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

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

IN THE MATTER OF THE PROMULGATION ) CAUSE NO. 510

AND ESTABLISHMENT OF FIELD RULES TO )

GOVERN OPERATIONS IN THE GRAND VALLEY ) ORDER NO. 510-43

FIELD, GARFIELD COUNTY, COLORADO )

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:00 a.m. on July 15, 2008, in Ballroom B of the Brown Palace Hotel, 321 Seventeenth Street, Denver, Colorado, for an order to allow the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary for certain lands in Township 7 South, Range 97 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1. Orion Energy Partners, L.P. (“Orion”), 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. Certain lands in Township 7 North, Range 97 West, 6^th P.M. are subject to this Rule.

5. On May 23, 2008, Orion, by its attorney, filed with the Commission a verified application for an order to allow the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary for the below-listed lands, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations:

Township 7 South, Range 97 West, 6^th P.M.

Sections 3 and 4: Lots 8 (23.49 acres) and 9 (23.41 acres) of Section 3; Sub-tracts A (40.24 acres) and B (40.00 acres) of Tract 74; Tract 76 (158.48 acres); Sub-Tracts A (10.00 acres), D (10.00 acres), E (10.00 acres) and G (40.00 acres) of Tract 77; Tract 78 (155.60 acres); Sub-tracts A (40.00 acres), B (40.00 acres), C (40.00 acres), and D (10.00 acres) of Tract 79; That portion of Tract 80 lying in Section 4 (20.00 acres); That portion of tract 81 lying in Section 4 (20.00 acres)

Section 5: Resurvey Tract 38 (159.99 acres)

Section 8: The West 20 acres of Resurvey Tract 39 less and except a 1.26 acre tract, Resurvey Tract 40 (160.00 acres), Resurvey Tract 41(40.00 acres)

Sections 8 and 9: Resurvey Tract 42 (120.00 acres)

Resurvey Tract 48: Portions of Section 17 (160.00 acres)

Resurvey Tract 49: Portions of Sections 17 through 20 (160.00 acres)

All future Williams Fork Formation and Iles Formation wells should be located downhole anywhere upon the application lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density wells in which event the wells should be drilled downhole no closer than 200 feet from the lease line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Williams Fork Formation and Iles Formation wells has not been ordered by the Commission. Orion does not intend by this application to drill more than the equivalent of one Williams Fork Formation and Iles Formation well downhole per 10 acres and no more than one (1) surface pad shall be located on an approximate 40-acre tract, lot or parcel.

6. On July 2, 2008, Orion, 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.

7. Testimony and exhibits submitted in support of the application showed that Orion is the majority Williams Fork and Iles Formations leasehold owner in the application lands, and, that with respect to the portion of the application lands owned by Chevron, Orion has written authority to include such acreage in this application. Additional testimony showed that lands surrounding the application lands have been approved for 10-acre well density.

8. Testimony and exhibits submitted in support of the application showed that the Williams Fork and Iles Formations are members of the Mesaverde Group and are common sources of supply, but due to the heterogeneity of the formations and the frequency of different sand body widths, increased density is necessary to efficiently and economically recover the reserves while protecting correlative rights.

9. Testimony and exhibits submitted in support of the application showed that increasing density from 20-acre to 10-acre development increases the recovery factor for the Williams Fork Formation to nearly 80% of the 1.5 BCF original gas-in-place. Additional testimony indicated that while a stand alone Iles Formation well would not be drilled, it is an engineering and economically viable formation when developed in conjunction with the Williams Fork Formation. Further testimony showed that one well per 10 acres will recover incremental reserves, preventing waste, while having no adverse affect on correlative rights.

10. The above-referenced testimony and exhibits show that the proposed increased 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.

11. Orion Energy Partners, L.P. agreed to be bound by oral order of the Commission.

12. 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 allow the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary for certain lands in Township 7 South, Range 97 West, 6th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the equivalent of one well per 10 acres is hereby approved, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, with the permitted well to be located no closer than 100 feet from the outside boundary for the below-listed lands:

Township 7 South, Range 97 West, 6^th P.M.

Section 5: Resurvey Tract 38 (159.99 acres)

Section 8: The West 20 acres of Resurvey Tract 39 less and except a 1.26 acre tract, Resurvey Tract 40 (160.00 acres), Resurvey Tract 41(40.00 acres)

Sections 8 and 9: Resurvey Tract 42 (120.00 acres)

Resurvey Tract 48: Portions of Section 17 (160.00 acres)

Resurvey Tract 49: Portions of Sections 17 through 20 (160.00 acres)

IT IS FURTHER ORDERED, that all future Williams Fork Formation and Iles Formation wells shall be located downhole anywhere upon the application lands but no closer than 100 feet from the boundaries of any lease line unless such lease line abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density wells in which event the wells shall be drilled downhole no closer than 200 feet from the lease line which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Williams Fork Formation and Iles Formation wells has not been ordered by the Commission.

IT IS FURTHER ORDERED, that wells to be drilled under this application shall be drilled from the surface either vertically or directionally from no more than one well pad located on an approximate 40-acre tract, lot or parcel unless exception is granted by the Director of 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 July, 2008, as of July 15, 2008.

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

July 22, 2008