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

REPORT OF THE COMMISSION

The Commission heard this matter on January 7, 2013, at the Sheraton Denver Downtown Hotel, 1550 Court Place, Denver, Colorado, upon application for an order to affirm Order No. 407-538 as to the previously unnoticed interested parties, and to approve up to ten wells within eight approximate 640-acre drilling and spacing units established by Order 407-538 for Sections 1, 2 and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M. and Sections 17, 21, 29 and 31, Township 5 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Bonanza Creek Energy Operating Company, LLC ("Bonanza" 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 January 23, 2012, the Commission entered Order 407-538 which, among other things, established eight approximate 640-acre drilling and spacing units, and approved up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the permitted wellbore to be located no closer than 460 feet from the boundary of the unit, and no closer than 150 feet from the completed interval of another well producing from the same common source of supply.    Sections 1, 2 and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M. and Sections 17, 21, 29 and 31, Township 5 North, Range 62 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

5.         On October 31, 2012, Bonanza Creek Energy Operating Company LLC ("Bonanza"), by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Application”) for an order to affirm Order No. 407-538 as to the previously unnoticed interested parties, and approve one or more additional horizontal wells within eight 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 located no closer than 460 feet from the unit boundaries and no closer than 150 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 4 North, Range 63 West, 6^th P. M.
Sections 1, 2 and 12:                      All

Township 4 North, Range 62 West, 6^th P. M.
Section 5:                                          All

Township 5 North, Range 62 West 6^th P. M.
Sections 17, 21, 29 and 31:           All

Applicant stated that horizontal wells under the requested order shall be drilled from no more than two surface pads per governmental half-section, as designated by the operator, with wells on each pad to be drilled at a surface location within 50 feet of an adjacent well, and with the surface location consistent with Rule 318A, absent a showing of good cause, which shall include surface owner consent.

6.         On December 19, 2012, Bonanza, 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.

7.         Land Testimony and exhibits submitted in support of the Application by Jared Rush, Staff Landman for Bonanza, showed that Bonanza holds a mineral leasehold interest in the Application Lands

8.         Geologic Testimony and exhibits submitted in support of the Application by Paul McKay, Petroleum Geologist for Bonanza, showed that the Niobrara Formation exists under all of the Application Lands. Additional testimony showed that the total thickness of the Niobrara Formation under the Application Lands is 250 to 260 feet thick.

9.         Engineering Testimony and exhibits submitted in support of the Application by Edward M. Polishuk, Staff Reservoir Engineer for Bonanza, showed two nearby horizontal Niobrara wells drilled by Bonanza have a drainage area estimated at 48-acres and 64-acres.  Additional testimony showed that horizontally drilling and completing of infill wells in the 640-acre units will result in the potential successful development of an otherwise marginally economic resource, increasing recovery from the reservoir and preventing waste. 

10.       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.

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

12.       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 affirm Order No. 407-538 as to the previously unnoticed interested parties, and to approve up to ten wells within eight approximate 640-acre drilling and spacing units established by Order 407-538 for Sections 1, 2 and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M. and Sections 17, 21, 29 and 31, Township 5 North, Range 62 West, 6^th P.M., for the production of oil, gas, and related hydrocarbons of the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that Order No. 407-538 is hereby affirmed as to the previously unnoticed interested parties.

IT IS FURTHER ORDERED, that up to ten wells within eight approximate 640-acre drilling and spacing units established by Order 407- 538 for Sections 1, 2 and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M. and Sections 17, 21, 29 and 31, Township 5 North, Range 62 West, 6^th P.M., are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the bottomhole locations not less than 460 feet from the boundary of the proposed drilling unit and not less than 150 feet from any other well or treated interval of a well producing from the Niobrara Formation, without exception being granted by the Director:

Township 4 North, Range 63 West, 6^th P. M.
Sections 1, 2 and 12:                      All

Township 4 North, Range 62 West, 6^th P. M.
Section 5:                                          All

Township 5 North, Range 62 West 6^th P. M.
Sections 17, 21, 29 and 31:           All

IT IS FURTHER ORDERED, that horizontal wells under the requested order shall be drilled from no more than two surface pads per governmental half-section, as designated by the operator, with wells on each pad to be drilled at a surface location within 50 feet of an adjacent well, and with the surface location consistent with Rule 318A, absent a showing of good cause, which shall include surface owner consent.

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 January, 2013, as of January 7, 2013.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary