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 August 18, 2009, at the La Quinta Inn & Suites, 2833 Toupal Drive, Trinidad, Colorado, for an order to establish the North Parachute Ranch Unit under §§ 34-60-118, C.R.S., for certain lands located in Sections 15 through 17, Sections 20 through 22, and Sections 27 through 34, Township 5 South, Range 95 West, 6th P.M., for the development and production of gas and associated hydrocarbons from the Williams Fork Formation.

FINDINGS

The Commission finds as follows:

1.     EnCana Oil & Gas (USA) Inc. (“EnCana”), 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.  On March 22, 2005, the Commission issued Order Nos. 479-15 and 510-13, which among other things, approved the equivalent of one well per 10 acres for the below-listed lands, for the production of gas and associated hydrocarbons from the Williams Fork Formation, with no more than four Williams Fork Formation wells per governmental quarter quarter section and, if topographically feasible, one well pad per quarter quarter section, and any permitted Williams Fork Formation well shall be located no closer than 100 feet from the boundaries of any drilling unit or lease line unless such drilling unit or 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 wells has not been ordered by the Commission:

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

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

5.     On February 9, 2009, amended August 5, 2009, EnCana, by its attorney, filed with the Commission a verified application, pursuant to §34-60-118, C.R.S., for an order to establish the North Parachute Ranch Unit ( the “Unit”) for the below-described lands (which comprise approximately 13,100 total acres), for the purpose of developing and producing gas and associated hydrocarbons from the Williams Fork Formation:

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

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

EnCana further states and alleges in said application that the creation of the Unit would not alter previously established well density or setbacks to the outer boundary of the Unit.  EnCana requests the option of locating bottomhole locations anywhere within the Unit, including the irregular lots and sections, while acting in conformance with the order approving the equivalent of one well per 10 acres well density.  EnCana asserts that the establishment of the Unit will allow EnCana to maximize the recovery of production of gas and associated hydrocarbons from the Williams Fork Formation which would otherwise not be recovered from irregular lots or sections, and will minimize surface disturbances by allowing EnCana to utilize centralized locations where there is challenging topography.

6.     On August 5, 2009, 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 as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the application.

7.     Testimony and exhibits submitted in support of the application showed that EnCana is the majority leasehold owner for the mineral interests underlying the application lands, and that EnCana owns the entirety of the surface rights for the application lands.  Additional testimony showed that EnCana has reached agreement in principle regarding the terms of the Unit Agreement with over 80% of the mineral owners and over 80% of the working interest owners, and that the fully executed Unit Agreement will be submitted for the record as soon as all parties have signed same.

8.     Testimony and exhibits submitted in support of the application showed that the Williams Fork Formation underlying the application lands is characterized by laterally discontinuous and low permeability sands which require fracture stimulation and the drilling on 10-acre well density to economically and efficiently drain the reservoir.

9.     Testimony and exhibits submitted in support of the application showed decline curve analysis for the Williams Fork Formation underlying the application lands yields estimated ultimate recoveries of 0.8 to 1.1 BCF per well based on a 30-year well life, and that original gas-in-place (OGIP) calculations support an average of 160 BCF per section within the unit boundary.  Additional testimony indicated that gas recovery factors for the Williams Fork Formation under the application lands range from 35-45%, and that based on those calculations, the drainage area for a Williams Fork well is less than 10 acres which supports 10-acre well density within the Unit.

10.  The above-referenced testimony and exhibits show that the granting of the application will allow for efficient and economic reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

11.  EnCana Oil & Gas (USA) Inc. 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., the Commission should enter an order to establish the North Parachute Ranch Unit under §§ 34-60-118, C.R.S., for certain lands located in Sections 15 through 17, Sections 20 through 22, and Sections 27 through 34, Township 5 South, Range 95 West, 6^th P.M., for the development and production of gas and associated hydrocarbons from the Williams Fork Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that the North Parachute Ranch Unit (the “Unit”) is hereby established for the below-described lands, for the development and production of gas and associated hydrocarbons from the Williams Fork Formation:

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

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

IT IS FURTHER ORDERED, that the granting of this application and the establishment of the Unit shall not alter previously established well density or setbacks to the outer boundary of the Unit.            

IT IS FURTHER ORDERED, that, consistent with the prevention of waste,  the operator shall have the option of locating bottomhole locations anywhere within the Unit, including anywhere within the irregular lots and sections, while maintaining the equivalent of one well per 10-acres well density, for the production of gas and associated hydrocarbons from the Williams Fork Formation and, if topographically feasible, one well pad per quarter quarter section, and any permitted Williams Fork Formation well shall be located no closer than 100 feet from the boundaries of any drilling unit or lease line unless such drilling unit or 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 wells has not been ordered by the 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 August, 2009, as of August 18, 2009.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

August 27, 2009