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 AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN GRAND VALLEY FIELD, GARFIELD COUNTY, COLORADO

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CAUSE NO. 510

ORDER NO. 510-55

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on October 21, 2010, West Garfield Campus, Colorado Mountain College, 3695 Airport Road, Rifle, Colorado, for an order to establish an approximate 160-acre exploratory drilling and spacing unit consisting of the W½ E½ of Section 32, Township 7 South, Range 96 West, 6th P.M., for the drilling of a vertical exploratory well to test the Mancos, Niobrara, Frontier, and Dakota/Cedar Mountain Formations ("Deep Formations"), and allow the optional drilling of a horizontal well within the unit into one or more of the Deep Formations, with the vertical well and the lateral of the horizontal well not closer than 600 feet from the boundary of the unit, and the lateral of the horizontal well not closer than 300 feet from the wellbore of the vertical well.

FINDINGS

The Commission finds as follows:

1. Williams Production RMT Company (“Williams” or “Applicant”), 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. The below-listed lands (“Application Lands”) are subject to this Rule for the Deep Formations:

Township 7 South, Range 96 West, 6th P.M.

Section 32: W½ E½

Garfield County, Colorado

5. On August 26, 2010, Williams, by its attorney, filed with the Commission a verified application to establish an approximate 160-acre drilling and spacing unit for the Application Lands, for the drilling of a vertical exploratory well to test the Deep Formations.

Should Applicant determine the vertical well to be successful, Applicant also requests the right to drill a horizontal well within the unit into one or more of the Deep Formations, such horizontal well to either be a recompletion of the vertical well or an entirely new well drilled within the unit.

Applicant asserts that because this is the first well drilled to the Deep Formations on the Application Lands and because very few Deep Formation wells have been drilled in the area of the Application Lands, the requested drilling and spacing unit should be designated an exploratory unit under the provisions of § 34-60-116 of the Colorado Revised Statutes.

Applicant asserts that the vertical well will not be completed down hole within the Deep Formations any closer than 600 feet to the drilling unit boundary. If the vertical well is reentered for the drilling of a horizontal well within one or more of the Deep Formations (or if an additional well is horizontally drilled within one or more of the Deep Formations), no portion of the horizontal lateral shall be completed within 600 feet of the drilling unit boundary. Further, the lateral of any new horizontal well drilled within the Deep Formations shall be drilled no closer than 300 feet from the wellbore of the vertical well drilled to the Deep Formations.

Applicant asserts that the above-proposed spacing unit and drilling of the proposed exploratory well (to include a possible second well to be drilled horizontally) will allow exploration to take place of the Deep Formations, will not promote waste and will not violate correlative rights.

6. On October 7, 2010, Williams, 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. The verified application indicates Williams owns a leasehold interest in the Deep Formations in the Application Lands. Testimony and exhibits submitted in support of the application showed that the Application Lands are currently unspaced as to the Deep Formations and that in order to combine Williams leasehold to facilitate the drilling of a horizontal well, it is appropriate to establish a drilling and spacing unit for the Deep Formations consisting of the Application Lands.

8. Testimony and exhibits submitted in support of the application showed that a new natural gas play is emerging in the Niobrara Formation particularly in the relatively shallow, southwestern portion of the Piceance Basin near the Application Lands. Further testimony indicated that due to the extremely low permeability of the Niobrara reservoir rock, long reach horizontal wells are necessary to achieve high gas production rates and commercial viability. Further testimony indicated that the Niobrara Formation consists primarily of limy shales and a few limestone units and that it also contains organic rich shales that may be the source of the natural gas trapped in the formation.

9. Testimony and exhibits submitted in support of the application showed that a vertical well will be drilled and tested first and, depending upon the results of that well, a horizontal well then will be drilled either by recompleting the initial well or by drilling an entirely new well. The wells will be drilled directionally from an existing well pad. Further testimony indicated that if a new horizontal well were drilled, its lateral leg and terminus would not be closer than 300 feet from the vertical test well.

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

11. Williams 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 an approximate 160-acre exploratory drilling and spacing unit consisting of the W½ E½ of Section 32, Township 7 South, Range 96 West, 6th P.M., for the drilling of a vertical exploratory well to test the Deep Formations, and allow the optional drilling of a horizontal well within the unit into one or more of the Deep Formations, with the vertical well and the lateral of the horizontal well not closer than 600 feet from the boundary of the unit, and the lateral of the horizontal well not closer than 300 feet from the wellbore of the vertical well.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 160-acre drilling and spacing unit, is hereby established, for the below-listed lands, for the drilling of a vertical exploratory well to test the Deep Formations:

Township 7 South, Range 96 West, 6th P.M.

Section 32: W½ E½

Garfield County, Colorado

IT IS FURTHER ORDERED, that should Applicant determine the vertical well to be successful, Applicant has the right to drill a horizontal well within the unit into one or more of the Deep Formations, such horizontal well to either be a recompletion of the vertical well or an entirely new well drilled within the unit.

IT IS FURTHER ORDERED, that because this is the first well drilled to the Deep Formations on the Application Lands and because very few Deep Formation wells have been drilled in the area of the Application Lands, the drilling and spacing unit established by this order is hereby designated an exploratory unit under the provisions of § 34-60-116 of the Colorado Revised Statutes.

IT IS FURTHER ORDERED, that the vertical well will not be completed down hole within the Deep Formations any closer than 600 feet to the drilling unit boundary. If the vertical well is reentered for the drilling of a horizontal well within one or more of the Deep Formations (or if an additional well is horizontally drilled within one or more of the Deep Formations), no portion of the horizontal lateral shall be completed within 600 feet of the drilling unit boundary. Further, the lateral of any new horizontal well drilled within the Deep Formations shall be drilled no closer than 300 feet from the wellbore of the vertical well drilled to the Deep Formations.

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 November 2010, as of October 21, 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

November 22, 2010