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

REPORT OF THE COMMISSION

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to: 1) amend Order No. 535-45 to authorize up to four wells within each unit for Sections 16 and 19, Township 10 North, Range 68 West, 6^th P.M.; and 2) establish two approximate 640-acre and four approximate 1280-acre drilling and spacing units for Sections 5, 9, 15, 16, 20, 21, 22, 28, 29 and 33, Township 11 North, Range 68 West, 6^th P.M., and authorize up to four horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Marathon Oil Company (“Marathon” 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 27, 2011, the Commission entered Order No. 535-45 which, among other things: 1) established eight approximate 640-acre drilling and spacing units, and authorized one horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation; and 2) required the completed interval of any horizontal well to be no closer than 600 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal well to be no closer than 150 feet from the wellbore of any existing or permitted oil and gas well. Sections 16 and 19, Township 10 North, Range 68 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5.         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. Sections 5, 9, 15, 16, 20, 21, 22, 28, 29 and 33, Township 11 North, Range 68 West, 6^th P.M. are subject to Rule 318.a.

6.         On March 30, 2012, Marathon, by its attorneys, filed with the Commission a verified application (“Application”) for an order to: 1) amend Order No. 535-45 to authorize up to four wells within each unit for the below-described lands (“Prior DSU”) for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 600 feet from the boundaries of each unit, without exception being granted by the Director:

Township 10 North, Range 68 West, 6^th P.M.

Section 16:      ALL                  (Prior DSU #1 – 640-acres)

Section 19:      ALL                  (Prior DSU #2 – 640-acres);

and 2) establish two approximate 640-acre and four approximate 1280-acre drilling and spacing units for the below-described lands, and authorize up to four horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 600 feet from the boundaries of each unit, without exception being granted by the Director:

Township 11 North, Range 68 West, 6^th P.M.
Section 5:        ALL                  (DSU #1 – 640-acres)
Section 33:      ALL                  (DSU #2 – 640-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 9:        ALL                 

Section 16:      ALL                  (DSU #3 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 15:      ALL                 

Section 22:      ALL                  (DSU #4 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 21:      ALL                 

Section 28:      ALL                  (DSU #5 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 20:      ALL                 

Section 29:      ALL                  (DSU #6 – 1280-acres)

Applicant requested to locate the surface location anywhere on the Application lands.

                        7.         On May 9, 2012, Marathon, by its attorneys, withdrew the below-described lands from the Application:

                                    Township 11 North, Range 68 West, 6^th P.M.
                                    Section 5:        ALL                  (DSU #1 – 640-acres)

The two Prior DSU’s and five remaining DSU’s described above, are collectively referred to as the Application Lands.

8.         On May 15, 2012, Marathon, by its attorneys, 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.

9.         Land testimony and exhibits submitted in support of the Application by Tricia Clarke, Land Professional for Marathon, showed that the Applicant has either partially or fully leased the mineral interests in each section of the Application Lands, the Application Lands are either State of Colorado or private fee leases, and that interested parties received notice of the Application at least 30 days prior to the May 29, 2012 hearing.

10.       Geologic testimony and exhibits submitted in support of the Application by Matthew Humphreys, Advanced Senior Geologist for Marathon, showed that the Niobrara Formation underlies most of the DJ Basin in eastern Colorado, southeastern Wyoming, and western Nebraska.  An isopach map of the Niobrara Formation showed total thickness of the Niobrara Formation ranges from 260 to 320 feet in the Application Lands.  A type log for the Niobrara Formation showed that it consists of two members, the Smoky Hill Chalk and the Fort Hayes Limestone.  A stratigraphic cross-section of the Application Lands showed the Niobrara Formation to be consistent, continuous, and underlying all of the Application Lands as a common source of supply.

11.       Engineering testimony and exhibits submitted in support of the Application by Tara Watson, Reservoir Engineer for Marathon, showed analysis of a number of wells within the Application Lands demonstrated a range estimated ultimate recovery ("EUR") values from 40 to 472 MBO; a range of original oil-in-place ("OOIP"), from 794 to 9,446 MBO; and a drainage area ranging from 46 to 534-acres, with an average of 177-acres. The Silo field, north of the Application Lands in southern Wyoming, is a major field producing from the Niobrara Formation.   EUR and drainage estimates (which vary from 29 to 507-acres for horizontal wells) for the Silo field were included in Applicant's engineering analysis.  Additional testimony indicated granting the proposed spacing application will result in efficient and economic development of Application Lands.  

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.       Marathon 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: 1) amend Order No. 535-45 to authorize up to four wells within each unit for Sections 16 and 19, Township 10 North, Range 68 West, 6^th P.M.; and 2) establish an approximate 640-acre and four approximate 1280-acre drilling and spacing units for Sections 9, 15, 16, 20, 21, 22, 28, 29 and 33, Township 11 North, Range 68 West, 6^th P.M., and authorize up to four horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that Order No. 535-45, is hereby amended, to authorize up to four wells within each unit for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 600 feet from the boundaries of each unit, without exception being granted by the Director:

Township 10 North, Range 68 West, 6^th P.M.

Section 16:      ALL                  (Prior DSU #1 – 640-acres)

Section 19:      ALL                  (Prior DSU #2 – 640-acres)

IT IS FURTHER ORDERED, that an approximate 640-acre and four approximate 1280-acre drilling and spacing units for the below-described lands, are hereby established, and up to four horizontal wells within each unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of any horizontal well to be no closer than 600 feet from the boundaries of each unit, without exception being granted by the Director:

Township 11 North, Range 68 West, 6^th P.M.
Section 33:      ALL                  (DSU #2 – 640-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 9:        ALL                 

Section 16:      ALL                  (DSU #3 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 15:      ALL                 

Section 22:      ALL                  (DSU #4 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 21:      ALL                 

Section 28:      ALL                  (DSU #5 – 1280-acres)

Township 11 North, Range 68 West, 6^th P.M.

Section 20:      ALL                 

Section 29:      ALL                  (DSU #6 – 1280-acres)

IT IS FURTHER ORDERED, that the surface location may be located anywhere on the Application lands, consistent with existing Rules and Orders of the Commission, without exception being granted by the Director.

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   4^th  day of June, 2012, as of May 29, 2012.

                                                                        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

June 4, 2012