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

REPORT OF THE COMMISSION

The Commission heard this matter on January 23, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to establish eight approximate 640-acre drilling and spacing units in Sections 1, 2, and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M., and Sections 17, 21, 29, and 31, Township 5 North, Range 62 West, 6^th P.M., and authorize up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.    Bonanza Creek Energy Operating Company, LLC (“Bonanza” 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 April 27, 1998, the Commission adopted Rule 318A., the Greater Wattenberg Well Location Rule (“GWA” rule), 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.  Pursuant to Rule 318A.j., Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells. Sections 1, 2, and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M., and Sections 17, 21, 29, and 31, Township 5 North, Range 63 West, 6^th P.M. are subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

5.    On November 10, 2011 (amended December 21, 2011), Bonanza, by its attorneys, filed with the Commission a verified application (“Application”) for an order to establish eight approximate 640-acre drilling and spacing units for the below-listed lands (“Application Lands”), and authorize up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the permitted wellbore to be located no closer than 460 feet from the boundary of the unit, and no closer than 920 feet from the completed interval of another well producing from the same common source of supply, without exception being granted by the Director:

Township 4 North, Range 63 West, 6^th P.M

Sections 1, 2, and 12:         All

Township 4 North, Range 62 West, 6^th P.M

Section 5:      All

Township 5 North, Range 62 West, 6^th P.M

Sections 17, 21, 29, and 31:          All

6.    On January 5, 2012, Bonanza, 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. Sworn written testimony and exhibits were submitted in support of the Application.

7.    Land Testimony and exhibits submitted in support of the Application by R. Michael McPhetridge, Vice President of Land of Bonanza, showed that Bonanza has leased all of the oil and gas mineral interest in the Application Lands.

8.    Geologic Testimony and exhibits submitted in support of the Application by Paul McKay, petroleum geologist for Bonanza, including an 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 generally is of uniform thickness throughout the entire spacing area.

9.    Engineering Testimony and exhibits submitted in support of the Application by Patrick A. Graham, trained Petroleum Engineer and Executive Vice President of Bonanza, further showed that the drainage area for analogue horizontal Niobrara wells are estimated at 56 acres and 116 acres respectively, and 640-acre drilling and spacing units are therefore not less than the maximum area than can be efficiently, economically and effectively drained by a horizontal well producing oil, gas and associated hydrocarbons from the Niobrara Formation in the Application Lands.  Such testimony also indicated establishment of the requested drilling and spacing units will prevent or assist in preventing waste by ensuring that the pool as a whole may be efficiently and economically developed, without prejudice to the rights of other leasehold or mineral owners.

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.  The Application was reviewed by the Colorado Department of Public Health and Environment (“CDPHE”) pursuant to consultation provisions of Rule 306.d.  In a letter dated January 6, 2012, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the amended Application.

12.  On January 6, 2012, Bonanza, by its attorneys, filed with the Commission a written request to provide that the treated interval of the permitted wellbore shall be located no closer than 460 feet from the boundary of the unit, and no closer than 150 feet from the completed interval of another well producing from the same common source of supply, pursuant to Rule 318A.

13.  Bonanza agreed to be bound by oral order of the 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 order to establish eight approximate 640-acre drilling and spacing units in Sections 1, 2, and 12, Township 4 North, Range 63 West, 6^th P.M., Section 5, Township 4 North, Range 62 West, 6^th P.M., and Sections 17, 21, 29, and 31, Township 5 North, Range 62 West, 6^th P.M., and authorize up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that eight approximate 640-acre drilling and spacing units, are hereby established, for the below-listed lands, and up to two horizontal wells, are hereby approved, within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the permitted wellbore to be located no closer than 460 feet from the boundary of the unit, and no closer than 150 feet from the completed interval of another well producing from the same common source of supply, without exception being granted by the Director:

Township 4 North, Range 63 West, 6^th P.M

Sections 1, 2, and 12:         All

Township 4 North, Range 62 West, 6^th P.M

Section 5:      All

Township 5 North, Range 62 West, 6^th P.M

Sections 17, 21, 29, and 31:          All

IT IS FURTHER ORDERED, that the surface location and setback provisions of this Order shall be consistent with Rule 318.A. for the Greater Wattenberg Area.

IT IS FURTHER ORDERED, that the proposed drilling and spacing units established by this Order shall be applicable only to the drilling of horizontal wells, with directional and vertical wells remaining subject to Rule 318.A.

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   26^th  day of January, 2012, as of January 23, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Peter J. Gowen, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

January 26, 2012