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

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on June 1, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to pool all nonconsenting interests in the drilling and spacing unit in the N½ SE¼  of Section 13, Township 4 North, Range 67 West, 6^th P.M. and all the nonconsenting interests in the wellbore spacing unit in the SE¼ of Section 13, Township 4 North, Range 67 West, 6^th P.M. for the development and operation of the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.     Petroleum Development Corporation (“PDC”), 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 December 19, 1983, the Commission issued Order No. 407-1 (amended on March 29, 2000 in accordance with Order No. 407-17, entered November 18, 1985), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation underlying certain lands, including Section 13, Township 4 North, Range 67 West, 6^th P.M., with the drilling and spacing unit to be designated by the operator drilling the first well in the quarter section, (or the Director, if the operator fails to designate).  The permitted well shall be located in the center of either 40-acre tract within the drilling and spacing unit with a tolerance of 200 feet in any direction.  The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.

5.     On February 19, 1992, the Commission issued Order No. 407-87 (amended August 20, 1993), which among other things, established 80-acre drilling and spacing units for the production of oil and/or gas from the Codell and Niobrara Formations underlying certain lands, including Section 13, Township 4 North, Range 67 West, 6^th P.M., with the permitted well locations in accordance with the provisions of Order No. 407-1.

6.     On April 27, 1998, 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 of the Cretaceous Age Formations from the base of the Dakota Formation to the surface.  Section 13, Township 4 North, Range 67 West, 6^th P.M. is subject to this Rule for the Codell and Niobrara Formations.

7.     On March 10, 2010, PDC, by its attorneys, filed with the Commission a verified application to pool all nonconsenting interests in the established approximate 80-acre drilling and spacing unit, for the below-listed lands for the development and operation of the Codell and Niobrara Formations:

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

                                The following wells have been drilled on the above-listed drilling and spacing unit, and PDC has conducted or plans to conduct re-fracturing operations, as indicated below:

                                    Brindl #1 Well (API No. 05-123-20210, September 2008);

                                    Bouge #1 Well (API No. 05-123-20259, to be determined).

                                PDC’s application also requested an order to pool all nonconsenting interests in the designated approximate 160-acre wellbore spacing unit for the below-listed lands for the development and operation of the Codell and Niobrara formations:

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

                                The following well has been drilled on the above-listed wellbore spacing units, with the spud date as indicated:

                                    Bernhardt #13D Well (API No. 05-123-25865, October 2009).

                                PDC’s application requested that the pooling order be effective as of the above indicated spud date or re-fracturing date, as applicable.

8.  On May 18, 2010, PDC, 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 as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the application.

9.     Testimony and exhibits submitted and the verified application showed that PDC is the majority leaseholder of Codell and Niobrara Formations underlying the SE¼ of Section 13, Township 4 North, Range 67 West, 6^th P.M., that PDC refractured the Bouge #1 Well in September 2008, that PDC plans to refracture the Brindl #1 Well at some time to be determined, and that PDC drilled the Bernhardt #13D Well (spud in October 2009) with a bottomhole location of 1,192 feet FSL and 1,204 FEL of the SE¼ of Section 13, Township 4 North, Range 67 West, 6^th P.M.  Additional testimony and exhibits showed a list of working interest owners in the drilling and spacing unit and the wellbore spacing unit and that all but less than 1% of the working interest owners have agreed to participate.  Further testimony indicated that the two working interest owners whose interests constitute less than 1% in the units were unlocatable after diligent efforts.  Testimony showed that the offers to participate and the Authorizations for Expenditures are fair and reasonable, and similar to those prevailing in the area, and that PDC has complied with the requirements of Rule 530.a. and §34-60-116(7)(d), C.R.S.

10.   The above-referenced testimony and exhibits showed that the granting of the application will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of oil/gas, and will not violate correlative rights.

11.  PDC agreed to be bound by oral order of this 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 pool all nonconsenting interests in the approximate 80-acre drilling and spacing unit consisting of the N½ SE¼ of Section 13, Township 4 North, Range 67 West, 6^th P.M. and the approximate 160-acre wellbore spacing unit consisting of the SE¼ of Section 13, Township 4 North, Range 67 West, 6^th P.M. for the development and operation of the Codell and Niobrara Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that:

1.     Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act, the nonconsenting owners in the following established drilling and spacing unit and the designated wellbore spacing unit for the production of gas and associated hydrocarbons from the Codell and Niobrara Formations are hereby pooled for the development and operation of the Codell and Niobrara Formations, effective as of the spud date or the re-fracturing date of the respective wells indicated below:

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

                                    Brindl #1 Well (API No. 05-123-20210, re-fractured September 2008);

                                    Bouge #1 Well (API No. 05-123-20259, re-fracture date to be determined).

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

                                     Bernhardt #13D Well (API No. 05-123-25865, spud October 2009).

2.     The production obtained from the drilling and spacing unit and the wellbore spacing unit shall be allocated to each owner in the respective unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within the applicable unit; each owner of an interest in the respective drilling and spacing unit or wellbore spacing unit shall be entitled to receive its share of the production of the well(s) located on the unit applicable to its interest in such unit.

3.  The nonconsenting leased (working interest) owners must reimburse the consenting working interest owners for their share of the costs and risks of drilling and operating the well(s) (including penalties as provided by §34-60-116 (7)(b), C.R.S.) out of production from the applicable unit representing the cost-bearing interests of the nonconsenting working interest owners as provided by §34-60-116(7)(a), C.R.S.

4.     The unleased owners are hereby deemed to have elected not to participate and shall therefore be deemed to be nonconsenting as to the well and be subject to the penalties as provided for by §34-60-116 (7), C.R.S.

5.     Each nonconsenting unleased owner within the drilling and spacing unit or wellbore spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of its record title interest, whatever that interest may be, until such time as the consenting owners recover, only out of each nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34-60-116(7)(b), C.R.S. as amended.  After recovery of such costs, each unleased nonconsenting mineral owner shall then own its proportionate 8/8ths share of the well(s), surface facilities and production, and then be liable for its proportionate share of further costs incurred in connection with the well(s) as if it had originally agreed to the drilling.

6.     The operator of the well(s) drilled on the above-described drilling and spacing unit or wellbore spacing unit shall furnish the nonconsenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7.     Nothing in this order is intended to conflict with §34-60-116, C.R.S., as amended.  Any conflict that may arise shall be resolved in favor of the statute.

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 June, 2010, as of June 1, 2010.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 29, 2010