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

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission on June 27, 2011, Elbert County Fairgrounds, Ag Building, 95 Ute Avenue, Kiowa, Colorado, for an order to establish an approximate 320-acre drilling and spacing unit for certain lands located in Section 26, Township 3 North, Range 68 West, 6^th P.M., and approve one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Greenhorn and Graneros Formations.

FINDINGS

The Commission finds as follows:

1.     Kerr-McGee Oil & Gas Onshore LP, (“Kerr-McGee” or “Applicant”), 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.  Section 26, Township 3 North, Range 68 West. 6^th P.M. is subject to this Rule for the Greenhorn and Graneros 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.  Pursuant to Rule 318A.j., Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.  Section 26, Township 3 North, Range 68 West. 6^th P.M. is subject to this Rule for the Greenhorn and Graneros Formations.

6.     On May 3, 2011, Kerr-McGee, by its attorneys, filed with the Commission a verified application (the “Application”) for an order to establish an approximate 320-acre drilling and spacing unit for the below-listed lands (the “Application Lands”), and approve of one horizontal well within the unit, to accommodate the planned Douthit #32-26HZ Well (the “Well”), API #05-123-32978, for the production of oil, gas and associated hydrocarbons from the Greenhorn and Graneros Formations, with the treated interval of the wellbore for the permitted well to be located no closer than 460 feet from the boundary of the unit, without exception being granted by the Director:

Township 3 North, Range 68 West, 6^th P.M.

7.  On June 16, 2011, Kerr-McGee, 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.  Land testimony and exhibits submitted in support of the Application by Brett Torina, Landman for Kerr-McGee, shows that the surface location for the Well is not located within an established drilling window pursuant to Commission Rule 318A.a but has an approved Application for Permit to Drill and surface use agreement from the surface owner. The testimony further showed that Kerr-McGee has majority ownership interest in the Application Lands, and the surface estate is either fee, federal or state owned.

9.     Geology testimony and exhibits submitted in support of the Application by Thomas Birmingham, Geologist for Kerr-McGee, shows that the Greenhorn Formation is a blanket deposit, exists under all of the Application Lands, and is a common source of supply.  Total thickness ranges from approximately 74 to 95 feet, with the thickest area in the Northwestern portion of the Application Lands.  The regional dip is approximately 17 feet per mile to the East. 

10.   Engineering testimony and exhibits submitted in support of the Application by Brian Smith, Engineer for Kerr-McGee, shows there are no Greenhorn completions in the Application Lands and therefore no drainage has occurred to date. Analysis of Greenhorn completions of vertical wells in the Greater Wattenberg area from 1970 through 2000  indicates that the estimated mean recoveries from the Greenhorn formation in a vertical well would be 58.6 MCF gas and 3,300 barrels for oil, for a total estimated recovery of about 13,000 barrels oil equivalent. The testimony concludes that the requested 320-acre drilling and spacing unit will allow for economic recovery of resources from the Greenhorn and Graneros Formations.

11.   The Application was reviewed by the Colorado Department of Public Health and Environment (“CDPHE”) pursuant to consultation provisions of Rule 306.d.  In a letter dated June 10, 2011, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the Application.

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

13.   Kerr-McGee 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 based on the Hearing Officer review of the Application under Rule 511., the Commission should enter an order establishing an approximate 320-acre drilling and spacing unit for certain lands located in Section 26, Township 3 North, Range 68 West, 6^th P.M., and approve one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Greenhorn and Graneros Formations.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that an approximate 320-acre drilling and spacing unit is hereby established for the below-listed lands, and one horizontal well is hereby approved within the unit, for the production of oil, gas and associated hydrocarbons from the Greenhorn and Graneros Formations:

Township 3 North, Range 68 West, 6^th P.M.

IT IS FURTHER ORDERED, that the treated interval of the wellbore for the permitted well shall be located no closer than 460 feet from the boundary of the unit, without exception being granted by the Director.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective immediately.

                        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 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    30^th    day of June, 2011, as of June 27, 2011.

                                                                        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

June 30, 2011