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

REPORT OF THE COMMISSION

            The Commission heard this matter on October 1, 2012, at the Routt County Justice Center, 1955 Shield Drive, Steamboat Springs, Colorado, upon application for an order to affirm Order Nos. 407-380 and 407-633 which, among other things, established fifteen approximate 640-acre wellbore drilling and spacing units for Section 18, Township 5 North, Range 61 West 6^th P.M. and Section 15, Township 5 North, Range 62 West, 6^th P.M., Weld County, Colorado, and the establishment of field rules consistent with Order 407-633, for the production of oil, gas and associated hydrocarbons from horizontal wells to the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.            Bonanza Creek Energy Operating Company LLC (“Bonanza Creek”), 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.

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. Section 18, Township 5 North, Range 61 West 6^th P.M. and Section 15, Township 5 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5.            On November 29, 2010, the Commission entered Order No. 407-380 which, among other things: 1) established fifteen 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 18, Township 5 North, Range 61 West 6th P.M. and Section 15, Township 5 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

6.            On May 29, 2012, the Commission entered Order No 407-633 which, among other things, approved the drilling of one or more additional horizontal wells within each unit.  Section 18, Township 5 North, Range 61 West 6^th P.M. and Section 15, Township 5 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

7.            On June 27, 2012, Bonanza, by its attorneys, filed with the Commission a verified application ("Application") for an order to affirm Order Nos. 407-380 and 407-633 to apply to interested parties which were not provided notice of the initial hearing in these matters, for the below-described lands (the "Application Lands"):

Township 5 North, Range 61 West 6^th P. M.

Sections 18:  All

Township 5 North, Range 62 West 6^th P. M.

Sections 15:  All

8.            On September 17, 2012, Bonanza, by its attorney, filed with the Commission a written request to approve the Application based on its merits and the submitted written testimony and exhibits, as provided in Rule 511.

9.            Land testimony submitted in support of the Application by Patrick A. Graham, Executive Vice President for Bonanza, showed that Bonanza has oil and gas leasehold interests in the Application Lands.

10.         Geologic testimony and exhibits submitted in support of the Application by Brian L. Cunningham, Petroleum Geologist for Bonanza, showed an analysis of cross-sections from nearby type well logs indicated the Niobrara Formation is a common source of supply with a total thickness between 220 and 300 feet throughout the Application Lands.

11.         Engineering testimony and exhibits submitted in support of the Application by Patrick A. Graham, Executive Vice President for Bonanza, showed the drainage area for nearby Niobrara type wells are 8-acres for vertical wells and 48 to 64-acres for horizontal wells.  Further testimony showed the economics of the proposed horizontal wells resulted in a significantly higher rate of return than traditional vertical wells, making the project economically viable.

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

13.         Bonanza has agreed to be bound by the oral order of the Commission. 

14.         Based on the facts stated in the Application, having received no protests, and based on the Hearings Officer review under Rule 511, the Commission should enter an order to affirm Order Nos. 407-380 and 407-633 which, among other things, established fifteen approximate 640-acre wellbore drilling and spacing units for Section 18, Township 5 North, Range 61 West 6^th P.M. and Section 15, Township 5 North, Range 62 West, 6^th P.M., Weld County, Colorado, and the establishment of field rules consistent with Order 407-633, for the production of oil, gas and associated hydrocarbons from horizontal wells to the Niobrara Formation.

ORDER

            NOW, THEREFORE, IT IS ORDERED, that Orders 407-380 and 407-633, are hereby affirmed, for the establishment of approximate 640-acre wellbore drilling and spacing units consisting of the Application Lands and authorizing the drilling of one or more horizontal wells in each for production of oil, gas and associated hydrocarbons from the Niobrara Formation in the following lands:

Township 5 North, Range 61 West 6^th P. M.

Sections 18:  All

Township 5 North, Range 62 West 6^th P. M.

Sections 15:  All

IT IS FURTHER ORDERED, that the treated interval of such horizontal wells shall 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, such horizontal wells shall be drilled from no more than two surface pads per governmental half-section, as designated by the operator, with the second and subsequent wells on each pad to be drilled at surface location within 50 feet of an existing well, absent a showing of good cause, which shall include surface owner consent.

            IT IS FURTHER ORDERED, 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 thirty (30) days after the date of 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 October, 2012, as of October 1, 2012.

OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

By:__________________________________

            Robert J. Frick, Secretary