139-41

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE RULISON, PARACHUTE, AND GRAND VALLEY FIELDS, GARFIELD COUNTY, COLORADO

)

CAUSE NOS. 139, 440, 479, 510

ORDER NOS. 139-41, 440-26,

479-13, 495-4,

510-10

CORRECTED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 10:00 a.m. on January 5, 2004, in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to amend Order Nos. 139-38, 440-23, 479-11, 495-3 and 510-8 to change the setbacks to allow the permitted downhole location for each new Williams Fork Formation well to be located anywhere within a given drilling and spacing unit but no closer than 100 feet from the boundary of the drilling and spacing unit, without exception being granted by the Director. It was also requested that the Order be amended to allow future wells to be located as close as 100 feet from the boundary of the drilling and spacing unit whenever the lands abutting and cornering these lands have been approved for the drilling of a Williams Fork Formation Well at the equivalent of one (1) well per ten acres.

FINDINGS

The Commission finds as follows:

1. Williams Production RMT Company (“Williams”) 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 April 21, 2003, the Commission issued Order Nos. 139-38, 440-23, 479-11, 495-3 and 510-8, which approved the drilling of wells for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group at the equivalent of one (1) well per ten (10) acres, with the permitted downhole location for each new Williams Fork Formation well drilled upon the below-listed lands (“Fee Application Lands”) located anywhere within a given drilling and spacing unit but not closer than 100 feet from the boundary of a drilling and spacing unit without exception being granted by the Director of the Colorado Oil and Gas Conservation Commission (“COGCC”), provided that no new Williams Fork Formation well could be drilled with a downhole location closer than two hundred (200) feet from the exterior boundaries of the Fee Application Lands (with the exception of the ten acre pilot lands contiguous to the lands) without exception being granted by the Director of the COGCC.

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

Section 10: N½ SE¼

Section 11: S½ NW¼, N½ SW¼, SE¼ SW¼

Section 14: E½

Section 15: All

Section 16: S½, W½ NE¼, E½ NW¼

Section 17: SW¼ SW¼

Section 18: SE¼ SE¼, W½ SE¼

Section 20: S½ NE¼, E½ SE¼, W½ W½

Section 21: N½ NE¼, SW¼ NE¼, S½ NW¼, S½

Section 22: N½, SW¼, W½ SE¼

Section 27: S½ NW¼, NE¼ NW¼, W½ SW¼, NW¼ NE¼

Section 28: NE¼, N½ NW¼, E½ SE¼

Section 29: N½ NE¼, NE¼ NW¼

Township 6 South, Range 95 West, 6^th P.M.

Section 26: S½ SW¼

Section 27: S½ SW¼, SW¼ SE¼

Section 28: S½ SE¼, E½ W½

Section 31: SE¼ SE¼

Section 32: SE¼ NE¼, N½ S½, S½ SW¼, SW¼ SE¼

Section 33: E½, SW¼, SW¼ NW¼, NE¼ NW¼

Section 34: All

Section 35: N½ NW¼, SW¼ NW¼, NW¼ NE¼

Township 7 South, Range 95 West, 6^th P.M.

Section 5: NW¼ NW¼

Section 6: N½ NE¼, SE¼ NW¼, SW¼ NE¼, NE¼ NW¼

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

Section 17: E½

Section 20: E½, NW¼, E½ SW¼

Section 23: SW¼ SW¼

Section 27: NE¼ NE¼, S½ NE¼, N½ SE¼, SW¼ SE¼, S½ SW¼

Section 28: SW¼, S½ SE¼, S½ NW¼

Section 29: NE¼, NE¼ NW¼, E½ SE¼

Section 31: S½ NE¼, N½ SE¼

Section 32: N½ NE¼, SW¼ NE¼, NW¼ SE¼, S½ NW¼, N½ SW¼

Section 33: N½ NW¼, SE¼ NW¼, N½ NE¼, SW¼ NE¼

Section 34: SE¼, E½ SW¼, SW¼ SW¼, N½ NW¼, SE¼ NW¼, NW¼ NE¼

Section 35: SW¼ SW¼, SE¼ SE¼

Section 36: SW¼, W½ SE¼

Township 7 South, Range 96 West, 6^th P.M.

