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, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to establish an approximate 40-acre drilling and spacing unit for Section 21, Township 18 South, Range 47 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations.

FINDINGS

The Commission finds as follows:

1.         Bayhorse Petroleum, LLC (“Bayhorse” 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.         Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  Section 21, Township 18 South, Range 47 West, 6^th P.M. is subject to Rule 318.a. for the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations.

5.         On June 21, 2012, Bayhorse, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to establish an approximate 40-acre drilling and spacing unit for the below-described lands (“Application Lands”), to accommodate the Trade Winds 4-21 Well (“Well”), for the production of oil, gas and associated hydrocarbons from the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations, with the treated interval of the wellbore to be located no closer than 600 feet from the unit boundaries and no closer than 1200 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 18 South, Range 47 West, 6^th P.M.

Section 21:    NW¼ SE¼

6.         On August 7, 2012, Bayhorse, 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 Larry F. Manikowski, Land Manager and Vice President/CFO for Bayhorse, showed that the Applicant has mineral interests in the Application Lands and that the interested parties received notice of the Application.

8.         Geologic testimony and exhibits submitted in support of the Application by Rod Vaughn, Geologist and President/CEO for Bayhorse, included a stratigraphic cross-section of the Application Lands showing the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations to be consistent, continuous, and underlying all the Application Lands as a common source of supply.

9.         Engineering testimony and exhibits submitted in support of the Application by Jack McCartney, Manager of McCartney Engineering, LLC for Bayhorse, showed previously drilled type wells within the Application Lands drained an estimated 37-acres per well, and estimated ultimate recovery (“EUR”) of 54 MBO per well.  Testimony concluded the 40-acre drilling and spacing unit will result in reasonable and economically efficient development of the Application Lands, avoid waste, and protect correlative rights.

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.       Bayhorse 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 establish an approximate 40-acre drilling and spacing unit for Section 21, Township 18 South, Range 47 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 40-acre drilling and spacing unit for the below-described lands, is hereby established, and one well within the unit, is hereby approved, for the production of oil, gas and associated hydrocarbons from the Shawnee, Lansing-Kansas City, Marmaton, Cherokee, Morrow, Keyes, and Mississippian System (St. Genevieve to Warsaw) Formations, with the treated interval of the wellbore to be located no closer than 600 feet from the unit boundaries and no closer than 1,200 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 18 South, Range 47 West, 6^th P.M.

Section 21:    NW¼ SE¼

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