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

REPORT OF THE COMMISSION

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application to amend Order No. 407-560, to authorize up to four horizontal wells within each unit, for three approximate 640-acre drilling and spacing units for Section 6, Township 3 North, Range 62 West, 6^th P.M., Section 16, Township 3 North, Range 63 West, 6^th P.M., and Section 36, Township 4 North, Range 63 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Marathon Oil Company ("Marathon" 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.         On April 27, 1998, the Commission adopted Rule 318A., the Greater Wattenberg Well Location Rule (“GWA Rule”), 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 6, Township 3 North, Range 62 West, 6^th P.M., Section 16, Township 3 North, Range 63 West, 6^th P.M., and Section 36, Township 4 North, Range 63 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5.         On June 27, 2011, the Commission entered Order No. 407-560 (formerly Order No. 535-44) which, among other things: 1) established nine approximate 640-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, and authorized one horizontal well within each unit, with the surface location to be located anywhere within the unit or on surrounding lands, consistent with Rule 318A; and 2) required the completed interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal well to be no closer than 150 feet from the wellbore of any existing or permitted oil and gas well. Section 6, Township 3 North, Range 62 West, 6^th P.M., Section 16, Township 3 North, Range 63 West, 6^th P.M., and Section 36, Township 4 North, Range 63 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

6.         On March 30, 2012, Marathon, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) to amend Order No. 407-560, to authorize up to four horizontal wells within each unit, for three approximate 640-acre drilling and spacing units for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the surface facilities to be located anywhere on the surface or on surrounding lands, consistent with Rule 318A; and the completed interval of any horizontal well to be located no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal wellbore to be located no closer than 150 feet from the wellbore of any existing or permitted oil and gas well, without exception being granted by the director:

Township 3 North, Range 62 West, 6^th P.M.
Section 6:      All 

Township 3 North, Range 63 West, 6^th P.M.
Section 16:    All

Township 4 North, Range 63 West, 6^th P.M.
Section 36:    All

7.         On May 15, 2012, Marathon, 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 Tricia Clarke, Land Professional for Marathon, showed that the Applicant has fully leased the mineral interests in each section of the Application Lands, that the Application Lands are State of Colorado leases and that the interested parties received notice of the Application.

                        9.         Geologic testimony and exhibits submitted in support of the Application by Matthew Humphreys, Advanced Senior Geologist for Marathon, showed that the Niobrara Formation underlies most of the DJ Basin in eastern Colorado, southeastern Wyoming, and western Nebraska.  An isopach map of the Niobrara Formation showed total thickness of the Niobrara Formation ranges from 250 to 280 feet across the Application Lands.  A type log for the Niobrara Formation showed that it consists of two members, the Smoky Hill Chalk and the Fort Hayes Limestone.  A stratigraphic cross-section, zigzagging across the Application Lands, showed the Niobrara Formation to be consistent, continuous, and underlying all the Application Lands as a common source of supply.

                        10.       Engineering testimony and exhibits submitted in support of the Application by Tara Watson, Reservoir Engineer for Marathon, showed analysis of a number of wells within the Application Lands demonstrated a range estimated ultimate recovery (“EUR”) values from 40 to 472 MBO; a range of original oil-in-place (“OOIP”), from 794 to 9,446 MBO; and a drainage area ranging from 46 to 534-acres, with an average of 177-acres. The Silo field, north of the Application Lands in southern Wyoming, is a major field producing from the Niobrara Formation.   EUR and drainage estimates (which vary from 29 to 507-acres for horizontal wells) for the Silo field were included in Applicant’s engineering analysis.  Additional testimony indicated granting the proposed spacing application will result in efficient and economic development of Application Lands.  

11.       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 hydrocarbons, and will not violate correlative rights.

12.       Marathon agreed to be bound by oral order of the Commission. 

13.       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 amend Order No. 407-560, to authorize up to four horizontal wells within each unit, for three approximate 640-acre drilling and spacing units for Section 6, Township 3 North, Range 62 West, 6^th P.M., Section 16, Township 3 North, Range 63 West, 6^th P.M., and Section 36, Township 4 North, Range 63 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that up to four horizontal wells within each unit, are hereby approved, for three approximate 640-acre drilling and spacing units for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation:

Township 3 North, Range 62 West, 6^th P.M.
Section 6:      All 

Township 3 North, Range 63 West, 6^th P.M.
Section 16:    All

Township 4 North, Range 63 West, 6^th P.M.
Section 36:    All

IT IS FURTHER ORDERED, that the surface facilities may be located anywhere on the surface or on surrounding lands, consistent with Rule 318A; and the completed interval of any horizontal well to be located no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal wellbore to be located no closer than 150 feet from the wellbore of any existing or permitted oil and gas well, 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   4^th  day of June, 2012, as of May 29, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 4, 2012