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

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

IN THE MATTER OF THE PROMULGATION ) CAUSE NO. 139

AND ESTABLISHMENT OF FIELD RULES TO )

GOVERN OPERATIONS IN THE RULISON ) ORDER NO. 139-96

FIELD, GARFIELD COUNTY, COLORADO ) CORRECTED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:00 a.m. on July 15, 2008, in Ballroom B of the Brown Palace Hotel, 321 Seventeenth Street, Denver, Colorado, for an order to establish a 40-acre drilling and spacing unit consisting of the NW¼ SE¼ and a 160-acre drilling and spacing unit consisting of the SW¼, both in Section 4, Township 8 South, Range 96 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, and allow the equivalent of one well per 20 acres, with the permitted well to be located no closer than 200 feet from the unit boundaries and 400 feet from an existing Williams Fork Formation or Iles Formation well, absent an exception from the Commission, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1. EnCana Oil & Gas (USA) Inc. (“EnCana”), 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. The SW¼ and NW¼ SE¼ of Section 4, Township 8 South, Range 96 West, 6^th P.M. is subject to this Rule for the Williams Fork and Iles Formations.

5. On May 23, 2008, EnCana, by its attorney, filed with the Commission a verified application for an order to establish a 40-acre drilling and spacing unit consisting of the NW¼ SE¼ and a 160-acre drilling and spacing unit consisting of the SW¼, both in Section 4, Township 8 South, Range 96 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, and allow the equivalent of one well per 20 acres, with the permitted well to be located no closer than 200 feet from the unit boundaries and 400 feet from an existing Williams Fork Formation or Iles Formation well absent an exception from the Commission. EnCana commits that wells to be drilled under this application will be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Director of the Commission.

6. On July 2, 2008, EnCana, 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 exhibits. Sworn written testimony and exhibits were submitted in support of the application.

7. Testimony and exhibits submitted in support of the application showed that EnCana is the leaseholder for the Williams Fork and Iles Formations on the application lands, and that similar requests for 20-acre density have been approved on adjacent lands.

8. Testimony and exhibits submitted in support of the application described the depositional environment of the Williams Fork and Iles Formations on the application lands. Additional testimony showed that original gas-in-place (“OGIP”) for the Williams Fork Formation is approximately 30 BCF per section and the Iles Formation is approximately 20 BCF per section. Further testimony showed that core data for an adjacent well indicated that the Williams Fork Formation has an average porosity of 9.5% and average permeability of 0.033 millidarcies, and that core data for a separate adjacent well indicated that the Iles Formation has an average porosity of 9.0% and average permeability of 0.07 millidarcies. Testimony showed that the application lands require 20-acre density to economically and efficiently drain the Williams Fork and Iles Formations.

9. Testimony and exhibits submitted in support of the application showed that incremental analysis of increasing well density for the Williams Fork Formation from 40 acres to 20 acres in the application area will increase the estimated ultimate recovery from 37% to 53% of OGIP, and that additional reserves estimated at 5 BCF per section will be recovered by the increased well density. Additional testimony and exhibits showed no adverse effect on correlative rights of adjacent owners with respect to the increased well density. Further testimony showed that stand alone Iles Formation wells are not economical, but that dual completion wells can economically and efficiently drain the Iles Formation if produced in combination with the Williams Fork Formation providing necessary lift, yielding additional reserves of approximately 9 BCF per section from the Iles Formation on application lands.

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

11. EnCana Oil & Gas (USA) Inc. 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 establish a 40-acre drilling and spacing unit consisting of the NW¼ SE¼ and a 160-acre drilling and spacing unit consisting of the SW¼, both in Section 4, Township 8 South, Range 96 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations, and allow the equivalent of one well per 20 acres, with the permitted well to be located no closer than 200 feet from the unit boundaries and 400 feet from an existing Williams Fork Formation or Iles Formation well absent an exception from the Commission.

ORDER

NOW, THEREFORE IT IS ORDERED, that a 40-acre drilling and spacing unit consisting of the NW¼ SE¼ and a 160-acre drilling and spacing unit consisting of the SW¼, both in Section 4, Township 8 South, Range 96 West, 6^th P.M., are hereby established for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

IT IS FURTHER ORDERED, that the equivalent of one well per 20 acres is hereby approved to be drilled on each drilling and spacing unit, with the permitted well to be located no closer than 200 feet from the unit boundaries and 400 feet from an existing Williams Fork Formation or Iles Formation well absent an exception from the Commission.

IT IS FURTHER ORDERED, that wells to be drilled under this application shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Director of the Commission.

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 21^ST day of July, 2008, as of July 15, 2008.

CORRECTED this ________day of July, as of July 15, 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

July 29, 2008