STATE OF COLORADO OIL AND GAS CONSERVATION COMMISSION

IN THE MATTER OF THE PROMULGATION AND                         ) CAUSE NOS. 232, 407 & 499

ESTABLISHMENT OF FIELD RULES TO GOVERN                     )

OPERATIONS IN THE WATTENBERG FIELD,                              ) ORDER NOS. 232-239, 407-287,

WELD COUNTY, COLORADO                                                         ) 9; & 499-77

            The Commission finds as follows:

            1. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand Formation in the Wattenberg Field with one well allowed for each unit to be located in the NE¼ and the SW¼ and no closer than 990 feet to the boundaries of the quarter section. Subsequent orders allowed an additional well to be located on the 320-acre drilling and spacing unit, including Section 31, Township 5 North, Range 63 West, 6^th P.M.

            2. On July 30, 1985 the Commission issued Order No. 407-13, which extended the 80-acre drilling and spacing units established for the production of oil and/or gas and associated hydrocarbons from the Codell and Niobrara Formations to include, among other lands, Section 31, Township 5 North, Range 63 West, 6^th P.M.

            3. On December 4, 1992, the Commission issued Order No. 499-15 which, among other things, established 320-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Dakota Formation, including Section 31, Township 5 North, Range 63 West, 6^th P.M.

            4. On December 27, 2004 Bonanza Creek Operating Company ("Bonanza"), by its attorney, filed with the Commission a verified application for an order to segregate the 320-acre drilling and spacing unit consisting of the S½ of Section 31, Township 5 North, Range 63 West, 6^th P.M. into four 80-acre drilling and spacing units consisting of the N½ SW¼, S½ SW¼, E½ SE¼ and W½ SE¼ of said Section 31, for the production of oil and gas from the Dakota and "J" Sand Formations for any well drilled in the 400’ by 400’ drilling window as authorized by Rule 318A., and to segregate the S½ of Section 31 into two 160-acre drilling and spacing units consisting of the SW¼ and SE¼ of Section 31 for any well drilled in the center of each such quarter section, as authorized by Rule 318A., for the production of oil and gas from the Dakota, "J" Sand, Codell and Niobrara Formations.

            5. Testimony presented at the administrative hearing showed that Bonanza has leased 98% of the minerals in the SW¼ of Section 31, with the leases extending from the surface of the land to fifty (50) feet above the Morrison Formation. Additional testimony showed that there is one mineral owner, J.H. Ament, owner of record of the remaining 2% of minerals in the SW¼. No address was provided to the Commission for purposes of providing notice of hearing. Subsequent to the administrative hearing, Bonanza determined and communicated to the Hearing Officers that on February 18, 1925 Mr. Ament executed a Warranty Deed conveying the N½ SW¼ to Edward Welds, and reserved "two percent of all oil and gas in the underlying premises. The Warranty Deed was recorded but did not contain an address for Mr. Ament. In the eighty years since the Deed was recorded, nothing further concerning the reserved interest appears in the real property records of Weld County.

            6. Testimony presented at the administrative hearing showed that Bonanza wished to complete all wells in the SW¼ of said Section 31 in the Dakota, "J" Sand, Codell and Niobrara Formations, and segregation of the S½ of Section 31 would allow all formations to be paid on an individual well basis. Additional testimony showed that Patina Oil and Gas owns the leasehold in the E½ SE¼ of Section 31 and Rex Monahan owns the leasehold in the W½ SE¼ of Section 31, and no protests to the application have been received.

            7. Testimony and exhibits presented at the administrative hearing showed that one (1) well has been drilled in the SW¼ of Section 31 and three (3) wells are currently permitted for drilling in the SW¼ of Section 31.

            8. Testimony and exhibits presented at the administrative hearing showed that for an 80-acre drilling and spacing unit, an average Dakota Formation well drains 49% of the original gas in place, an average "J" Sand Formation well drains 26% of the original gas in place and a Codell Formation well drains 34% of the original gas in place. Additional testimony showed that 80-acre drilling and spacing units are not smaller than the maximum area that can be efficiently and economically drained by two (2) wells, and that approval of this request will not cause the drilling of unnecessary wells.

            9. Bonanza Creek Operating Company agrees to be bound by an oral order of the Commission.

            10. Based on the facts stated in the verified application, having received no protests to the application and having been heard by the Hearing Officer who recommended approval, the Commission should approve an order segregate the 320-acre drilling and spacing unit consisting of the S½ of Section 31, Township 5 North, Range 63 West, 6^th P.M. into four 80-acre drilling and spacing units consisting of the N½ SW¼, S½ SW¼, E½ SE¼ and W½ SE¼ of said Section 31, for the production of oil and gas from the Dakota and "J" Sand Formations for any well drilled in the 400’ by 400’ drilling window as authorized by Rule 318A., and to segregate the S½ of Section 31 into two 160-acre drilling and spacing units consisting of the SW¼ and SE¼ of Section 31 for any well drilled in the center of each such quarter section, as authorized by Rule 318A., for the production of oil and gas from the Dakota, "J" Sand, Codell and Niobrara Formations.

            NOW, THEREFORE IT IS ORDERED that Cause Nos. 232, 407 and 499 shall hereby be amended to segregate the 320-acre drilling and spacing unit consisting of the S½ of Section 31, Township 5 North, Range 63 West, 6^th P.M. into four 80-acre drilling and spacing units consisting of the N½ SW¼, S½ SW¼, E½ SE¼ and W½ SE¼ of said Section 31, for the production of oil and gas from the Dakota and "J" Sand Formations for any well drilled in the 400’ by 400’ drilling window as authorized by Rule 318A., and to segregate the S½ of Section 31 into two 160-acre drilling and spacing units consisting of the SW¼ and SE¼ of Section 31 for any well drilled in the center of each such quarter section, as authorized by Rule 318A., for the production of oil and gas from the Dakota, "J" Sand, Codell and Niobrara Formations.

            IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

            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 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 February, 2005 as of February 14, 2005.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By &#

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

February 28, 2005