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 establish five approximate 640-acre drilling and spacing units and authorize up to four horizontal wells within each unit, for Sections 2, 14, 28 and 34, Township 7 North, Range 62 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

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, 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 to, among other things, 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, 14, 28 and 34, Township 7 North, Range 62 West, 6^th P.M. are subject to Rule 318A. for the Codell Formation.

5.         On May 10, 2012, Marathon, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to establish five approximate 640-acre drilling and spacing units for the below-described lands (“Application Lands”), and authorize up to four horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the treated interval of the wellbore to be located no closer than 460 feet from the boundaries of the units, without exception being granted by the Director:

Township 6 North, Range 61 West, 6^th P.M.

            Section 8:        All                    (Codell and Niobrara Formations)

            Township 7 North, Range 62 West, 6^th P.M.

Section 2:        All                    (Codell Formation)

Section 14:      All                    (Codell Formation)

Section 28:      All                    (Codell Formation)

Section 34:      All                    (Codell Formation)

6.         By letter dated June 26, 2012, Marathon, by its attorneys, withdrew the following lands from the Application:

            Township 6 North, Range 61 West, 6^th P.M.

            Section 8:        All

7.         On June 26, 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 in support of the Application by Tricia Clarke, Land Professional for Marathon, showed that the Applicant has either fully or partially leased the mineral interests in each section of the Application Lands, that the Application Lands are both Federal and private fee leases and that the interested parties received notice of the Application.

9.         Geologic testimony and exhibits of Amy Ondrus, Advanced Geologist for Marathon, showed that the Codell Formation underlies most of the DJ Basin in eastern Colorado.  An isopach map of the Codell Formation showed total thickness ranges from 1 to 15 feet in the Application Lands.  A stratigraphic cross-section of the Application Lands showed the Codell Formation to be consistent, continuous, and underlying all the Application Lands as a common source of supply.

10.       Engineering testimony and exhibits 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 for the Niobrara Formation.  EUR and drainage estimates (which vary from 29 to 504-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 enter an order to establish four approximate 640-acre drilling and spacing units and authorize up to four horizontal wells within each unit, for Sections 2, 14, 28 and 34, Township 7 North, Range 62 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Codell Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that four approximate 640-acre drilling and spacing units, are hereby established, for the below-described lands, and up to four horizontal wells within each unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell Formation, with the treated interval of the wellbore to be located no closer than 460 feet from the boundaries of the units, without exception being granted by the Director:

            Township 7 North, Range 62 West, 6^th P.M

Section 2:        All                    (Codell Formation)

Section 14:      All                    (Codell Formation)

Section 28:      All                    (Codell Formation)

Section 34:      All                    (Codell Formation)

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