139-37

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 RULISON AND GRAND VALLEY FIELDS, GARFIELD COUNTY, COLORADO

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CAUSE NOS. 139, 510, 440, 479

ORDER NOS. 139-37, 510-6

440-22, and 479-9

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 10:00 a.m. on July 9, 2001, in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado on the application of Barrett Resources Corporation for an order to allow additional optional wells to be drilled to bottomhole locations within each of the quarter-quarter sections for certain lands in Garfield County with each well to have a bottomhole location no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the unit within existing drilling and spacing units established for the Williams Fork Formation of the Mesaverde Group.

FINDINGS

The Commission finds as follows:

1. Barrett Resources Corporation (“Barrett”), 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.

4. On July 16, 1979, the Commission issued Order No. 139-8, which established 320-acre drilling and spacing units for the Mesaverde Formation including Section 20, Township 6 South, Range 94 West, 6th P.M. Subsequently the E½ and W½ of Section 20, Township 6 South, Range 94 West, 6th P.M. were designated as 320-acre drilling and spacing units for production of gas and associated hydrocarbons from the Mesaverde Formation. On March 14, 1994, the Commission issued Order Nos. 440-14, 479-3 and 139-26 which allowed up to four (4) Williams Fork wells to be drilled and completed in the above described 320-acre drilling and spacing units. On March 15, 1995, the Commission issued Order Nos. 440-16, 479-5 and 139-28 which allowed up to eight (8) Williams Fork wells to be drilled and completed in the above described 320-acre drilling and spacing units. On February 6, 1998, the Commission issued Order No. 139-33 which allowed up to sixteen (16) Williams Fork wells to be drilled and completed in portions of the above described 320-acre drilling and spacing units including the E½ SW¼ and W½ SE¼ of Section 20.

5. On June 9, 1994, the Commission issued Order No. 510-1 which amended Rule 316 (now Rule 318) and established new setback rules for locating wells to be drilled and produced from the Williams Fork Formation underlying covering certain lands including the SE¼ of Section 33, Township 6 South, Range 96 West, 6th P.M.

6. On March 21, 2000, the Commission issued Order Nos. 139-32, 479-6, 495-2 and 510-3 which established 40-acre drilling and spacing units for the Williams Fork Formation covering certain lands including the SE¼ of Section 33, Township 6 South, Range 96 West, 6th P.M and allowing up to two (2) wells to be drilled into and produced from the Williams Fork Formation within each of such 40-acre drilling and spacing units.

7. On May 21, 2001, Barrett Resources Corporation, by its attorney, filed with the Commission a verified application for an order to allow additional optional wells to be drilled to bottomhole locations within each of the quarter-quarter sections for the lands described below with each well to have a bottomhole location no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the unit within existing drilling and spacing units established for the Williams Fork Formation of the Mesaverde Group:

Township 6 South, Range 94 West, 6th P.M.

Section 20: E½ SW¼ and W½ SE¼

Township 6 South, Range 96 West, 6th P.M.

Section 33: SE¼

8. Testimony and exhibits presented at the administrative hearing indicated that one hundred percent (100%) of the minerals and one hundred percent (100%) of the surface of the lands in the Rulison Field consisting of the E½ SW¼ and W½ SE¼ of Section 20, Township 6 South, Range 94 West, 6th P.M., are owned by Mr. William Clough. For the lands in the Grand Valley Field consisting of the SE¼ of Section 33, Township 6 South, Range 96 West, 6th P.M., testimony indicated that one hundred percent (100%) of the minerals are owned by Unocal et. al. and have been fee pooled in the 160-acre application area, and one hundred percent (100%) of the surface is owned by Unocal. All of the minerals in the application lands have been one hundred percent (100%) leased by Barrett. The predominant surface use in the application lands is range land.

9. A letter from Mr. William Clough in support of the application was presented at the administrative hearing, and testimony was provided indicating Barrett will enter into surface use agreements with Unocal prior to drilling on those lands.

10. Testimony and exhibits presented at the administrative hearing showed the many vertically stacked fluvial, meander belt point bar sand bodies present in the Williams Fork Formation in the area. The Williams Fork Formation, which is approximately 3,600 feet thick in the area, has a continuously gas saturated interval that consists of the lower 2400 feet in the Rulison Field and the lower 1,500 feet in the Grand Valley Field. The sands that are completed for gas production are in the gas saturated interval.

