discontinuous stacked sands.

                        14. Testimony and exhibits submitted in support of the application, as well as previous Commission Orders, indicated that production from said wells and other geologic information demonstrate that wells drilled just 142 feet apart have different thickness of sands. Due to the difficulty in predicting reservoir thickness on the application lands, absent drilling on the equivalent basis of one well per 20 acres (and even more wells per acre may be justified), some sands will be missed and gas in place not produced.

                        15. Testimony and exhibits submitted in support of the application indicated that production volumes on the wells drilled north of the application lands range from 2.1 BCF from wells to the northwest of the application lands to 0.5 BCF from wells to the south of the application lands. Using this and other data to forecast projected production from the application lands, it is apparent wells drilled on the application lands will be economic.

                        16. The Commission has already approved 20-acre density drilling in the application lands and therefore decreasing the size of drilling units will not impair or affect the correlative rights of other owners within the existing drilling and spacing unit. PetroHunter is not requesting a modification of the density, setback, or surface use restrictions established in Order No. 440-32.

                        17. The above-referenced testimony and exhibits, and especially the previous findings of the Commission in Order No. 440-32, demonstrate that 20-acre downhole density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

                        18. Testimony and exhibits submitted in support of the application demonstrated that modifying the drilling and spacing unit for the Williams Fork Formation in the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. from 320 acres per well to eight (8) separate 40-acre drilling and spacing units would increase estimated ultimate recovery from the Williams Fork Formation by providing the owners with increased efficiency because the smaller spacing units also more effectively allocate production from the Williams Fork Formation to the lands being drained by each well with the result that the owners of the mineral interests more properly receive royalties only from the wells located on the lands covered by the proposed 40-acre drilling and spacing units effectively being developed by the well pair allowed under Order No. 440-32.

                        19. PetroHunter Energy Corporation agreed to be bound by an oral order of the Commission.

                        20. 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.b., the Commission should enter an order to vacate the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. and establish eight (8) 40-acre drilling and spacing units, for the production of gas and associated hydrocarbons from the Williams Fork Formation, allowing the option of up to two (2) wells per unit, with the permitted well to be located no closer than 200 feet from the unit boundary, and no closer than 400 feet from any existing Williams Fork Formation well without exception being granted by the Director of the Oil and Gas Conservation Commission.

                        NOW, THEREFORE IT IS ORDERED, that the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Rage 95 West, 6^th P.M. established for the production of gas and associated hydrocarbons from the Williams Fork Formation is hereby vacated and eight (8) 40-acre drilling and spacing units are hereby established in the W½ of Section 15, Township 7 South, Rage 95 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, allowing the option of up to two (2) wells per unit.

                        IT IS FURTHER ORDERED, that the permitted well shall be located no closer than 200 feet from the unit boundary, and no closer than 400 feet from any existing Williams Fork Formation well without exception being granted by the Director of the Oil and Gas Conservation Commission.

                        IT IS FURTHER ORDERED, that wells drilled on the application lands shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Director of the Oil and Gas Conversation Commission.

                        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 thirty (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 ______ day of February, 2007, as of February 12, 2007.

OIL AND GAS CONSERVATION COMMISSION

            OF THE STATE OF COLORADO

 

By:______________________________________

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 20, 2007