BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                         ) CAUSE NOS. 440, 479 & 510

ESTABLISHMENT OF FIELD RULES TO GOVERN                     )

OPERATIONS IN THE RULISON, PARACHUTE AND                   ) ORDER NOS. 440-28, 479-14, &

GRAND VALLEY FIELDS, GARFIELD COUNTY, COLORADO   ) #9; 510-12

REPORT OF THE COMMISSION

            This cause came on for hearing before the Commission at 9:00 A.m. on February 14, 2005 in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, for an order to amend Cause Nos. 440, 479, and 510 and Rule 318. for certain lands to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group to the equivalent of one well per 10 acres.

FINDINGS

            The Commission finds as follows:

            1. On May 18, 1990, the Commission issued Order No. 440-12, which among other things, established 640-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde Formation for the below-listed lands. Subsequent Order Nos. 440-16 and 440-19 allowed additional wells to be drilled for the production of gas from the Williams Fork Formation of the Mesaverde Group and changed the permitted well location setbacks.

Section 3: NW¼, NE¼ NE¼ (granted 20 acre density under Order No. 440-19)

Section 4: SW¼ NW¼ (granted 40 acre density under Order No. 440-16)

Section 4: N½ N½, S½ NE¼, SE¼ NW¼, NW¼ SE¼ (granted 20 acre density under Order No. 440-19)

            2. On May 18, 1990, the Commission issued Order No. 479-2, which among other things, established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde Formation for the below-listed lands. Subsequent Order Nos. 479-5 and 479-7 allowed additional wells to be drilled for the production of gas from the Williams Fork Formation of the Mesaverde Group and changed the permitted well location setbacks.

Section 12: NE¼ SE¼, SW¼ SE¼ (granted 40 acre density under Order No. 479-5)

Section 13: NE¼, S½ NW¼ (granted 40 acre density under Order No. 479-5)

Section 14: S½ SW¼ (granted 40 acre density under Order No. 479-5)

Section 16: E½ NE¼ (granted 40 acre density under Order No. 479-5)

Section 21: SE¼ NE¼ (granted 40 acre density under Order No. 479-5)

Section 23: N½, NE¼ SW¼ (granted 40 acre density under Order No. 479-5)

Section 27: NW¼ NW¼ (granted 40 acre density under Order No. 479-5)

Section 29: SE¼ NW¼, SW¼ (granted 20 acre density under Order No. 479-7)

Section 32: SE¼ SE¼ (granted 40 acre density under Order No. 440-16)

[Note: By variance granted by the Commission, the NE¼ and SE¼ were each made separate drilling and spacing units.]

Section 35: S½, E½ NE¼, SW¼ NE¼, SE¼ NW¼ (granted 40 acre density under Order No. 440-16)

Section 36: SW¼ SW¼ (granted 40 acre density under Order No. 440-16)

Section 23: N½, SE¼, N½ SW¼, SE¼ SW¼ (granted 40 acre density under Order No. 479-5)

Section 34: NW¼ SW¼ (granted 40 acre density under Order No. 479-5)

Section 34: SW¼ NW¼ (granted 20 acre density under Order No. 479-7)

Section 2: N½ N½, SW¼ NW¼ (granted 40 acre density under Order No. 440-16)

Section 5: NE¼, E½ NW¼, SW¼ NW¼ (granted 40 acre density under Order No. 440-16)

Section 6: SE¼ NE¼ (granted 40 acre density under Order No. 440-16)

[Note: By its Order No. 440-27, the 320-acre drilling and spacing unit was segregated into two 160-acre drilling and spacing units consisting of NE¼ and NW¼ of Section 6]

Section 1: SW¼ SW¼ (granted 40 acre density under Order No. 479-5)

Section 12: E½ SW¼, W½W½

Section 12: E½ NW¼ (granted 20 acre density under Order No. 479-7)

            3. On June 9, 1994, the Commission issued Order No. 510-1, which amended Rule No. 316. (now Rule No. 318.) and established new setback rules for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group for the below-listed lands:

Section 8: S½, SW¼ NE¼ (granted 400/800 feet setbacks under Order No. 510-1)

Section 33: SE¼ NE¼ (granted 400/800 feet setbacks under Order No. 510-1)

Section 2: SE¼ SE¼

Section 11: NE¼ NE¼, E½ SE¼

            4. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing. The below-listed lands are subject to this Rule:

Section 14: S½

            5. On December 22, 2004, Williams Production RMT Company ("Williams"), by its attorney, filed with the Commission, a verified application for an order to amend Cause Nos. 440, 479, and 510 and Rule 318. for the lands described above in Finding Nos. 1 through 4 to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group to the equivalent of one well per 10 acres, with the permitted well to 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 Colorado Oil and Gas Conservation Commission. Where these 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 10-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 Colorado Oil and Gas Conservation Commission.

            6. Testimony and exhibits presented at the administrative hearing showed fee and federal lands previously approved for ten (10) acre density and the application lands proposed for ten (10) acre density, and indicated that of the total 4,680 acres of application lands, 4295 acres are fee minerals and 385 acres are federal minerals.

            7. Testimony and exhibits presented at the administrative hearing showed the many vertically stacked fluvial, meander belt point bar sand bodies present in the Williams Fork Formation in the application area. The Williams Fork Formation, which is approximately 3,500 feet thick in the area, consists of sandstones, shales and coals which were deposited in a non-marine, meandering stream environment, and that that the sand bodies in the Williams Fork Formation are highly discontinuous, with very limited lateral extent and very low permeability. Additional testimony indicated that the sands that are completed for gas production are in the gas saturated interval, and that they must be fracture stimulated in order to produce gas.

