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 July 8, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish eleven (11) 640-acre drilling and spacing units for certain lands located in Township 6 North, Range 60 West, 6^th P.M. and Townships 6 and 7 North, Range 61 West, 6^th P.M., and allow up to two horizontal wells to be drilled in each unit, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, with a bottomhole location of any permitted well to be no closer than 460 feet from the boundaries of the unit.

FINDINGS

The Commission finds as follows:

1.     Petroleum Development Corporation (“PDC”) and Swanson Production Company (“Swanson”), as joint applicants herein, are interested parties 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 6, Township 6 North, Range 60 West, 6^th P.M. is subject to this Rule for the Niobrara Formation.

5.     Rule 318A.a.(4)C. provides that when completing a Greater Wattenberg Area (“GWA”) well in an unspaced formation, the operator shall designate a drilling and spacing unit not smaller than a governmental quarter-quarter section if the well is to be located no closer than 460 feet to the quarter-quarter section boundary in which it is located.  The below-listed lands are within the GWA and are subject to Rule 318A.a.(4)C. for the Niobrara Formation:

Township 6 North, Range 61 West, 6^th P.M.

Township 7 North, Range 61 West, 6^th P.M.

6.     On May 19, 2010, Swanson, by its attorney, filed with the Commission a verified application to establish eleven (11) approximate 640-acre drilling and spacing units for the below-listed lands, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, and allow up to two optional horizontal wells in each of the units, with a bottomhole location of any permitted well to be no closer than 460 feet from the boundaries of the unit:

Township 6 North, Range 60 West, 6^th P.M.

Township 6 North, Range 61 West, 6^th P.M.

Township 7 North, Range 61 West, 6^th P.M.

7.     On June 23, 2010, PDC submitted to the Commission a Joinder Motion wherein PDC stated that, on June 18, 2010, PDC and Swanson closed a transaction, pursuant to a definitive Purchase and Sale Agreement, whereby PDC acquired a 75% working interest in the application lands, and, pursuant to said agreement, PDC is the designated operator for the acreage comprising the application lands and it will carry forward the application through the Commission’s hearing process.

8.     On June 24, 2010, PDC, by its attorney, 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 in support of the application showed that, on June 18, 2010, PDC and Swanson closed a transaction, pursuant to a definitive Purchase and Sale Agreement, whereby PDC acquired a 75% working interest in the application lands, and, pursuant to said agreement, PDC and Swanson own a substantial majority of the leasehold interests in, and PDC is the designated operator for the acreage comprising the application lands.

10.   Testimony and exhibits submitted in support of the application showed that the analysis of cross sections from Niobrara Formation wells located in the vicinity of the application lands indicates that the Niobrara Formation is a common source of supply and is of uniform thickness throughout the entire spacing area.

11.   Testimony and exhibits submitted in support of the application showed that, based on decline curve analysis of several existing Niobrara Formation wells located in the vicinity of the application lands and data collected from well logs, the original oil-in-place was calculated to be approximately 13,000 barrels per acre or approximately 8.4 million barrels per section.  Additional testimony showed that it is expected that two horizontal Niobrara Formation wells would drain an approximate 13.7 acres and derive a positive rate of return between 12 and 28% depending on the commodity price and the costs associated with capital expenditure.

12.   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.

13.   PDC agreed to be bound by oral order of this 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 to establish eleven (11) 640-acre drilling and spacing units for certain lands located in Township 6 North, Range 60 West, 6^th P.M. and Townships 6 and 7 North, Range 61 West, 6^th P.M., and allow the optional drilling of up to two horizontal wells within each unit, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, with the bottomhole location and the horizontal leg of any permitted well to be no closer than 460 feet from the unit boundary.

ORDER

NOW, THEREFORE IT IS ORDERED, that eleven (11) approximate 640-acre drilling and spacing units are hereby established for the below-listed lands, and that up to two optional horizontal wells are hereby approved for each unit, for the production of oil and gas and associated hydrocarbons from the Niobrara Formation, with a bottomhole location and the horizontal leg of any permitted well to be no closer than 460 feet from the boundaries of the unit:

Township 6 North, Range 60 West, 6^th P.M.

Township 6 North, Range 61 West, 6^th P.M.

Township 7 North, Range 61 West, 6^th P.M.

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 August, 2010, as of July 8, 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

August 2, 2010