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

REPORT OF THE COMMISSION

                        The Commission heard this matter on December 12, 2011, at the Weld County Administration Building, 1150 O Street, Greeley, Colorado 80631 upon application for an order to establish an enhanced recovery unit and approve enhanced recovery operations in Sections 25 and 26, Township 3 South, Range 51 West, 6^th P.M., within the Rush Willadel Field in Washington County, Colorado, for the development and operation of the “J” Sand Formation.

FINDINGS

The Commission finds as follows:

1.     Saga Petroleum Corp. (“Saga” 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.     On June 6, 2005, the Commission entered Order No. 526-1, which among other things established 160-acre drilling and spacing units for Section 26, Township 3 South, Range 51 West, 6^th P.M. for production of oil, gas and related hydrocarbons from Cretaceous age formations from the base of the Dakota Formation to the surface.

5.     Rule 401. of the Rules and Regulations of the Oil and Gas Conservation Commission, states that prior to performing enhanced recovery operations or carrying on any method of unit operations, written authorization from the Commission must first be obtained.

6.     On October 13, 2011, Saga, by its attorneys, filed with the Commission a verified application (“Application”) pursuant to Section 34-60-118 C.R.S. and Rule 401 for an order to establish an enhanced recovery unit and approve enhanced recovery operations for the below-listed lands (“Application Lands”), within the Rush Willadel Field in Washington County, Colorado, for the development and operation of the “J” Sand Formation:

Township 3 South, Range 51 West, 6^th P.M.

Section 25:      W½ NW¼

Township 3 South, Range 51 West, 6^th P.M.

Section 26:    All

Saga anticipated that, on a tract participation basis, at least 80% of the owners of production, or proceeds therefrom, and at least 80% of those required to pay the costs of unit operations, will approve the J-Sand Unit Agreement and Unit Operating Agreement by the time this matter comes before the Commission for hearing. 

7.     On November 28, 2011, Saga, 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.

8.     Testimony and exhibits submitted in support of the Application by Robert D. Annear, Manager of Lands and contracts for Saga, showed that the Applicant owns more than 80 percent of the working interest in the proposed unit.  Further testimony showed that each owner of record within the Application Lands and each owner of record of the reservoir involved within ¼ mile of the proposed intake well or wells located within the Application Lands were notified of the Application, and that Applicant has received approval of at least 80 percent of the royalty owners for the proposed unit.

9.     Testimony and exhibits submitted in support of the Application by Peter Mueller, Senior Vice-President for Saga, concluded that the proposed enhanced recovery operation is reasonably necessary to increase the ultimate recovery of oil in the “J” Sand Formation.

10.   Testimony and exhibits submitted in support of the Application by William Gandera, geologic consultant for Saga, shows the “J” Sand Formation is 203’ thick, and that porosities are 25-30 percent with core permeabilities in the field up to 2.6 Darcies.  Testimony further states that the “J” Sand Formation occurs between two impermeable regionally continuous marine shale formations. 

11.  Technical aspects of the proposed enhanced recovery operations were reviewed by the Commission staff underground injection control program supervisor, who had no adverse comments about the Application.

12.   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 hydrocarbons, and will not violate correlative rights.

13.   Saga agreed to be bound by oral order of the Commission. 

14.   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 enhanced recovery unit and approve enhanced recovery operations in Sections 25 and 26, Township 3 South, Range 51 West, 6^th P.M., within the Rush Willadel Field in Washington County, Colorado, for the development and operation of the “J” Sand Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, pursuant to Section 34-60-118 C.R.S. and Rule 401, an enhanced recovery unit is hereby established and enhanced recovery operations are hereby approved, for the below-listed lands within the Rush Willadel Field in Washington County, Colorado, for the development and operation of the “J” Sand Formation:

Township 3 South, Range 51 West, 6^th P.M.

Section 25:      W½ NW¼

Township 3 South, Range 51 West, 6^th P.M.

Section 26:      All

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.

                        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 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   16^th  day of December, 2011, as of December 12, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

December 16, 2011