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

REPORT OF THE COMMISSION

The Commission heard this matter on April 16, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to establish an approximate 320-acre drilling and spacing unit for Section 26, Township 7 North, Range 63 West, 6th P.M., and authorize a horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

FINDINGS

The Commission finds as follows:

1.         Chesapeake Exploration, LLC (“Chesapeake” 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.  Section 26, Township 7 North, Range 63 West, 6th P.M. is subject to Rule 318A., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

5.         On January 5, 2012, Chesapeake, by its attorney, filed with the Commission a verified application (“Application”) for an order to establish an approximate 320-acre drilling and spacing unit for the below-described lands (“Application Lands”), and authorize a horizontal well within the proposed 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 boundaries of the proposed unit, without exception being granted by the Director:

Township 7 North, Range 63 West, 6th P.M.
Section 26:    W½

6.         On February 15, 2012, Chesapeake requested, and Commission Staff granted a continuance to the April 16, 2012 hearing.

7.         On April 6, 2012, Chesapeake, 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.

8.         Land Testimony and exhibits submitted in support of the Application by Nick Watkins, Landman for Chesapeake, showed that Chesapeake owns a leasehold interest in the Application Lands, and that all interested parties received notice of the Application.

9.         Geologic Testimony and exhibits submitted in support of the Application by Ryan Sonntag, Petroleum Geologist for Chesapeake, showed continuity of the Niobrara formation across the Application Lands.  Testimony concluded the geological characteristics of the Niobrara formation in the Application Lands are similar to those in the surrounding lands, with the total thickness of the Niobrara approximately 250 to 300 feet.

10.       Engineering Testimony and exhibits submitted in support of the Application by Keeley Cuccio, Reservoir Engineer for Chesapeake, showed the estimated drainage area of a horizontal Niobrara well drilled on the Application Lands was approximately 89-acres, with an estimated ultimate recovery of 158 MBOE gas.  Testimony concluded the engineering characteristics of the Niobrara formation in the Application Lands are similar to those in the surrounding lands.

11.       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.

12.       Chesapeake agreed to be bound by oral order of the Commission. 

13.       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 320-acre drilling and spacing unit for Section 26, Township 7 North, Range 63 West, 6th P.M., and authorize a horizontal well within the proposed unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 320-acre drilling and spacing unit for the below-described lands, is hereby established, and a horizontal well within the unit, is hereby approved, 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 boundaries of the proposed unit, without exception being granted by the Director:

Township 7 North, Range 63 West, 6th P.M.
Section 26:    W½

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   18th  day of April, 2012, as of April 16, 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
April 18, 2012