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

REPORT OF THE COMMISSION

            The Commission heard this matter on July 29, 2013, at offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to: 1) vacate the approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 6, Township 5 North, Range 61 West, 6^th P.M.; and 2) establish an approximate 640-acre drilling and spacing unit for Section 6, Township 5 North, Range 61 West, 6^th P.M., and approve up to ten horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from 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 November 29, 2010, the Commission entered Order 407-380 which, among other things, established 15 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.  Section 6, Township 5 North, Range 61 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

            5.         On May 29, 2012, the Commission entered Order 407-633 which, among other things, approved one or more horizontal wells to be drilled within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.   Section 6, Township 5 North, Range 61 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

6.         On April 17, 2013 (Amended May 15, 2013), Bonanza, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S. a verified amended application (“Amended Application”) for an order to: 1) vacate the approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 6, Township 5 North, Range 61 West, 6^th P.M.; and 2) establish an approximate 640-acre drilling and spacing unit for the below-described lands (“Application Lands”), and approve up to ten horizontal wells within the 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 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 5 North, Range 61 West, 6^th P.M.

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7.         On June 4, 2013, Bonanza requested and Commission staff granted, a continuance to the July 29, 2013 hearing.

8.         On June 24, 2013, 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.

9.         Land testimony and exhibits submitted in support of the Application by Jared Rush, Landman – Rocky Mountain Region for Bonanza, showed Bonanza owns a leasehold interest in the Application Lands.

10.         Previous geologic testimony and exhibits submitted in support of Order Nos. 407-380 and 407-633 by Brian L. Cunningham, Petroleum Geologist for Bonanza, showed an analysis of cross-sections from nearby Niobrara Formation type wells, indicated that the Niobrara Formation is a common source of supply with a total thickness between 220 and 300 feet throughout the entire spacing area.  Applicant asks the Commission to take Administrative notice of the prior approved Order and supporting testimony.

11.       Previous engineering testimony and exhibits submitted in support of Order Nos. 407-380 and 407-633 by Patrick A. Graham, Executive Vice President of Bonanza, show the drainage area for nearby Niobrara type wells average eight 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.  Applicant asks the Commission to take Administrative notice of the prior approved Order and supporting testimony.

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.       Bonanza 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: 1) vacate the approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 6, Township 5 North, Range 61 West, 6^th P.M.; and 2) establish an approximate 640-acre drilling and spacing unit for Section 6, Township 5 North, Range 61 West, 6^th P.M., and approve up to ten horizontal wells within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

IT IS HEREBY ORDERED:

1.         An approximate 640-acre drilling and spacing unit established by Order Nos. 407-380 and 407-633 for Section 6, Township 5 North, Range 61 West, 6^th P.M., is hereby vacated.

2.         An approximate 640-acre drilling and spacing unit for the below-described lands, is hereby established, and up to ten horizontal wells within the unit, are hereby approved, 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 5 North, Range 61 West, 6^th P.M.

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IT IS FURTHER ORDERED:

1.         The provisions contained in the above order shall become effective immediately.

2.         The Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

3.         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.

4.         An application for reconsideration by the Commission of this Order is not required prior to the filing for judicial review.

ENTERED this   27   day of August, 2013, as of July 29, 2013.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary