REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on October 20, 1980 at 9:00 a.m., upon the application of Chemco, Inc., for the designation of the Morrow formation underlying certain lands in Kiowa County, Colorado, as a "Tight Formation" pursuant to Section 107(b) of the Natural Gas Policy Act of 1978 (15 U.S.C. 3317) and the regulations thereunder, and Chemco. having appeared in support of its application, and no one having appeared in opposition, and the Commission having heard the testimony and evidence presented:

The Commission finds as follows:

1. Notice of the time. place and purpose of the hearing has been given as required.

2. The Commission is the jurisdictional agency pursuant to the interim rules in Docket No. RM 79-76 of the Federal Energy Regulatory Commission, and has Jurisdiction over the subject matter of Chemco's application.

3. The area of concern is located in the southwest flank of Las Animas Arch approximately 24-miles north of the town of Lamar in southeastern Colorado. The area consists of the entire township of 18 South, Range 45 West, 6th P.M. (approximately 23,040 acres), of which the entire area is fee land except for approximately 6% State land.

4. The Morrow formation is basically a blanket shale formation in which lenticular or discontinuous sands of various composition and physical characteristics occur. These sandstones vary from 5 feet to 12 feet in thickness, and are the source of gas production. Typically, the sands are composed of quartz, feldspars and lithic fragments; accessory minerals include glauconite and mica. The sands are fine grained, poorly sorted and subangular, calcite cem enting is predominate. Initial porosity is reduced by clay (Kaolinite). Gama-ray logs in the recommended area indicate clay percentages above 40%. "Sweet spots" of clear, fine to medium grained, rounded and well sorted sands occur. These are found infrequently and are unpredictable. The permeabilities vary rapidly; however, the reservoir is generally tight.

5. Engineering testimony presented at the hearing indicates that:

a. The Morrow formation demonstrates low permeability characteristics. The average in-situ gas permeability cannot be reasonably estimated. Wells completed for production from the Morrow generally do not exhibit the ability to flow gas, other than in extremely small quantities, prior to the application of enhanced production techniques. After stimulation the average calculated permeability is 1.5 millidarcies.

b. The stabilized production rate, against atmospheric pressure of wells completed for production in a typical Morrow Sand, at an average depth of 4500 feet, without stimulation, is not expected to exceed a maximum allowable production rate defined by depth in Section 271. 705 (b)(ii) for any completion location in said formation.

c. No well drilled into the recommended area and completed in the Morrow formation is expected to produce, without stimulation, more than five (5) barrels of crude oil per day.

6. Economic evidence presented at the hearing indicates that due to extraordinary risk the price referenced in 271.703 (a) is necessary to provide reasonable incentives for production of gas from the Morrow formation.

7. Typical casing design of wells drilled in the area protects fresh water aquifers in the area as required by the rules and regulations of the Oil and Gas Conservation Commission of the State of Colorado.

8. In view of the above findings, all the criteria required by the Federal Energy Regulatory Commission pursuant to the interim rules in Docket No. RM 79-76 have been met; therefore a recommendation should be made that the Morrow formation, underlying the area below described should each be designated a "Tight Formation"

ORDER

NOW, THEREFORE, IT IS ORDERED, that the Colorado Oil and Gas Conservation Commission recommends that the Morrow formation underlying the following described lands in Kiowa County, Colorado, be designated a "Tight Formation" and be incorporated in the list of "Tight Formations" to be established pursuant to Rule 271.706 of the Federal Energy Regulatory Commission.

Township 18 South, Range 45 West, 6th P.M. Sections 1 thru 36: All

ENTERED this 14th day of January, 1981, as of October 20, 1980.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary