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

REPORT OF THE COMMISSION

The Commission heard this matter on October 1, 2012, at the Routt County Justice Center, 1955 Shield Drive, Steamboat Springs, Colorado, upon application for an order establishing well location and setback rules applicable to the drilling and producing of wells for Sections 19, 20 and 23 through 36, Township 4 South, Range 95 West, 6^th P.M., Sections 22 through 28, 33 through 36, Township 4 South, Range 96 West, 6^th P.M., Sections 15 through 17, 19 through 22, and 27 through 34, Township 5 South, Range 95 West, 6^th P.M., Sections 2 through 11, 14 through 18, 21 through 28, and 33 through 36, Township 5 South, Range 96 West, 6^th P.M., and Sections 1 through 4, 9, 10, 15, 16, 21 and 22, Township 6 South, Range 96 West, 6^th P.M., Garfield County, Colorado, for the development and operation of the Iles Formation.

FINDINGS

The Commission finds as follows:

1.         Encana Oil and Gas (USA) Inc. (“Encana” or “Applicant”), 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.  The lands set forth herein , as located in, Sections 19, 20 and 23 through 36, Township 4 South, Range 95 West, 6^th P.M., Sections 22 through 28, 33 through 36, Township 4 South, Range 96 West, 6^th P.M., Sections 15 through 17, 19 through 22, and 27 through 34, Township 5 South, Range 95 West, 6^th P.M., Sections 2 through 11, 14 through 18, 21 through 28, and 33 through 36, Township 5 South, Range 96 West, 6^th P.M., and Sections 4, 9, 10, 15, 16, 21 and 22, Township 6 South, Range 96 West, 6^th P.M. are subject to Rule 318.a. for the Iles Formation.

5.         On April 19, 1990, the Commission issued Order No. 479-2 which, among other things, established two 320-acre drilling and spacing units for Section 1, Township 6 South, Range 96 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from  the Mesaverde Formation (which includes both the Williams Fork and the Iles Formations).

6.         The Application Lands are subject to various prior Commission Orders which ultimately established 10-acre density for the Williams Fork Formation, but not the Iles Formation.  Such Commission Orders governing the overall development of the Williams Fork Formation on the Application Lands with such development resulting in the current 10-acre density are as follows: 479-2, 479-15, 510-1, 510-11, 510-12, 510-13, 510-18, 510-20 510-25, 510-13, 510-34, 510-35, 510-49, and 510-53.  More specifically, Order No. 510-13 established Applicant’s request for 10 acre density drilling for the Williams Fork Formation on a portion of the Application Lands and Order No. 510-49, modified by Order No. 510-53, established Applicant’s North Parachute Ranch Unit which allowed for 10-acre density drilling to the Williams Fork Formations for the remainder of the Application Lands. 

7.         On June 25, 2012 (Amended September 11, 2012), Encana, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified amended application (“Amended Application”) for an order to establish well location and setback rules applicable to the drilling and producing of wells from the Iles Formation covering the below-described lands (“Application Lands”), specifically:

            A.        To allow Iles wells in the Mesaverde Group to be optionally drilled upon the Application Lands on a 10-acre density basis provided no such wells shall be located downhole any closer than 100 feet from the boundary of any established unit or section line unless such boundary abuts or corners lands which the Commission has not, at the time of the drilling permit application, granted the right to drill 10-acre density Iles Formation wells.  In such an event, Iles Formation wells to be drilled upon the given drilling and spacing unit or section shall be drilled downhole no closer than 200 feet from that portion of the unit boundary or section line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Iles Formation wells has not been ordered by the Commission; and

            B.        To allow wells drilled under this Application to 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) unless exception is granted by the Director:

Township 4 South, Range 95 West, 6^th P.M.

Sections 19 and 20:                        All

Sections 23 through 36:     All

Township 4 South, Range 96 West, 6^th P.M.

Sections 22 through 27:     All

Section 28:                            E½

Section 33:                            SE¼, S½ NE¼, NE¼ NE¼  

Section 34 through 36:       All

Township 5 South, Range 95 West, 6^th P.M.

