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

REPORT OF THE COMMISSION

The Commission heard this matter on July 9, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to authorize up to four horizontal wells within each of two established 640-acre drilling and spacing units for Sections 2 and 14, Township 7 North, Range 62 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 October 31, 2011, the Commission entered Order No. 407-501, which among other things, established twelve approximate 640-acre drilling and spacing units and authorized one horizontal well within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore to be no closer than 600 feet from the unit boundaries.  Sections 2 and 14, Township 7 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5.         On April 27, 1988, 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 Cretaceous Age Formations from the base of the Dakota Formation to the surface. Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.   On December 5, 2005, Rule 318A was amended, among other things, to allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  On August 8, 2011, Rule 318A was again amended, among other things, to address drilling of horizontal wells. Sections 2 and 14, Township 7 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

6.         On May 10, 2012, Marathon Oil Company (“Marathon” or “Applicant”), by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to authorize up to four horizontal wells within each of two 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 treated interval of the wellbore to be no closer than 460 feet from the unit, and surface locations consistent with Rule 318A, without exception being granted by the Director:

Township 7 North, Range 62 West, 6^th P.M.
Section 2:        All

Section 14:      All

7.         On June 27, 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 either partially or fully leased the mineral interests in each section of the Application Lands, that the Application Lands are Federal and private fee leases and that the interested parties received notice of the Application.

9.         Geologic testimony and exhibits submitted in support of the Application by Amy Ondrus, Advanced Geologist for Marathon, showed that the Niobrara Formation underlies most of the DJ Basin in eastern Colorado, southeastern Wyoming, and western Nebraska and is composed of chalks, marls and limestones.  An isopach map of the interval from the top of the Niobrara Formation to the top of the Codell Formation showed a total thickness of the Niobrara Formation ranges from 210 feet to 298 feet within the Application Lands.   A type log of the Niobrara Formation showed it consists of two members, the Smoky Hill Chalk and the Ft. Hays Limestone, and the structural dip is approximately 40 feet per mile to the west.  A stratigraphic cross-section showed the Niobrara Formation to be consistent, continuous, and underlying all the Application Lands.

10.       Engineering testimony and exhibits submitted in support of the Application by, Tara Watson, Reservoir Engineer for Marathon, showed type wells within the Application Lands demonstrated a range of 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 the Application is economically viable.

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 enter an order to authorize up to four horizontal wells within each of two approximate 640-acre drilling and spacing units for Sections 2 and 14, Township 7 North, Range 62 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 wells within each of two established 640-acre drilling and spacing units, are hereby approved, for the below-described lands, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore to be no closer than 460 feet from the unit boundaries, and surface locations consistent with Rule 318A, without exception being granted by the Director:

Township 7 North, Range 62 West, 6^th P.M.
Section 2:        All

Section 14:      All

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   11^th  day of July, 2012, as of July 9, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 11, 2012