Section 1: NW¼, SE¼, S½ NE¼, NW¼ NE¼, N½ SW¼, SE¼ SW¼

Section 2: W½, NE¼, W½ SE¼, NE¼ SE¼

Section 3: NE¼

Section 4: NE¼ NE¼

5. On August 18, 2003, the Commission issued Order Nos. 139-40, 440-25, 479-12 and 510-9, which approved the drilling of wells for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group at the equivalent of one (1) well per ten (10) acres, with the permitted downhole location for each new Williams Fork Formation well located anywhere within a given drilling and spacing unit but no closer than 100 feet from the boundaries of the unit without exception being granted by the Director; provided however, that as to any well within a given drilling and spacing unit of the (“Federal Application Lands”) which abutted or cornered lands that had not at the time of the drilling permit application also been approved for the drilling of Williams Fork wells at that same equivalent of one (1) well per ten acres, the well in that drilling and spacing unit could be located no closer than two hundred (200) feet from the boundary of the drilling unit without exception being granted by the Director. The Order further provided that as to the Federal Application Lands which were unspaced, the ten (10) acre density Williams Fork Wells to be drilled thereon could be located downhole anywhere upon the lands but no closer than 100 feet from the boundaries of the lease line unless such lease line abutted or cornered lands that had not at the time of the drilling permit application also been approved for the drilling of at that same equivalent of one (1) well per ten acres, in which event the well could be drilled no closer than 200 feet from the lease line.

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

Section 2: S½ SW¼, NE¼ SW¼, SW¼ SE¼

Section 3: S½ S½, NE¼ SE¼, NW¼ SW¼

Section 7: SE¼

Section 8: S½

Section 9: All

Section 10: N½, SW¼, S½ SE¼

Section 11: E½, N½ NW¼, SW¼ SW¼

Section 12: W½ W½, SE¼ NW¼

Section 13: N½ NW¼

Section 16: W½ NW¼

Section 17: N½, SE¼, N½ SW¼, SE¼ SW¼

Section 18: W½, NE¼, NE¼ SE¼

Section 19: N½, SE¼, N½ SW¼, SE¼ SW¼

Section 20: E½ NW¼, N½ NE¼

Section 21: N½ NW¼

Township 6 South, Range 95 West, 6th P.M.

Section 16: S½ SW¼

Section 17: SE¼ SE¼

Section 20: S½, NE¼ NE¼, S½ NE¼

Section 21: All

Section 26: NW¼, N½ SW¼

Section 27: N½, N½ S½, SE¼ SE¼

Section 28: NE¼, N½ SE¼, W½ W½

Section 29: All

Section 30: S½, NE¼, S½ NW¼

Section 31: N½, SW¼, N½ SE¼, SW¼ SE¼

Section 32: NW¼, N½ NE¼, SW¼ NE¼

Section 33: NW¼ NW¼, SE¼ NW¼

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

Section 19: N½, SE¼

Section 20: W½ SW¼

Section 24: SE¼

Section 25: All

Section 26: SE¼, S½ NE¼, S½ NW¼, NE¼ NW¼, SE¼ SW¼

Section 27: SE¼ SE¼

Section 29: NW¼ NW¼, N½ SW¼, SW¼ SW¼

Section 30: NE¼

Section 32: NW¼ NW¼, S½ S½

Section 33: S½ SW¼

Section 34: S½ NE¼, NE¼ NE¼

Section 35: N½, N½ S½, SE¼ SW¼, SW¼ SE¼

Section 36: N½, E½ SE¼

Township 7 South, Range 96 West, 6th P.M.

Section 1: NE¼ NE¼

Section 3: S½, NW¼

Section 4: S½, NW¼, S½ NE¼, NW¼ NE¼

Section 5: SE¼

Section 8: E½

Section 9: N½

Section 10: N½, SE¼

Section 11: W½, W½ E½, SE¼ NE¼

Section 14: NE¼, W½, NW¼ SE¼

Section 15: S½, NE¼

Township 7 South, Range 95 West, 6th P.M.

Section 6: NW¼ NW¼

6. On November 12, 2003, Williams Production RMT Company (“Williams”), by its attorney, filed with the Commission, a verified application for an order to amend Order Nos. 139-38, 440-23, 479-11, 495-3 and 510-8 to change the setbacks to be the same as those pertaining to the federal lands in Order Nos. 139-40, 440-25, 479-12 and 510-9 to allow the permitted downhole location for each new Williams Fork Formation well to be located anywhere within a given drilling and spacing unit but no closer than 100 feet from the boundary of the drilling and spacing unit, without exception being granted by the Director, because the fee lands abut or corner the federal lands in many places. Williams also requested that the Order be amended to allow future wells to be located as close as 100 feet from the boundary of the drilling and spacing unit whenever the lands abutting and cornering have been approved for the drilling of a Williams Fork Formation Well at the equivalent of one (1) well per ten acres.

7. Testimony and exhibits presented at the administrative hearing showed a map of the lands that have been previously approved by the Commission for ten (10) acre density for wells drilled and produced from the Williams Fork Formation in the Grand Valley, Parachute, and Rulison Fields in Garfield County. The map showed the federal ten (10) acre approved lands, the fee ten (10) acre approved lands, and the ten (10) acre pilot lands.

