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, in the Routt County Justice Center, 1955 Shield Drive, Steamboat Springs, Colorado, upon application for an order to: 1) vacate an approximate 320-acre drilling and spacing unit established by Order No. 232-1 for the S½ of Section 8, Township 4 North, Range 67 West, 6^th P.M.; and 2) establish two approximate 160-acre drilling and spacing units for Section 8, Township 4 North, Range 67 West, 6^th P.M., and approve up to five wells within each unit, for the production of oil, gas and associated hydrocarbons from the J Sand Formation.

FINDINGS

The Commission finds as follows:

1.         Synergy Resources Corporation, LLC (“Synergy” 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 17, 1970, the Commission entered Order No. 232-1 which, among other things, established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the “J” Sand Formation in the Wattenberg Field.  The units consist of the E½  and the W½  or the N½  and S½ of each section, with the permitted well located in the NE¼  and SW¼  of each section and no closer than 990 feet to the boundaries of the quarter section upon which it is located.  Subsequent Order Nos. 232-2, 232-3 and 232-5 added lands to the spaced area and allowed for exceptions to the permitted well locations under certain conditions within the Wattenberg Gas Spaced Area (“WGSA”).  Section 8, Township 4 North, Range 67 West, 6^th P.M., is subject to this Order for the J Sand Formation.

5.         On September 18, 1979, the Commission entered Order No. 232-20 which, among other things, authorized that an additional well may be located in the unit in the undrilled quarter section of the unit no closer than 990 feet to the boundaries of the quarter section upon which it is located.  On October 19, 1981, the Commission issued Order 232-23 which expanded Order 232-20 allowing the drilling of an additional well to lands not previously included in Order 232-20.  Section 8, Township 4 North, Range 67 West, 6^th P.M., is subject to this Order for the J Sand Formation.

6.         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 8, Township 4 North, Range 67 West, 6^th P.M., is subject to Rule 318A for the J Sand Formation.

7.         On July 31, 2012 (Amended September 11, 2012), Synergy, 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 an approximate 320-acre drilling and spacing unit established by Order No. 232-1 for the S½ of Section 8, Township 4 North, Range 67 West, 6^th P.M.; and 2) establish two approximate 160-acre drilling and spacing units for the below-described lands (“Application Lands”), and approve up to five wells within each unit, for the production of oil, gas and associated hydrocarbons from the J Sand Formation, with the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries and no closer than 890 feet from the treated interval of any other wellbore located in the unit and completed to the J Sand Formation, without exception being granted by the Director:

                                    Township 4 North, Range 67 West, 6^th P.M.

                                    Section 8:      SW¼                                                  (DSU #1 - 160-acres)

                                    Township 4 North, Range 67 West, 6^th P.M.

                                    Section 8:      SE¼                                                   (DSU #2 - 160-acres)

Applicant stated the two approximate 160-acre drilling and spacing units established by this Amended Application will not affect the distribution of proceeds from previously existing wells drilled within the original 320-acre drilling and spacing unit vacated by this Application.

8.         On September 18, 2012, Synergy, by its attorneys, filed with the Commission a written request to approve the Amended Application based on the merits of the verified Amended Application and the supporting exhibits.  Sworn written testimony and exhibits were submitted in support of the Amended Application.

9.         Land testimony and exhibits submitted in support of the Amended Application by Susan Eich, Manager of Land for Synergy, showed that the Applicant has leasehold interests in the Application Lands and that the interested parties received notice of the Amended Application.

10.       The above-referenced testimony and exhibits show that granting the Amended 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.       Synergy agreed to be bound by oral order of the Commission. 

12.       Based on the facts stated in the verified Amended Application, having received no protests, and based on the Hearings Officer review of the Amended Application under Rule 511., the Commission should enter an order to 1) vacate an approximate 320-acre drilling and spacing unit established by Order No. 232-1 for the S½ of Section 8, Township 4 North, Range 67 West, 6^th P.M.; and 2) establish two approximate 160-acre drilling and spacing units for Section 8, Township 4 North, Range 67 West, 6^th P.M., and approve up to five wells within each unit, for the production of oil, gas and associated hydrocarbons from the J Sand Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 320-acre drilling and spacing unit established by Order No. 232-1 for the S½ of Section 8, Township 4 North, Range 67 West, 6^th P.M., is hereby vacated.

IT IS FURTHER ORDERED, that two approximate 160-acre drilling and spacing units for the below-described lands, are hereby established, and up to five wells within each unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the J Sand Formation, with the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries and no closer than 890 feet from the treated interval of any other wellbore located in the unit and completed to the J Sand Formation, without exception being granted by the Director:

Township 4 North, Range 67 West, 6^th P.M.

                                    Section 8:      SW¼                                                  (DSU #1 - 160-acres)

                                    Township 4 North, Range 67 West, 6^th P.M.

                                    Section 8:      SE¼                                                   (DSU #2 - 160-acres)

                        IT IS FURTHER ORDERED, that the two approximate 160-acre drilling and spacing units established by this Order will not affect the distribution of proceeds from previously existing wells drilled within the original 320-acre drilling and spacing unit vacated by this Application.

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 October, 2012, as of October 1, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary