BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                                 CAUSE NO. 510

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE RULISON, PARACHUTE AND                           )                                 ORDER NO. 510-14

GRAND VALLEY FIELDS, GARFIELD COUNTY, COLORADO           )                                 CORRECTED

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 9:00 a.m. on March 22, 2005 in Room 201, Las Animas County Courthouse, 200 East First Street, Trinidad, Colorado for an order to establish drilling and spacing units for certain lands and to allow the number of wells for these and other lands 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.

FINDINGS

                        The Commission finds as follows:

                        1. On June 9, 1994, the Commission issued Order No. 510-1, which amended Rule 316. (now Rule 318) to establish new setback rules for production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group for various sections in Townships 6 and 7 South, Ranges 96 and 97 West, 6^th P.M., with the permitted wells to be located no closer than 400 feet from the boundaries of any lease line and no closer than 800 feet from any existing Williams Fork Formation well or wells.

                        2. On December 22, 2004, Williams Production RMT Company ("Williams"), by its attorney, filed with the Commission, a verified application for an order to amend Order No. 510-1 to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation 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 for certain lands in Township 7 South, Range 97 West, 6^th P.M. On January 31, 2005, the application was continued so that an amended application could be filed.

                        3. On February 3, 2005, Williams, by its attorney, filed with the Commission, a verified amended application for an order to establish 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Williams Fork Formation for the below-listed lands and to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation 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:

Section 22: NE¼

Section 23: NE¼, SW¼, SE¼

Section 26: NE¼, NW¼

Section 27: NE¼, SW¼

Section 35: SW¼

                        4. In addition, Williams requests the order amend Order No. 510-1 to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation to the equivalent of one well per 10 acres, with the permitted well to be located downhole anywhere in the lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands that the Commission has not at the time of drilling permit application granted the right to drill 10 acre density wells, in which case wells should be located downhole no closer than 200 feet from the lease line which abuts the lands where 10 acre density has not been ordered by the Commission, for the below-listed lands:

Section 14: SW¼ SE¼

Section 22: SW¼, SE¼

Section 23: NW¼

Section 27: NW¼

Section 34: E½ NE¼

Section 27: E½ SE¼, W½ SE¼

                        6. For all of the application lands described above subject to the establishment of drilling and spacing units, 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. Williams proposes that wells drilled under this Application will 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 Commission pursuant to application made requesting such exception.

                        7. Testimony and exhibits presented at the administrative hearing showed that of the total 2,360 acres of application lands, 2,080 acres are fee minerals and 280 acres are federal minerals. Additional testimony indicated that a total of 32,880 acres of land have been approved by the Commission for 10 acre well density for the Williams Fork Formation of the Mesaverde Group. Further testimony showed that Williams has leased approximately 1,466 acres or sixty-two percent (62%) of the application lands.

                        8. 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. Additional testimony showed that the sand bodies in the Williams Fork Formation are highly discontinuous, with very limited lateral extent and very low permeability. Further testimony showed 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.

                        9. Testimony and exhibits presented at the administrative hearing showed that the average lateral extent of the one hundred thirty seven (137) sand bodies that were measured is approximately six hundred eighty-two (682) feet, and that approximately eighty percent (80%) of the sand bodies measured had a lateral extent of seven hundred (700) feet or less, and that 60% of the sand bodies measured had a lateral extent of five hundred (500) feet or less. Additional testimony indicated that this is very consistent with a theoretical ten (10) acre density lateral extent of six hundred sixty (660) feet.

                        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.

                        11. Testimony and exhibits presented at the administrative hearing showed that wells drilled as close as six hundred sixty (660) feet, which is equivalent to ten (10) acre density, would not penetrate the same sand bodies, even though they would appear to correlate on cross sections.

                        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 showed data that 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 orientation of wells is critical to good gas recovery. Additional testimony showed 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 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.

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

                        17. 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 showed that the estimated incremental recovery with three (3) additional wells on 160 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.

                        18. 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.

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

                        NOW, THEREFORE, IT IS ORDERED, that 160-acre drilling and spacing units are hereby established for the production of gas and associated hydrocarbons from the Williams Fork Formation for the below-listed lands, allowing the number of wells which can be optionally drilled into and produced from the Williams Fork Formation 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:

Section 22: NE¼

Section 23: NE¼, SW¼, SE¼

Section 26: NE¼, NW¼

Section 27: NE¼, SW¼

Section 35: SW¼

                        IT IS FURTHER ORDERED, that 80-acre drilling and spacing units are hereby established for the production of gas and associated hydrocarbons from the Williams Fork Formation for the below-listed lands, allowing the number of wells which can be optionally drilled into and produced from the Williams Fork Formation 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:

Section 27: E½ SE¼, W½ SE¼

                        IT IS FURTHER ORDERED, that for all of the application lands described above, 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.

                        IT IS FURTHER ORDERED, that Order No. 510-1 is hereby amended to allow the number of wells which can be optionally drilled into and produced from the Williams Fork Formation to the equivalent of one well per 10 acres, with the permitted well to be located downhole anywhere in the lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands that the Commission has not at the time of drilling permit application granted the right to drill 10 acre density wells, in which case wells shall be located downhole no closer than 200 feet from the lease line which abuts the lands where 10 acre density has not been ordered by the Commission, for the below-listed lands:

Section 14: SW¼ SE¼

Section 22: SW¼, SE¼

Section 23: NW¼

Section 27: NW¼

Section 34: E½ NE¼

                        IT IS FURTHER ORDERED, that wells drilled in the application lands within a given quarter quarter section shall at a minimum be drilled from the surface either vertically or directionally from one pad located on that quarter quarter section unless exception is granted by the Commission pursuant to application made requesting such exception.

                        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 4th day of April, 2005, as of March 22, 2005.

                        CORRECTED this ________ day of February, 2006, as of March 22, 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, 2006