8. Testimony and exhibits presented at the administrative hearing showed a comparison of the setback rules for Williams Fork Formation wells drilled on both the federal ten (10) acre approved lands and the fee ten (10) acre approved lands. On the federal ten (10) acre approved lands the setback requirements for Williams Fork Formation wells are that wells may be drilled no closer than one hundred (100) feet from the boundary of a drilling and spacing unit (or lease line if the lands have not been spaced), but no closer than two hundred (200) feet from the boundary of a drilling and spacing unit (or lease line if the lands have not been spaced) where there are abutting or cornering lands not approved for ten (10) acre density. The setback requirements for Williams Fork Formation wells drilled on the fee ten (10) acre approved lands have the same one hundred (100) foot setback requirement from the boundary of a drilling and spacing unit, however, a two hundred (200) foot setback is required from the entire exterior boundary of the fee ten (10) acre approved lands except for where the lands are contiguous to the ten (10) acre pilot lands. Additional testimony indicated that because much of the fee ten (10) acre approved lands abut or corner the federal ten (10) acre approved lands, it is appropriate to allow the same one hundred (100) foot setback from the exterior boundary of the fee ten (10) acre approved lands as is allowed on the adjacent federal ten (10) acre approved lands.

9. Testimony and exhibits presented at the administrative hearing clarified that the application was to change the setback rules on the fee ten (10) acre approved lands to the same as the federal ten (10) acre approved lands. Additional testimony indicated that changing the setback rules on the fee ten (10) acre approved lands is necessary to eliminate pointless setback requirements within existing drilling and spacing units which straddle the fee ten (10) acre approved lands and the federal ten (10) acre approved lands, and to give equal opportunity to locate ten (10) acre density wells on both federal and fee lands within the same drilling and spacing unit.

10. Testimony and exhibits presented at the administrative hearing showed that the current setback rules create inconsistent setbacks from the exterior boundaries of the federal ten (10) acre approved lands and the fee ten (10) acre approved lands where these lands are abutting or cornering. In cases where the boundaries abut the boundary of a drilling and spacing unit, the setback on the federal land side is one hundred (100) feet, and the setback on the fee land side is two hundred (200) feet. In cases where the boundaries abut within a drilling and spacing unit, there is no setback requirement on the federal land side, and the setback on the fee land side is two hundred (200) feet.

11. Testimony and exhibits presented at the administrative hearing showed that the setback rules requested in the application would allow equal setbacks from the exterior boundaries of the federal ten (10) acre approved lands and the fee ten (10) acre approved lands in all cases where these lands are abutting or cornering. Additional testimony indicated that these equal setbacks would allow for equivalent drainage on both sides of the exterior boundaries of the federal ten (10) acre approved lands and the fee ten (10) acre approved lands, would allow for more uniform development of the natural gas resources, would prevent waste of natural gas resources, and would protect correlative rights.

12. Testimony presented at the administrative hearing indicated that the setback requirements for the fee ten (10) acre approved lands had been originally developed to address concerns expressed by the United States Bureau of Land Management (“BLM”). Additional testimony indicated that all interested parties received notice of the application, including the BLM, and that no protests to the application were received.

13. At the time of the administrative hearing, Williams 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 recommends approval, the Commission should enter an order to amend Order Nos. 139-38, 440-23, 479-11, 495-3 and 510-8 to change the setbacks to allow the permitted downhole location for each new Williams Fork Formation well to be located anywhere within a given drilling and spacing unit but no closer than 100 feet from the boundary of the drilling and spacing unit, without exception being granted by the Director. The Order should also allow future wells to be located as close as 100 feet from the boundary of the drilling and spacing unit whenever the lands abutting and cornering these lands have been approved for the drilling of a Williams Fork Well at the equivalent of one (1) well per ten acres.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Order Nos. 139-38, 440-23, 479-11, 495-3 and 510-8 are hereby amended to change the setbacks to allow the permitted downhole location for each new Williams Fork Formation well to be located anywhere within a given drilling and spacing unit but no closer than 100 feet from the boundary of the drilling and spacing unit, without exception being granted by the Director.

It is further ordered, that the Order be amended to allow future wells to be located as close as 100 feet from the boundary of the drilling and spacing unit whenever the lands abutting and cornering these lands have been approved for the drilling of a Williams Fork Formation Well at the equivalent of one (1) well per ten acres.

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.

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 20^th day of January, 2004.

CORRECTED this 13^th day of February, 2004.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 13, 2004