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 PEDRO FIELD, MONTEZUMA COUNTY, COLORADO

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CAUSE NO. 533

ORDER NO. 533-1

CORRECTED

This cause came on for hearing before the Commission at 9:00 a.m. on March 30, 2009 in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish approximate 1,280-acre drilling and spacing units for certain lands located in Township 38 North, Range 16 West, N.M.P.M., allowing up to eight horizontal wells to be drilled on each of the proposed units, for the production of gas and associated hydrocarbons from the Gothic Shale Formation.

1. Bill Barrett Corporation (“BBC”), 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 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 are subject to this Rule:

Section 3: Lots 1 (40.32 acres), 2 (40.61), 3 (40.70), and 4 (40.79), S½ N½ and S½

Section 6: Lots 1 (39.72), 2 (39.80), 3 (39.88), 4 (35.62), 5 (35.78), 6 (35.90), and 7 (36.03), S½ NE¼, SE¼ NW¼, E½ SW¼, and SE¼

Section 18: Lots 1 (37.21), 2 (37.47), 3 (37.73), and 4 (37.99), E½ W½ and E½

Section 19: Lots 1 (38.18), 2 (38.31), 3 (38.44), and 4 (38.57), E½ W½ and E½

Section 30: Lots 1 (38.76), 2 (39.00), 3 (39.24), and 4 (39.48), E½ W½ and E½

Section 31: Lots 1 (39.42), 2 (39.06), 3 (38.70), and 4 (38.34), E½ W½ and E½

5. On February 9, 2009, BBC, by its attorney, filed with the Commission a verified application for an order to establish approximate 1,280-acre drilling and spacing units for the below-listed lands, allowing up to eight wells to be drilled on each of the proposed units, for the production of gas and associated hydrocarbons from the Gothic Shale Formation:

Section 3: Lots 1 (40.32 acres), 2 (40.61), 3 (40.70), and 4 (40.79), S½ N½ and S½

Section 6: Lots 1 (39.72), 2 (39.80), 3 (39.88), 4 (35.62), 5 (35.78), 6 (35.90), and 7 (36.03), S½ NE¼, SE¼ NW¼, E/½ SW¼, and SE¼

Section 18: Lots 1 (37.21), 2 (37.47), 3 (37.73), and 4 (37.99), E½ W½ and E½

Section 19: Lots 1 (38.18), 2 (38.31), 3 (38.44), and 4 (38.57), E½ W½ and E½

Section 30: Lots 1 (38.76), 2 (39.00), 3 (39.24), and 4 (39.48), E½ W½ and E½

Section 31: Lots 1 (39.42), 2 (39.06), 3 (38.70), and 4 (38.34), E½ W½ and E½

That as to each horizontal well within a given approximate 1,280-acre drilling and spacing unit, the surface location for the well may be located anywhere upon the drilling unit (or adjoining lands to the unit) provided that the horizontal leg into the Gothic Shale Formation shall not be closer than 460 feet to the outside boundary of the drilling unit and the terminus of the horizontal leg shall not be any closer than 460 feet to the outside boundary of the drilling unit without exception being granted by the Director of the Oil and Gas Conservation Commission.

That as to the horizontal wells to be drilled into and produced from a given approximate 1,280 acre drilling and spacing unit, such wells will be drilled from no more than 8 pads located on the surface of such unit or adjoining lands to the unit. It is provided, however, that BBC, in circumstances where topographic and surface owner approval conditions permit, will undertake reasonable efforts to utilize even fewer pads by locating its pads near the center of a given drilling and spacing unit.

6. On March 18, 2009, an administrative hearing was convened wherein sworn testimony and supporting exhibits were presented by BBC in support of the application.

7. Testimony and exhibits presented at the administrative hearing showed that BBC is the majority leasehold owner for the application lands. Additional testimony showed that, in most circumstances, county roads are located sections and that BBC will attempt to locate drilling pads close to those county roads which would have the effect of limiting surface usage to approximately 2% per section.

8. Testimony and exhibits presented at the administrative hearing showed that the development of shale gas resources is an entirely new source of natural gas in the United States made feasible by new applications of horizontal drilling and completion technology. Additional testimony showed that typically shale gas accumulations are very large and continuous over extended areas, and that the reservoirs exhibit lower porosities and microdarcy permeabilities with generally low water saturations and the gas storage occurring as either free gas in the rock pores and as adsorbed gas on the surface of organic matter. Further testimony indicated that the Gothic Shale Formation underlying the application lands is at its thickest and represents a large developable gas resource, and is bounded and sealed by the Lower Ismay Formation above, and the Desert Creek Formation below. Testimony showed that BBC has undertaken an exploratory program to determine the development potential of the Gothic Shale Formation by drilling ten wells, six wells with horizontal wellbores, of which four wells are completed and two wells are waiting on completion.

9. Testimony and exhibits presented at the administrative hearing showed a simulation model, based on field and laboratory tests, production data, and the geological model, was prepared to predict performance of the typical Gothic Shale Formation well, which predicted an initial gas rate of 2,600 MCF per day with decline curve analysis yielding approximately a 2.7 BCF ultimate recovery after a predicted 50-year economic life. Additional testimony, based on the simulation model, showed that there would be no pressure depletion beyond the boundaries of the 1,280 acre drilling and spacing unit with up to eight horizontal wells drilled thereon, which would result in no violation of correlative rights through the life expectancy of the well. Further testimony indicated that, based upon current drilling and completion costs, estimated operating expenses, expected pricing, and the simulated production forecast, the drilling and producing of horizontal Gothic Shale Formation wells would be a viable economic venture on the application lands.

10. Testimony and exhibits presented at the administrative hearing indicated that the Gothic Shale Formation well design and completion is a continually evolving process which includes protection of all known aquifers, some of which lie 1,500 feet below the surface, with two strings of steel casing, both of which are cemented from setting depth to surface, and that BBC would try to limit the number of drilling pads to less than four per section as surface usage agreements and topography allow.

11. Testimony and exhibits presented at the administrative hearing showed that numerous outreach activities had been undertaken by BBC in Montezuma County over the past several years and prior to any drilling activity by BBC.

12. That during the course of the administrative hearing, BBC, through its attorney, requested that the Hearing Officer take administrative notice of the testimony and exhibits provided by BBC in support of its application resulting in Order No. 389-5, and upon finding that said application is relevant to the pending application, the Hearing Officer did take administrative notice of the testimony and exhibits provided by BBC in support of its application resulting in Order No. 389-5.

13. The above-referenced testimony and exhibits show that the proposed spacing and proposed well density will allow for efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

14. Bill Barrett Corporation agreed to be bound by oral order of the Commission.

15. Based on the facts stated in the verified application, having received no protests, and based on the Hearing Officer having conducted an administrative hearing, the Commission should enter an order to establish approximate 1280-acre drilling and spacing units for certain lands in Township 38 North, Range 16 West, N.M.P.M., and allow up to eight horizontal wells in each unit, for the production of gas and associated hydrocarbons from the Gothic Shale Formation, with the permitted well to be located no closer than 460 feet to the outside boundary of the unit.

NOW, THEREFORE IT IS ORDERED, that approximate 1,280-acre drilling and spacing units are hereby established, for the below-listed lands, allowing up to eight (8) horizontal wells to be drilled on each of the proposed units, for the production of gas and associated hydrocarbons from the Gothic Shale Formation:

Section 3: Lots 1 (40.32 acres), 2 (40.61), 3 (40.70), and 4 (40.79), S½ N½ and S½

Section 6: Lots 1 (39.72), 2 (39.80), 3 (39.88), 4 (35.62), 5 (35.78), 6 (35.90), and 7 (36.03), S½ NE¼, SE¼ NW¼, E/½ SW¼, and SE¼

Section 18: Lots 1 (37.21), 2 (37.47), 3 (37.73), and 4 (37.99), E½ W½ and E½

Section 19: Lots 1 (38.18), 2 (38.31), 3 (38.44), and 4 (38.57), E½ W½ and E½

Section 30: Lots 1 (38.76), 2 (39.00), 3 (39.24), and 4 (39.48), E½ W½ and E½

Section 31: Lots 1 (39.42), 2 (39.06), 3 (38.70), and 4 (38.34), E½ W½ and E½

IT IS FURTHER ORDERED, that as to each horizontal well within a given approximate 1,280-acre drilling and spacing unit, the surface location for the well shall be located anywhere upon the drilling unit (or adjoining lands to the unit) provided that the horizontal leg into the Gothic Shale Formation shall not be closer than 460 feet to the outside boundary of the drilling unit and the terminus of the horizontal leg shall not be any closer than 460 feet to the outside boundary of the drilling unit without exception being granted by the Director of the Oil and Gas Conservation Commission.

IT IS FURTHER ORDERED, that as to the horizontal wells to be drilled into and produced from a given approximate 1,280 acre drilling and spacing unit, such wells shall be drilled from no more than eight pads located on the surface of such unit or adjoining lands to the unit. It is provided, however, that BBC, in circumstances where topographic and surface owner approval conditions permit, will undertake reasonable efforts to utilize even fewer pads by locating its pads near the center of a given drilling and spacing unit.

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.

1. Bill Barrett Corporation (“BBC”), 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.

6. On March 18, 2009, an administrative hearing was convened wherein sworn testimony and supporting exhibits were presented by BBC in support of the application.