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 AND ) CAUSE NO. 407

ESTABLISHMENT OF FIELD RULES TO GOVERN )

OPERATIONS IN THE WATTENBERG FIELD, ) ORDER NO. 407-330

WELD COUNTY, COLORADO )

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on January 13, 2009, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to designate four (4) stand-up 80-acre drilling and spacing units for the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M., for the production of oil and associated hydrocarbons from the Codell-Niobrara Formations, and pool all nonconsenting interests for the development and operation of said formations.

FINDINGS

The Commission finds as follows:

1. Petroleum Development Corporation (“Petroleum Development”), 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. On February 19, 1992, the Commission issued Order No. 407-87, which among other things, established 80-acre drilling and spacing units for certain lands including the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M., for production of oil and associated hydrocarbons from the Codell-Niobrara Formations.

5. On April 27, 1998, the Commission adopted Rule 318A., which among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface. On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established. Section 10, Township 5 North, Range 63 West, 6^thP.M. was included in this Rule.

6. On November 25, 2008, amended on December 11, 2008, Petroleum Development, by its attorneys, filed with the Commission a verified application for an order to designate four (4) stand-up 80-acre drilling and spacing units for the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M., for the production of oil and associated hydrocarbons from the Codell-Niobrara Formations, and pool all nonconsenting interests for the development and operation of said formations.

7. On December 31, 2008, Petroleum Development, by its 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.

8. Testimony and exhibits submitted in support of the application showed that the applicant is the majority leasehold owner of the application lands, and that a list of all consenting and nonconsenting parties indicated that there are two mineral interest owners that are not locatable and, therefore, have not signed a lease, or elected to participate, such that 2.083333% of the 320 acres comprising the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M. remain unleased. Additional testimony showed that the offers and the Authorizations for Expenditures extended to the nonconsenting parties were fair and reasonable, and similar to those prevailing in the area. Further testimony showed the offers were sent via mail and all were received at least thirty (30) days prior to the January 13, 2009 hearing date, and that Petroleum Development has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S. Testimony indicated that Petroleum Development has elected to designate the Codell-Niobrara Formations underlying the application lands as four (4) 80-acre stand-up drilling and spacing units in a manner consistent with Order No. 470-87.

9. The above-referenced testimony and exhibits show that the granting of the application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

10. Petroleum Development Corporation agreed to be bound by oral order of the Commission.

11. 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 designate four (4) stand-up 80-acre drilling and spacing units for the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M., for the production of oil and associated hydrocarbons from the Codell-Niobrara Formations, and pool all nonconsenting interests for the development and operation of said formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that four (4) stand-up 80-acre drilling and spacing units are hereby established for the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M., for the production of oil and associated hydrocarbons from the Codell-Niobrara Formations.

IT IS FURTHER ORDERED, that, 1. Pursuant to the provisions of §34-60-116 C.R.S., as amended, of the Oil and Gas Conservation Act, all nonconsenting interests in the four (4) stand-up 80-acre drilling and spacing units consisting of the W½ of Section 10, Township 5 North, Range 63 West, 6^th P.M. are hereby pooled for the development and operation of the Codell-Niobrara Formations.

2. The production obtained from a drilling and spacing unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within each drilling and spacing unit; each owner of an interest in each drilling and spacing unit shall be entitled to receive his/her share of the production of the well located on each drilling and spacing unit applicable to his/her interest in each drilling and spacing unit.

3. Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well(s) and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

4. Any nonconsenting unleased mineral owner within the drilling and spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116 (7)(b), C.R.S. as amended. After recovery of such costs, the nonconsenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

5. The operator of any well drilled on the above-described unit shall furnish all nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

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 January, 2009, as of January 13, 2009.

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

January 26, 2009