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

FIELD, GARFIELD COUNTY, COLORADO

)

CAUSE NO. 139

ORDER NO. 139-92

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on June 11, 2008, in the Colorado River Room, Two Rivers Convention Center, 159 Main Street, Grand Junction, Colorado, for an order to allow the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary for certain lands in Township 7 South, Ranges 93 and 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1. Laramie Energy II, LLC (“Laramie”), 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.

4. Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply. Certain lands in Township 7 South, Range 93 and 94 West, 6^th P.M. are subject to this Rule.

5. On April 21, 2008, Laramie, by its attorney, filed with the Commission a verified application for an order requesting that 10-acre density drilling be established for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations for the following described lands:

Township 7 South, Range 93 West, 6^th P.M.

Section 19: Lot 1 and 2

Township 7 South, Range 94 West, 6^th P.M.

Section 24: Homestead Entry Survey No. 309, being the parcel described more particularly as beginning at Corner No. 1, identical with the Northwest corner of Section 19, Township 7 South, Range 93, West 6^th P.M.; thence South 41’ East 34.62 chains to Corner No. 2; thence North 85 degrees 11’ West 20.43 chains to Corner No. 3; thence North 18 degrees 22’ West 14.50 chains to Corner No. 4; thence North 23’ West 19.15 chains to Corner No. 5; thence East 24.63 chains to Corner No. 1, the place of beginning.

6. On May 28, 2008, Laramie, by its attorney, filed with the Commission a written request to approve the application based on the merits of the verified application and the supporting exhibit. Sworn written testimony and exhibits were submitted in support of the application.

7. Testimony and exhibits submitted in support of the application showed that the application lands total 166 acres, and that lands in the immediate vicinity of the application lands have been approved for 10-acre density for production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

8. Testimony and exhibits submitted in support of the application showed that the geologic model of the Williams Fork Formation in the major producing areas of the Piceance Basin is well understood and consists of extensive log, completion and reservoir engineering data from wells inside current 10-acre density areas and the extremely useful and representative nearby outcrops of producing rocks. Additional testimony indicated that based upon outcrop studies, the majority of the discontinuous sand bodies within the Williams Fork Formation are smaller than the distance between wells drilled on a 10-acre density basis. Further testimony indicated that 10-acre density drilling is necessary to develop the Williams Fork Formation underlying the application lands.

9. Testimony and exhibits submitted in support of the application showed that a nearby Williams Fork Formation completion on the application lands is draining less than 10 acres, and that stand alone Iles Formation wells that recover 510 MMCF will not be commercial. Additional testimony indicated that stand alone Iles Formation wells are draining approximately 17 acres on average, and that drilling on 20-acre density would leave reserves behind and create waste. Further testimony indicated that the most efficient and economic method to recover Iles Formation reserves is through joint development with the over-pressured Williams Fork Formation sands to help lift associated water and increase ultimate recoveries from both reservoirs.

10. The above-referenced testimony and exhibits show that the proposed increased well density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

11. Laramie Energy II, LLC agreed to be bound by oral order of the Commission.

12. 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.b., the Commission should enter an order to allow the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary for certain lands in Township 7 South, Ranges 93 and 94 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the equivalent of one well per ten (10) acres is hereby approved to be drilled on the below-listed lands, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations:

Township 7 South, Range 93 West, 6^th P.M.

Section 19: Lot 1 and 2

Township 7 South, Range 94 West, 6^th P.M.

IT IS FURTHER ORDERED, that all future Williams Fork Formation and Iles Formation wells to be drilled on the application lands shall be located downhole anywhere upon such lands but no closer than 100 feet from a lease line or the boundaries of the application lands without exception being granted by the Director of the Oil and Gas Conservation Commission. In cases where the application lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density wells, the well shall be located downhole no closer than 200 feet from the boundary or boundaries of the application lands so abutting or cornering such lands without exception being granted by the Director of the Oil and Gas Conservation Commission.

IT IS FURTHER ORDERED, that all Williams Fork Formation and Iles Formation wells drilled upon the application lands shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Director of the Colorado Oil and Gas Conservation Commission.

IT IS FURTHER ORDERED, that all wells drilled to the Iles Formation shall be drilled only in conjunction with the drilling of Williams Fork Formation wells.

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__________day of June, 2008, as of June 11, 2008.

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

June 30, 2008