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 September 25, 2009, in the South Conference Room, Pagosa Springs Community Center, Pagosa Springs, Colorado, for an order to establish an approximate 40-acre drilling and spacing unit for the NE¼ SE¼ of Section 3, Township 8 South, Range 96 West, 6^th P.M., and allow the equivalent of one well per 10 acres density for said unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1.     Laramie Energy II, LLC (“Laramie”), 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.  Section 3, Township 8 South, Range 96 West, 6^th P.M. is subject to this Rule for the Williams Fork and Iles Formations.

5.     On July 30, 2009, Laramie, by its attorney, filed with the Commission a verified application to establish an approximate 40-acre drilling and spacing unit for the NE¼ SE¼ of Section 3, Township 8 South, Range 96 West, 6^th P.M., and allow the equivalent of one well per 10 acres density for said unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

That all future Williams Fork Formation and Iles Formation wells to be drilled upon the application lands should be located downhole anywhere within a given drilling unit but no closer than 100 feet from the boundary or boundaries of the unit without exception being granted by the Director of the Oil and Gas Conservation Commission.  It is provided, however, that in cases where a drilling and spacing unit of the application lands abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill ten-acre density Williams Fork Formation and Iles Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the unit so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

That, except as previously authorized by order of the Commission, wells to be drilled under this application should 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 of the Oil and Gas Conservation Commission pursuant to application made for such exception.

6.     On September 10, 2009, Laramie, 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 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 the lands in the vicinity of the application lands have been approved for 10 acre well density for the Williams Fork and Iles Formations.

8.     Testimony and exhibits submitted in support of the application indicated that the geologic model of the Williams Fork Formation in the major producing areas of the Piceance Basin is well understood and consists of extensive log, completion, and reservoir engineering data from wells inside current 10-acre density areas and the extremely useful and representative nearby outcrops of producing rocks.  Additional testimony indicated that based upon outcrop studies, the majority of the discontinuous sand bodies within the Williams Fork Formation are smaller than the distance between wells drilled on a 10-acre density basis.  Further testimony indicated that the productive sandstones throughout the Williams Fork Formation contain microdarcy permeability and average 6 - 10% porosity, and that 10-acre density drilling is necessary to develop the Williams Fork Formation underlying the application lands.  Testimony indicated that the depositional environment of the Iles Formation is similar to that of the Williams Fork Formation and that it is gas bearing underlying the application lands.

9.     Testimony and exhibits submitted in support of the application showed that based on gas-in-place calculations, a typical Williams Fork Formation well in the vicinity of the application lands will drain approximately 10 acres, and achieve an estimated ultimate recovery of approximately 539 MMCF gas.  Additional testimony indicated that, in the vicinity of the application lands, an Iles Formation well will drain approximately 13 acres and recover an estimated 151 MMCF gas, however, stand-alone Iles Formation wells cannot be economically developed, but can be developed economically if drilled together with the Williams Fork Formation.

10.   The above-referenced testimony and exhibits showed that the proposed spacing and 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.   Laramie Energy II, LLC 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 to establish an approximate 40-acre drilling and spacing unit for the NE¼ SE¼ of Section 3, Township 8 South, Range 96 West, 6^th P.M., and approve the equivalent of one well per 10 acres density for said unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 40-acre drilling and spacing unit is hereby established for the NE¼ SE¼ of Section 3, Township 8 South, Range 96 West, 6^th P.M., and the equivalent of one well per 10 acres density is hereby approved for said unit, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

IT IS FURTHER ORDERED, that all future Williams Fork Formation and Iles Formation wells to be drilled upon the application lands shall be located downhole anywhere within a given drilling unit but no closer than 100 feet from the boundary or boundaries of the unit without exception being granted by the Director of the Oil and Gas Conservation Commission.  It is provided, however, that in cases where a drilling and spacing unit of the application lands abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill ten-acre density Williams Fork Formation and Iles Formation wells, the well shall be located downhole no closer than 200 feet from the boundary or boundaries of the unit so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

IT IS FURTHER ORDERED, that all wells drilled to the Iles Formation shall be drilled only in connection with the drilling of Williams Fork Formation wells.

IT IS FURTHER ORDERED, that, except as previously authorized by order of the Commission, wells to be drilled under this application shall 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 of the Oil and Gas Conservation Commission pursuant to application made for 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__________day of October, 2009, as of September 25, 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

October 5, 2009