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

REPORT OF THE COMMISSION

The Commission heard this matter on August 20, 2012, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to approve up to four horizontal wells within an approximate 640-acre drilling and spacing unit established for Section 22, Township 3 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, 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. Section 22, Township 3 North, Range 63 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On June 27, 2011 (Corrected February 14, 2012), the Commission issued Order No. 407-560 which, among other things, established nine approximate 640-acre drilling and spacing units, and approved 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 located no closer than 460 feet from the unit boundaries.  Section 22, Township 3 North, Range 63 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

6.         On December 12, 2011, the Commission issued Order No. 407-528 which, among other things, approved two horizontal wells within each unit, with the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries.  Section 22, Township 3 North, Range 63 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

7.         On June 21, 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 approve up to four horizontal wells within an approximate 640-acre drilling and spacing unit established for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the surface locations consistent with Rule 318A and the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries, without exception being granted by the Director:

                                                Township 3 North, Range 63 West, 6^th P.M.

                                                Section 22:      All

8.         On August 7, 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.

9.         Land testimony and exhibits submitted in support of the Application by Tricia Clarke, Land Professional for Marathon, showed that the Applicant has partially leased the mineral interests in the Application Lands, that the Application Lands are both state and private fee leases and that the interested parties received notice of the Application.

10.       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 275 to 285 feet in 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 of the Application Lands showed the Niobrara Formation to be consistent, continuous, and underlying all the Application Lands as a common source of supply.

11.       Engineering testimony and exhibits submitted in support of the Application by Tara Watson, Reservoir Engineer for Marathon, showed estimated ultimate recovery (“EUR”) values from 40 to 472 MBO; and a drainage area ranging from 46 to 534-acres, with an average of 177-acres. EUR and drainage estimates (which vary from 29 to 507-acres for horizontal wells) for the analogous Silo field were included in Applicant’s engineering analysis.  Testimony concluded granting the proposed spacing application will result in efficient and economic development of Application Lands.  

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 hydrocarbons, and will not violate correlative rights.

13.       Marathon 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 to approve up to four horizontal wells within an approximate 640-acre drilling and spacing unit established for Section 22, Township 3 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 an approximate 640-acre drilling and spacing unit established for the below-described lands, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the surface locations consistent with Rule 318A and the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries, without exception being granted by the Director:

                                                Township 3 North, Range 63 West, 6^th P.M.

                                                Section 22:      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                         day of August, 2012, as of August 20, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary

Dated: August 30, 2012