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 IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO	) ) ) )	CAUSE NO.   112 ORDER NO.   112-169

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 22, 2003 at 10:00 a.m. in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado on the application of Red Willow Production Company for an order amending Order Nos. 112-60 and 112-61 to allow two (2) wells to be drilled in certain 320-acre drilling and spacing units, for the production of gas and associated hydrocarbons from the Fruitland Coal Seams.

FINDINGS

            The Commission finds as follows:

1.   Southern Ute Tribe, d/b/a Red Willow Production Company (“Red Willow”), 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 and the terms of the Memorandum of Understanding (“MOU”) between the Commission and the Bureau of Land Management (“BLM”).

            4.  On July 11, 1988, the Commission issued Order No. 112-60, which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland Coal Seams for certain lands, including Township 33 North, Range 11 West, N.M.P.M., with the permitted well located, when north of the north line of Township 32 North, in the NW¼ and the SE¼ of the section, and when south of the north line of Township 32 North, in the NE¼ and the SW¼ of the section and no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line. 

            5.  Subsequent orders issued in Cause No. 112 allowed an optional additional well to be drilled for production of gas and associated hydrocarbons from the Fruitland Coal Seams for certain 320-acre drilling and spacing units, with the permitted well to be located in any undrilled quarter section no closer than 990 feet to any outer boundary of the unit nor closer than 130 feet to any interior quarter section line.

            6.  On August 4, 2003, Red Willow, by its attorney, filed with the Commission a verified application for an order to allow two (2) wells to be drilled in the existing 320-acre drilling and spacing units underlying the below-described lands, for the production of gas and associated hydrocarbons from the Fruitland Coal Seams, with the second well being an optional well to be drilled and completed in the discretion of the operator in the center of the NE¼ and/or the SW¼ with a tolerance in any direction of 200 feet.  The Applicant also requested that the Director may without further notice and hearing approve exceptions to the permitted well locations due to topography or surface hazards.

Township 33 North, Range 11 West, N.M.P.M.

Section 1:  W½

Section 11:  N½ and S½

            7.  Testimony and exhibits presented at the administrative hearing showed the 100% Southern Ute Indian Tribe mineral and surface ownership in the application lands, and the location of the Fruitland outcrop in relation to the application lands.  Additional testimony showed the location of lands previously approved for increased well density adjacent to the application lands, the location of existing Fruitland Coal wells and drilling units on the application lands, and proposed new wells and recompletion of an existing well on the application lands.  Further testimony and exhibits showed leases on and around the application lands, and indicated that there are no water wells or surface occupancy on the application lands.

8.  Testimony and exhibits presented at the administrative hearing showed existing roads, pipelines, compression facilities and water transfer facilities, indicating that the infrastructure is in place for additional wells.  Additional testimony showed the areas previously approved for 160-acre well density on reservation lands, and that the BLM concurs with this application.  Further testimony showed the well location setbacks for parent and infill wells on the application lands.

            9.  Testimony and exhibits presented at the administrative hearing showed the extensive outcrop monitoring system along the western hogback monocline, indicating that there are twenty-two (22) pressure observation wells and one hundred twenty-one (121) soil vapor tubes in place.  Additional testimony indicated that Red Willow has been collecting data since 1997 and no seeps have been observed along the outcrop adjacent to the application lands and none are expected.  Further testimony showed that there are no environmental concerns with additional wells in the application lands.

10.  Testimony and exhibits presented at the administrative hearing showed the location of the four cross sections and the regional 44 Canyon Sealing Fault in proximity to the application lands.  Additional testimony showed the structural contours on a bentonite bed above the Fruitland Coal and showed net coal thickness between 55 feet and 85 feet as being the area of thickest coals in the field.  Further testimony showed that the lower coals are continuous and the upper coals are thin and discontinuous.

            11.  Testimony and exhibits presented at the administrative hearing showed individual incremental production from the three (3) proposed infill wells ranging from 3.1 Bcf to 4.2 Bcf, and with a total of incremental production from the wells estimated at 10.9 Bcf.  Additional testimony showed favorable economics for the drilling of a Fruitland Coal well in the application lands, with an incremental income estimated at just under $12 million dollars for all three (3) wells.  Further testimony showed how the new wells will be configured and that the well to be recompleted will be remediated as needed to ensure that it is cemented to the surface. 

            12.  Testimony indicated that approval of the application would provide efficient and economic incremental gas recovery from the Fruitland Coal in the application lands would prevent waste and would protect correlative rights.

13.  That Red Willow Production Company 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 having been heard by the Hearing Officer who recommended approval, the Commission should enter an order amending Order Nos. 112-60 and 112-61 to allow two (2) wells to be drilled in the existing 320-acre drilling and spacing units underlying the lands described above in Finding No. 6, for the production of gas and associated hydrocarbons from the Fruitland Coal Seams, with the second well being an optional well to be drilled and completed in the discretion of the operator in the center of the NE¼ and/or the SW¼ with a tolerance in any direction of 200 feet.  In addition, the Director should be allowed without further notice and hearing to approve exceptions to the permitted well locations due to topography or surface hazards.

ORDER

            NOW, THEREFORE IT IS ORDERED, that Order Nos. 112-60 and 112-61 are hereby amended to allow two (2) wells to be drilled in the existing 320-acre drilling and spacing units described below, for the production of gas and associated hydrocarbons from the Fruitland Coal Seams, with the second well being an optional well to be drilled and completed in the discretion of the operator in the center of the NE¼ and/or the SW¼ with a tolerance in any direction of 200 feet. 

Township 33 North, Range 11 West, N.M.P.M.

Section 1:  W½

Section 11:  N½ and S½

            IT IS FURTHER ORDERED, that the Director shall be allowed without further notice and hearing to approve exceptions to the permitted well locations due to topography or surface hazards.

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.

ENTERED this  day of September, as of September 22, 2003.

                                                    OIL AND GAS CONSERVATION COMMISSION

                                                     OF THE STATE OF COLORADO

                                                                        By

                                  Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

September 26, 2003