11. Testimony and exhibits presented at the administrative hearing indicated that core data and well test data from the nearby Multiwell Experiment project has shown that the meander belt complexes are approximately 1,500 feet in width, with the average point bar width being approximately one-half of the meander belt width, or approximately 750 feet. Additional testimony and exhibits indicated that most of the meander belt point bar sand bodies are not correlatable between existing wells with setbacks as close as six hundred eighty two (682) feet, which is just slightly more than the ideal ten (10) acre density setback of six hundred and sixty (660) feet, and that the geologic model shows that the few sand bodies that are correlatable are probably not connected. Further testimony and exhibits indicated that wells drilled under setbacks equivalent to ten (10) acre density would intersect very few, if any, of the same sand bodies, and that only gas from the sand bodies that are intersected by a well is produced into the well.

12. Testimony and exhibits presented at the administrative hearing estimated gas in place in the Williams Fork Formation at 42 BCF in the 160 acre pilot application area in the Rulison Field and 27.2 BCF in the 160 acre pilot application area in the Grand Valley Field. The estimated average ultimate recovery from the existing wells is 16.4 BCF Rulison Field pilot area, and 12.2 BCF for the Grand Valley Field pilot area. The recovery factor for twenty (20) acre density development is estimated to be 39% of the gas in place in the Rulison Field pilot area and 45% of the gas in place in the Grand Valley Field pilot area. The recovery factor for ten (10) acre density development is estimated to be 70% of the gas in place in the Rulison Field pilot area and 81% of the gas in place in the Grand Valley Field pilot areas, assuming that the ten (10) acre density wells have an estimated ultimate recovery of 80% of the field averages.

13. Testimony and exhibits presented at the administrative hearing indicated that the setbacks in the twenty (20) acre density orders have allowed portions of the Grand Valley and Rulison Fields to be drilled on very close to an equivalent ten (10) acre well density due to various factors and these equivalent ten (10) acre density wells have not shown adverse pressure or production affects, and that production and pressure data justify further investigation of ten (10) acre well density.

14. Testimony and exhibits presented at the administrative hearing indicated that eight (8) new wells are planned in each pilot project application area, all of which will be drilled from existing surface locations. In addition, Barrett will not have more than one (1) surface location per twenty (20) acre area in the pilot project areas, which will require the drilling of directional wells to achieve the equivalent of ten (10) acre density. Further, Barrett will conduct bottomhole pressure build ups [sic], which will test for depletion in selected sands, G-Function tests, which will test for depletion in all sands, and micro seismic surveys, which will map the geometry of induced fractures and examine how multiple sands are treated and the effect of depleted sands on hydraulic fractures. The ten (10) acre density pilot project is expected to begin in July, 2001 and end by early March, 2002.

15. Testimony and exhibits presented at the administrative hearing showed that the proposed density will allow more efficient drainage, will prevent waste, will not violate correlative rights and will assure greater ultimate recovery of gas and associated hydrocarbons.

16. At the time of the administrative hearing, Barrett agreed to be bound by oral order of the Commission.

17. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommends approval, the Commission should enter an order allowing additional optional wells to be drilled to bottomhole locations within each of the quarter-quarter sections with each well to have a bottomhole location no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the unit within existing drilling and spacing units established for the Williams Fork Formation of the Mesaverde Group for the lands described in Finding No. 7 above.

ORDER

NOW, THEREFORE, IT IS ORDERED, that additional optional wells are hereby approved to be drilled to bottomhole locations within each of the quarter-quarter sections for the lands described below with each well to have a bottomhole location no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the unit within existing drilling and spacing units established for the Williams Fork Formation of the Mesaverde Group:

Township 6 South, Range 94 West, 6th P.M.

Section 20: E½ SW¼ and W½ SE¼

Township 6 South, Range 96 West, 6th P.M.

Section 33: SE¼

IT IS FURTHER ORDERED, that Barrett Resources Corporation shall provide the Commission with the pressure and production data analysis and the reservoir and fracture modeling results acquired from both of the ten (10) acre pilot project areas no later than July 1, 2003.

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 18th day of July, 2001, as of July 9, 2001.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 18, 2001