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 THE SULPHUR CREEK FIELD,

RIO BLANCO COUNTY, COLORADO

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CAUSE NO. 527

ORDER NO. 527-8

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on October 21, 2010, at West Garfield Campus, Colorado Mountain College, 3695 Airport Road, Rifle, Colorado, for an order to pool all nonconsenting interests in the proposed approximate 160-acre drilling and spacing unit consisting of the NE¼ of Section 16, Township 3 South, Range 97 West, 6th P.M., for the development and operation of gas and associated hydrocarbons from the Williams Fork and Iles Formations (including the Sego member of the Iles Formation).

FINDINGS

The Commission finds as follows:

1. Williams Production RMT Company (“Williams”), 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 NE¼ of Section 16, Township 3 South, Range 97 West, 6^th P.M., is subject to this Rule for the Williams Fork and Iles Formations.

5. On January 11, 2010, the Commission issued Order No. 527-6, which among other things, approved the equivalent of one well per 10 acres for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations (including the Sego member of the Iles Formation). The NE¼ of Section 16, Township 3 South, Range 97 West, 6^th P.M., is subject to this order.

6. On July 26, 2010, Williams, by its attorney, filed with the Commission a verified application for an order to establish a 160-acre drilling and spacing unit consisting of the following lands (“Application Lands”):

Township 3 South, Range 97 West, 6^th P.M.

Section 16: NE ¼

and continue to allow the equivalent of one well per 10 acres, for the production of gas and associated hydrocarbons from the Williams and Iles Formations (including the Sego member of the Iles Formation).

7. On July 26, 2010, Williams, by its attorney, contemporaneously, with this above described application for the establishment of a 160-acre drilling and spacing unit, filed with the Commission a verified application for an order to pool all nonconsenting interests in the proposed approximate 160-acre drilling and spacing unit consisting of the Application Lands for the development and operation of gas and associated hydrocarbons from the Williams Fork and Iles Formations (including the Sego member of the Iles Formation).

8. Due to email malfunctions, notice of the above-described application was either not sent by the Commission or not received by the newspaper in the county where the application lands are located. Therefore, notice of the application was not timely published for the September hearing of the Commission; and the application was continued to the October hearing in order to publish the notice of application as required by the Oil and Gas Conservation Act and to set a new protest date.

9. On September 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.

10. Testimony and exhibits submitted in support of the application showed that Williams owns a leasehold interest in the Application Lands.

11. Additional testimony and exhibits submitted in support of the application indicated that Williams has drilled two wells on the Application Lands, the Federal RG 531-16-397 Well (API No. 05-103-11518, spud July 8, 2010) and the Federal RG 41-16-397 Well (API No. 05-103-11517, spud July 25, 2010).

12. Further testimony and exhibits submitted in support of the application indicated that on February 2, 2010, Williams sent a draft operating agreement to OXY USA WTP, L.P. (“OXY”) and Vantage Energy Piceance, L.L.C. (“Vantage”), the two other working interest owners in the Application Lands, and that neither of them executed the agreement or requested any changes or modifications to the agreement.

13. Further testimony and exhibits submitted in support of the application indicated that on June 23, 2010, Williams sent Authorizations for Expenditure (“AFEs”) to OXY and Vantage indicating their respective shares of the approximate cost of drilling the Federal RG 531-16-397 Well and the Federal RG 41-16-397 Well and that neither party responded to the AFEs.

14. The above-referenced testimony and exhibits show that Williams has complied with the requirements of Rule 530.

15. Williams agreed to be bound by oral order of the Commission.

16. 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 pool all nonconsenting interests in the proposed approximate 160-acre drilling and spacing unit consisting of the NE¼ of Section 16, Township 3 South, Range 97 West, 6th P.M., for the development and operation of gas and associated hydrocarbons from the Williams Fork and Iles Formations (including the Sego member of the Iles Formation).

ORDER

NOW, THEREFORE IT IS ORDERED, that

1. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, the nonconsenting interests in the established 160-acre drilling and spacing unit, described below, are hereby pooled, for the development and operation of the Williams Fork and Iles Formations (including the Sego member of the Iles Formation):

Township 3 South, Range 97 West, 6^th P.M.

Section 16: NE¼

2. The production obtained from the drilling and spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within the drilling and spacing unit; each owner of an interest in the drilling and spacing unit shall be entitled to receive its share of the production of the well located on the drilling and spacing unit applicable to its interest in the drilling and spacing unit.

3. The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the well(s) (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the drilling and spacing unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

4. The unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

5. Each nonconsenting unleased owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S. as amended. After recovery of such costs, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the well(s), surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the well(s) as if it had originally agreed to the drilling.

6. The operator of the wells drilled on the above-described drilling and spacing unit shall furnish the nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7. Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended. Any conflict that may arise shall be resolved in favor of the statute.

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 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