Section 15:                            S½, S½ N½

Section 16:                            All that part lying South of the southernmost Mahogany marker a.k.a. Hoffman No. 36 Placer Mining Claim (S½ N½ of Sec. 16, being a portion thereof) a.k.a. Hoffman No. 35 Placer Mining Claim (N½ S½ of Sec. 16, being a portion thereof) a.k.a. Hoffman No. 34 Placer Mining Claim

Section 17:                            All that part of the N½ S½ lying South of the southernmost Mahogany marker a.k.a Hoffman No. 30 Placer Mining Claim (N½ S½ of Sec. 17), S½S½ a.k.a. Hoffman No. 31 Placer Mining Claim (S½ S½ of Sec. 17)

Sections 19 through 22:     All

Sections 27 through 34:     All

Township 5 South, Range 96 West, 6^th P.M.

Section 2:                              W½, less and except those portions conveyed by Union Oil Company of California to Exxon Corporation by Special Warranty Deed recorded in Book 640, Page 869, Garfield County, Colorado

Sections 3 through 10:       All

Section 11:                            W½, less and except those portions conveyed by Union Oil Company of California to Exxon Corporation by Special Warranty Deed recorded in Book 640, Page 869, Garfield County, Colorado            

Section 14:                            W½, SE¼, W½ NE¼

Sections 15 through 18:     All

Sections 21 through 28:     All

Section 33:                            N½ N½, less and except the West 32 rod of the NW¼ NW¼ containing 16 acres, more or less

Sections 34 through 36:     All

Township 6 South, Range 96 West, 6^th P.M.

Section 1:                              Lots 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14

Section 2:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, S½  

Section 3:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, E ½ SW¼, SE¼  

Section 4:                              Lots 3, 4, 6, 7, 8, 9, 13, 14, and that portion of Lots 1, 5 and the S½ NW¼ lying easterly of the center of Parachute Creek as located on April 18, 1966 and more fully described by metes and bounds in deed recorded in Book 377 at Page 111 of the Garfield County records.

Section 9:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 14, 15, SW¼ NW¼

Section 10:                            Lots 1, 2, 3, 4, E½ W½, NE¼, SE¼  

Section 15:                            W½ E½, SW¼  

Section 16:                            SE¼  

Section 21:                            Lots 6, 7, E½ NW¼, NE¼, N½ SE¼  

Section 22:                            Lots 1, 2, N½, N½ SW¼

8.         On August 14, 2012, the Bureau of Land Management filed a protest to Application.  Such protest was subsequently withdrawn by the Bureau of Land Management on September 11, 2012.   

9.         On September 11, 2012, Encana filed an Amended Application that provided that no more than four Iles Formations wells to be drilled per governmental quarter quarter section of the Application Lands.

10.       On September 13, 2012, Encana withdrew the E½ of Section 20, Township 4 South, Range 95 West, 6^th P.M. from the Application Lands. 

11.       On September 19, 2012, Encana, by its attorneys, 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.

12.       Land Testimony and exhibits submitted in support of the Application by Kirsten Orahood, Land Negotiator for Encana, showed that the majority of the surface ownership is held in fee and that Encana has leasehold ownership interests in the Application Lands. 

13.       Engineering Testimony and exhibits submitted in support of the Application by Theresa M. Wisda, Reservoir Engineer with Encana, show that 10-acre density drilling should be permitted to maximize the ultimate recovery of gas in place in the Iles Formation.  Given the geologic similarity of the Iles formation to the Williams Fork interval (discontinuous sands), the current 40-acre density would leave the hydrocarbons under-developed.  Encana’s exhibits showed that it is economic to incur the incremental costs to drill and complete the Iles interval in a Williams Fork interval 10-acre density well and that aligning the development spacing of the Iles to correspond to the Williams Fork will maximize resource recovery, promote efficient development and minimize economic waste.

14.       Geology Testimony and exhibits submitted in support of the Application by Kyle E. Gorynski, Geoscientist for Encana, show that the Iles Formation underlies the Application Lands.  The Iles Formation, along with the Williams Fork and Ohio Creek Formations, belongs to the Mesaverde Group.  The Mesaverde Group is comprised of Cretaceous-age, fluvial and marine, sandstones and shales.  In the Piceance Basin, the entire Mesaverde section is charged with gas sourced from shales in the underlying Mancos Group, and from interbedded shales and coals throughout the Mesaverde Group.  Gas is produced from tight (0.1 to 0.001md), laterally discontinuous sand bodies.

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

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

17.       Based on the facts stated in the verified Application, having received no protests, and based on the Hearings Officer review of the Application under Rule 511, the Commission should enter an order permitting wells to be optionally drilled upon the Application Lands on a 10-acre density basis provided no such wells shall be located downhole any closer than 100 feet from the boundary of any established unit or section line unless such boundary abuts or corners lands which the Commission has not, at the time of the drilling permit application, granted the right to drill 10-acre density Iles Formation wells.  In such an event, Iles Formation wells to be drilled upon the given drilling and spacing unit or section shall be drilled downhole no closer than 200 feet from that portion of the unit boundary or section line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Iles Formation wells has not been ordered by the Commission; and there shall be no more than four wells per quarter quarter section for the Application Lands.

ORDER

NOW, THEREFORE IT IS ORDERED, that:

Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, that wells to be optionally drilled upon the Application Lands on a 10-acre density basis provided no such wells shall be located downhole any closer than 100 feet from the boundary of any established unit or section line unless such boundary abuts or corners lands which the Commission has not, at the time of the drilling permit application, granted the right to drill 10-acre density Iles Formation wells.  In such an event, Iles Formation wells to be drilled upon the given drilling and spacing unit or section shall be drilled downhole no closer than 200 feet from that portion of the unit boundary or section line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Iles Formation wells has not been ordered by the Commission:

Township 4 South, Range 95 West, 6^th P.M.

Section 19:                           All

Section 20:                           W½ 

Sections 23 through 36:     All

Township 4 South, Range 96 West, 6^th P.M.

Sections 22 through 27:     All

Section 28:                            E½

Section 33:                            SE¼, S½ NE¼, NE¼ NE¼  

Section 34 through 36:       All

Township 5 South, Range 95 West, 6^th P.M.

Section 15:                            S½, S½ N½

Section 16:                            All that part lying South of the southernmost Mahogany marker a.k.a. Hoffman No. 36 Placer Mining Claim (S½ N½ of Sec. 16, being a portion thereof) a.k.a. Hoffman No. 35 Placer Mining Claim (N½ S½ of Sec. 16, being a portion thereof) a.k.a. Hoffman No. 34 Placer Mining Claim

Section 17:                            All that part of the N½ S½ lying South of the southernmost Mahogany marker a.k.a Hoffman No. 30 Placer Mining Claim (N½ S½ of Sec. 17), S½ S½ a.k.a. Hoffman No. 31 Placer Mining Claim (S½ S½ of Sec. 17)

Sections 19 through 22:     All

Sections 27 through 34:     All

Township 5 South, Range 96 West, 6^th P.M.

Section 2:                              W½, less and except those portions conveyed by Union Oil Company of California to Exxon Corporation by Special Warranty Deed recorded in Book 640, Page 869, Garfield County, Colorado

Sections 3 through 10:       All

Section 11:                            W½, less and except those portions conveyed by Union Oil Company of California to Exxon Corporation by Special Warranty Deed recorded in Book 640, Page 869, Garfield County, Colorado            

Section 14:                            W½, SE¼, W½ NE¼

Sections 15 through 18:     All

Sections 21 through 28:     All

Section 33:                            N½ N½, less and except the West 32 rod of the NW¼ NW¼ containing 16 acres, more or less

Sections 34 through 36:     All

Township 6 South, Range 96 West, 6^th P.M.

Section 1:                              Lots 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14

Section 2:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, S½  

Section 3:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, E½ SW¼, SE¼  

Section 4:                              Lots 3, 4, 6, 7, 8, 9, 13, 14, and that portion of Lots 1, 5 and the S½ NW¼  lying easterly of the center of Parachute Creek as located on April 18, 1966 and more fully described by metes and bounds in deed recorded in Book 377 at Page 111 of the Garfield County records.

Section 9:                              Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 14, 15, SW¼ NW¼  

Section 10:                            Lots 1, 2, 3, 4, E½ W½, NE¼, SE¼

Section 15:                            W½ E½, SW¼

Section 16:                            SE¼

Section 21:                            Lots 6, 7, E½ NW¼, NE¼, N½ SE¼  

Section 22:                            Lots 1, 2, N½, N½ SW¼

IT IS FURTHER ORDERED, that there shall be no more than four wells per quarter quarter section on the Application Lands.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.

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 ___day of October, 2012, as of October 1, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary