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 at 9:00 a.m. on June 1, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver Colorado, for an order to unitize certain portions of the “D” Sand Formation in the Peetz West Field, Logan County, Colorado for an enhanced recovery project.

FINDINGS

                        The Commission finds as follows:

1.      East Cheyenne Gas Storage, LLC (“East Cheyenne”), 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 401. of the Rules and Regulations of the Oil and Gas Conservation Commission, states that prior to performing enhanced recovery operations or carrying on any method of unit operations, written authorization from the Commission must first be obtained.

5.    On March 23, 2010, East Cheyenne Gas Storage, LLC, by its attorney, filed with the Commission a verified application for an order to establish an enhanced recovery unit and approve of enhanced recovery operations for the below-listed lands (the proposed “Peetz West Field D-2 Sand Unit” or “Unit Area”), for the development and operation of the “D” Sand Formation:

Township 11 North, Range 52 West, 6^th P.M.

Township 12 North, Range 52 West, 6^th P.M.

Township 12 North, Range 53 West, 6^th P.M.

East Cheyenne anticipated that, on a tract participation basis, at least 80% of the owners of production, or proceeds therefrom, and at least 80% of those required to pay the costs of unit operation, will approve the D-Sand Unit Agreement and Unit Operating Agreement by the time this matter comes before the Commission for hearing.  East Cheyenne asserted that the proposed plan for enhanced recovery will promote the public interest, foster the responsible development and production of oil and gas, reasonably increase the ultimate net recovery of hydrocarbons from these lands in an economic manner, promote effective and efficient drainage of the affected “D” Sand Formation, protect correlative rights, and prevent waste in a manner consistent with the protection of public health, safety and welfare, including the protection of the environment and wildlife resources.

6.      On May 24, 2010, an administrative hearing was convened wherein sworn testimony and supporting exhibits were presented by East Cheyenne in support of the application.

7.      Testimony and exhibits presented at the administrative hearing demonstrated that the Applicant owns more than 80 percent of the working interest and has proposed the unit, but that 80 percent of the royalty owners have not yet approved the proposed unit.

8.            Testimony and exhibits presented at the administrative hearing also demonstrated that the D-2 Sand Application Lands are suitable for the operations proposed by Applicant and are consistent in size with the extent of contiguous lands in the Peetz West Field.  It is more economic to use the remaining native gas in these formations as cushion gas for the proposed storage project as opposed to undertaking further operations aimed at recovering the remaining native gas.  The proposed unitized D-2 Sand interval was deposited in a general north to south trend as a channel sand in the lower Cretaceous.  The trapping mechanism is a four way closure with approximately 45 feet of closure.  The reservoir size is based on an oil-water contact defined on resistivity from logs.  Mapping of structure is based on tops picked on logs.  Sand maps are based on an affective sand cutoff derived from logs.  The participating area is defined as feet of affective sand above the oil-water contact. 

9.      Testimony and exhibits presented at the administrative hearing also demonstrated that the percentages of participation were established from calculations based on the acre feet of reservoir volume (using the net sand map) within each lease compared to the total reservoir volume.  The proposed enhanced recovery operation is reasonably necessary to increase the ultimate recovery of oil or gas.  This project will be economic based on the value of the estimated additional recovery of the oil or gas exceeds the estimated additional cost incident to conducting such operations. Although it is described as a secondary recovery operation, the operation is mainly a gas storage facility and is under the jurisdiction of the Federal Energy Regulatory Commission.  Injection permits approved by the COGCC will not be necessary.

10.   Testimony and exhibits presented at the administrative hearing also demonstrated that due notice of the time, place and purpose of the application hearing has been given in all respects as required by law.

11.   Testimony and exhibits presented at the administrative hearing demonstrated that the proposed plan for enhanced recovery operations will promote the public interest, foster the responsible development and production of oil and gas, reasonably increase the ultimate net recovery of hydrocarbons from these lands in an economic manner, promote effective and efficient drainage of the “D” Sand Formation, protect correlative rights, and prevent waste in a manner consistent with the protection of public health, safety and welfare, including the protection of the environment and wildlife resources.

12.   The above-referenced testimony and exhibits showed that the proposed drilling and spacing units and well density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights in a manner consistent with the protection of public health, safety and welfare and protection of the environment.

13.   East Cheyenne Gas Storage, LLC, agreed to be bound by an oral order of the Commission.

14.   Based on the facts stated in the verified application, having received no protests, and based on the Hearing Officer having conducted an administrative hearing, it is recommended that the Commission should enter an order to establish an enhanced recovery unit for the Peetz West Field, approve enhanced recovery operations and approve the associated Unit Agreement, for the development of the reservoir consisting of the “D” Sand Formation as an enhanced recovery operations.

ORDER

NOW, THEREFORE IT IS ORDERED, that an order establishing an enhanced recovery unit and enhanced recovery operations is hereby approved for the below-listed lands, for the development and operation of the “D” Sand Formation:

Township 11 North, Range 52 West, 6^th P.M.

Township 12 North, Range 52 West, 6^th P.M.

Township 12 North, Range 53 West, 6^th P.M.

                        IT IS FURTHER ORDERED that the provisions contained in the above order shall become effective, as provided by law, upon further Order of the Commission following a demonstration by East Cheyenne that 80 percent or more of the royalty interest owners have approved and consented to the proposed unit.

                        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 June 2010, as of June 1, 2010.

                                                                                    OIL AND GAS CONSERVATION COMMISSION

                                                                                    OF THE STATE OF COLORADO

                                                                                    By:______________________________________

                                                                                                   Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 29, 2010