            8. Testimony and exhibits presented at the administrative hearing showed the Rollins Formation at the base of the Williams Fork Formation, and indicated numerous examples of the highly discontinuous fluvial Williams Fork Formation sand lenses.

            10. Testimony and exhibits presented at the administrative hearing showed that many of the meander belt point bar sand bodies are not correlatable between existing wells with setbacks as close as four hundred forty-nine (449) feet. Additional testimony indicated that wells drilled under setbacks equivalent to ten (10) acre density would 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.

            12. Testimony and exhibits presented at the administrative hearing showed a summary of the tests performed during the ten (10) acre pilot project, including two hundred nineteen (219) pressure tests, fourteen (14) microseismic monitored hydraulic fractures, four (4) production logs, seven (7) repeat formation tests, and four (4) formation micro imager logs.

            13. 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.

            14. Testimony and exhibits presented at the administrative hearing showed that one (1) well in each pilot project area was on a direct orientation with a parent well, and each of these two (2) wells were poor performers and measured significant depletion. All other ten (10) acre wells performed at field average, showing that orientation of wells is critical to good gas recovery. Additional testimony indicated 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 pressure testing summaries for twenty (20) acre density and ten (10) acre density wells in the ten (10) acre pilot areas in the Grand Valley and Rulison Fields. The data showed that in the Grand Valley Field eighty-eight percent (88%) of the pressure tests showed no depletion and twelve percent (12%) of the pressure tests showed partial depletion, after subtracting the pressure test data from the well that showed significant depletion due to being on fracture orientation with a parent well. The data also showed that in the Rulison Field ninety-four percent (94%) of the pressure tests showed no depletion and six percent (6%) of the pressure tests showed partial depletion, after subtracting the pressure test data from the well that showed significant depletion due to being on fracture orientation with a parent well.

            16. Testimony and exhibits presented at the administrative hearing indicated that a minimal amount of depletion was measured in the ten (10) acre density pilot areas, the only depletion was when wells were on exact fracture orientation with old parent wells, that pressure tests confirm the geologic model, and that even with some pressure reduction, ten (10) acre wells will still produce significant incremental gas reserves at economic rates.

            17. Testimony and exhibits presented at the administrative hearing showed that the gas production is incremental, not accelerated.

            18. Testimony and exhibits presented at the administrative hearing showed that Williams estimates the original gas in place as twenty-eight (28) BCF per one hundred sixty (160) acres in the Grand Valley Field, and thirty-eight and three tenths (38.3) BCF per one hundred sixty (160) acres in the Rulison Field. Additional testimony indicated that the estimated incremental recovery with three (3) additional wells on 40-acres is twenty-two and three tenths (22.3) BCF in the Grand Valley Field and thirty-one and five tenths (31.5) BCF in the Rulison Field, for an average ultimate recovery of eighty-one percent (81%). Further testimony indicated that drilling additional wells is economic for Williams.

            19. The above-referenced testimony and exhibits show that 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.

            20. 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.

            21. Williams Production RMT Company agrees to be bound by oral order of the Commission.

            22. Based on the facts stated in the verified application, having received no protests to the application and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group to the equivalent of one well per 10 acres for the lands described above in Findings No. 1 through 4, with the permitted well to be located downhole anywhere in the drilling and spacing unit but no closer than 100 feet from the boundaries of the unit, with the permitted well to 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 Colorado Oil and Gas Conservation Commission. Where these 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 10-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 Colorado Oil and Gas Conservation Commission.

            NOW, THEREFORE, IT IS ORDERED, that the number of wells which can be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group to the equivalent of one well per 10 acres for the below-listed lands:

Section 12: NE¼ SE¼, SW¼ SE¼

Section 13: NE¼, S½ NW¼

Section 14: S½ SW¼

Section 16: E½ NE¼

Section 21: SE¼ NE¼

Section 23: N½, NE¼ SW¼

Section 27: NW¼ NW¼

Section 29: SE¼ NW¼, SW¼

Section 32: SE¼ SE¼

Section 35: S½, E½ NE¼, SW¼ NE¼, SE¼ NW¼

Section 36: SW¼ SW¼

Section 8: S½, SW¼ NE¼

Section 14: S½

Section 23: N½, SE¼, N½ SW¼, SE¼ SW¼

Section 33: SE¼ NE¼

Section 34: NW¼ SW¼ , SW¼ NW¼

Section 2: N½ N½, SW¼ NW¼

Section 3: NW¼, NE¼ NE¼

Section 4: SW¼ NW¼, N½ N½, S½ NE¼, SE¼ NW¼, NW¼ SE¼

Section 5: NE¼, E½ NW¼, SW¼ NW¼

Section 6: SE¼ NE¼

Section 1: SW¼ SW¼

Section 2: SE¼ SE¼

Section 11: NE¼ NE¼, E½ SE¼

Section 12: E½ SW¼, W½W½, E½ NW¼

            IT IS FURTHER ORDERED, that the permitted well 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 Colorado the Oil and Gas Conservation Commission. Where these 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 10-acre density Williams Fork Formation wells, the well shall 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 Colorado Oil and Gas Conservation 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, 2005, as of February 14, 2005.

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 28, 2005