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

REPORT OF COMMISSION

This cause was heard by the Commission on November 29, 2010, in Suite 801, at The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to approve of an optional second well in established 320-acre drilling and spacing units for certain lands in Township 32 North, Ranges 9 and 10 West, N.M.P.M. (SUL) and Township 33 North, Ranges 9 and 10 West, N.M.P.M. (SUL).

FINDINGS

                        The Commission finds as follows:

1.    BP America Production Company (“BP”) and the Southern Ute Indian Tribe, d/b/a Red Willow Production Company (“Red Willow”) (known collectively as the “Applicants”), as applicants herein, are interested parties 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 17, 1988, the Commission issued Order No. 112-60, which among other things, established 320-acre drilling and spacing units for certain lands including those described below, for the production of gas from the Fruitland coal seams, with a 990-foot setback to the outer boundary of each unit and a 130-foot setback to the interior quarter section line:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 5:      All

Section 6:      All

Section 7:      All

Section 8:      All 

Township 32 North, Range 10 West, N.M.P.M. (SUL)

Section 2:      All

Section 3:      All

Section 4:      All

Section 5:      All

Section 6:      All

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section 22:    All

Section 23:    All

Section 26:    All

Section 27:    All

Section 31:    All

Section 32:    All

Section 33:    All

Section 34:    All

Section 35:    All

Township 33 North, Range 11 West, N.M.P.M. (SUL)

Section13:     All

Section 23:    All

Section 24:    All

Section 26:    All

Section 36:    All

5.    On October 8, 2010, Applicants, by their attorneys, filed with the Commission a verified application (“Application”) for an order to approve of an optional second well in established 320-acre drilling and spacing units for the below-listed lands (the “Application Lands”), for the production of gas and associated hydrocarbons from the Fruitland coal seams:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 5:      E½

Section 6:      E½

Section 7:      E½

Section 8:      W½ 

Township 32 North, Range 10 West, N.M.P.M. (SUL)

Section 2:      All

Section 3:      E½

Section 4:      S½

Section 5:      N½

Section 6:      N½

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section 22:    S½

Section 23:    S½

Section 26:    All

Section 27:    All

Section 31:    All

Section 32:    All

Section 33:    W½

Section 34:    All

Section 35:    All

Township 33 North, Range 11 West, N.M.P.M. (SUL)

Section13:     S½

Section 23:    All

Section 24:    E½

Section 26:    All

Section 36:    E½

Applicants request that the bottomhole location of any well permitted under the Application be no closer than 990 feet to any outer boundary of the unit and that any interior quarter section setback be eliminated.

6.    Insofar as the Application concerns lands within the jurisdiction of the Souther Ute Indian Tribe (“SUIT”) it is submitted to the Commission in accordance with the terms of the Memorandum of Understanding (“MOU”) dated August 22, 1991 between the Bureau of Land Management (“BLM”) and the Commission and the separate MOU dated August 22, 1991 between the Bureau of Indian Affairs (“BIA”), the BLM, and the SUIT.  In portions of the Application Lands, the SUIT owns surface interests, mineral interests and leasehold interests underlying such lands. 

7.    With respect to lands not within the jurisdiction of the SUIT, the Director may, after notice and hearing, approve exceptions to permitted well locations due to topography or surface hazards or the recompletion of wells previously drilled at permitted locations, provided that appropriate notice of such exception location is afforded to offset owners as required by Commission rules.

8.    On November 15, 2010, Applicants, by their 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.    Testimony and exhibits were presented in support of the Application by Ryan D. Fitzpatrick, Land Negotiator for BP, showed that the Application Lands are in close proximity to lands where two wells are allowed per 320-acre drilling and spacing unit, and that the Applicants hold a majority of the leasehold interest for the Application Lands. 

10.  Testimony and exhibits were presented in support of the Application by Glenn G. Zinter, Geologist for BP, showed that the Fruitland coal seams underlie the entirety of the Application Lands, and that the discontinuous vertical and lateral continuity of individual seams and variable coal reservoir properties support 160-acre well density to more efficiently drain the reservoir.

11.  Testimony and exhibits were presented in support of the Application by Tamara H. Golson, Reservoir Engineer for BP, showed that allowing an additional infill well for the Application Lands would improve the efficiency of recovery of the initial gas-in-place from a median of 52% to a range of 59% to 70%, resulting in an incremental recovery increase ranging from 61 to 150 BCF gas.  Additional testimony and exhibits indicated that the Applicants’ proposed infill drilling program is economically sound and is essential to recover additional reserves, prevent waste, and protect correlative rights.

12.  Testimony and exhibits were presented in support of the Application by James W. Hawkins, Consulting Petroleum Engineer for BP, showed that the additional well is needed because existing wells are going to leave almost half of the original gas-in-place unrecovered, and that in order to minimize land impacts, the wells are planned to be drilled from no more than four well pads per 640-acre section.   Additional testimony indicated that to accommodate efficient well drainage, the well location setbacks need to be extended to the undrilled quarter section 990 feet from the spacing unit boundary. 

13.  BP and Red Willow 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 approving an optional second well in established 320-acre drilling and spacing units for certain lands in Township 32 North, Ranges 9 and 10 West, N.M.P.M. (SUL) and Township 33 North, Ranges 9 and 10 West, N.M.P.M. (SUL), with the bottomhole location no  closer than 990 feet to any outer boundary of the unit and eliminating any interior quarter section setback.

ORDER

NOW, THEREFORE IT IS ORDERED, that an optional second well is hereby authorized in established 320-acre drilling and spacing units for the below-described lands, for the production of gas and associated hydrocarbons from the Fruitland coal seams:

Township 32 North, Range 9 West, N.M.P.M. (SUL)

Section 5:      E½

Section 6:      E½

Section 7:      E½

Section 8:      W½ 

Township 32 North, Range 10 West, N.M.P.M. (SUL)

Section 2:      All

Section 3:      E½

Section 4:      S½

Section 5:      N½

Section 6:      N½

Township 33 North, Range 10 West, N.M.P.M. (SUL)

Section 22:    S½

Section 23:    S½

Section 26:    All

Section 27:    All

Section 31:    All

Section 32:    All

Section 33:    W½

Section 34:    All

Section 35:    All

Township 33 North, Range 11 West, N.M.P.M. (SUL)

Section13:     S½

Section 23:    All

Section 24:    E½

Section 26:    All

Section 36:    E½

IT IS FURTHER ORDERED, that any permitted well drilled under this Order shall have a bottomhole location no closer than 990 feet to any outer boundary of the unit and that any interior quarter section setback requirement is eliminated.

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 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 of December 2010, as of November 29, 2010.

                                                            OIL AND GAS CONSERVATION COMMISSION

                                                              OF THE STATE OF COLORADO

                                                                                                                                                                        By__________________________         __

                                                                        Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

December 27, 2010