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

REPORT OF THE COMMISSION

The Commission heard this matter on May 29, 2012, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, upon application for an order to authorize one or more additional horizontal wells within an approximate 640-acre drilling and spacing unit for Section 28, Township 5 North, Range 63 West, 6^th P.M., 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.  Section 28, Township 5 North, Range 63 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On June 27, 2011, the Commission entered Order No. 535-40 which, among other things: 1) established an approximate 640-acre drilling and spacing unit for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, and authorized one horizontal well within the unit, with the surface location to be located anywhere within the unit or on surrounding lands, consistent with Rule 318A; and 2) required the completed interval of any horizontal well to be no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal well to be no closer than 150 feet from the wellbore of any existing or permitted oil and gas well.  Section 28, Township 5 North, Range 63 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

6.         On March 30, 2012, Bonanza, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to authorize one or more additional horizontal wells within an approximate 640-acre drilling and spacing unit for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the surface facilities to be located anywhere on the surface or on surrounding lands, consistent with Rule 318A; and the completed interval of any horizontal well to be located no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal wellbore to be located no closer than 150 feet from the wellbore of any existing or permitted oil and gas well, without exception being granted by the director:

Township 5 North, Range 63 West, 6^th P. M.

Section 28:      All

Applicant further requested that horizontal wells under the requested order be drilled from no more than two surface pads per governmental half-section, as designated by the operator, with wells on each pad to be drilled at a surface location within 50 feet of an adjacent well, absent a showing of good cause, which shall include surface owner consent. 

7.         On May 15, 2012, Bonanza, 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. Sworn written testimony and exhibits were submitted in support of the Application.

                        8.         Land Testimony and exhibits submitted in support of the Application by Patrick A. Graham, Executive Vice President of Bonanza, showed that Bonanza has oil and gas leasehold interests in each unit of the Application Lands.

                        9.         Geologic testimony and exhibits submitted in support of the Application by Brian L. Cunningham, Petroleum Geologist for Bonanza, showed an analysis of cross-sections from nearby Niobrara Formation type wells, indicated that the Niobrara Formation is a common source of supply with a total thickness between 220 and 300 feet throughout the entire spacing unit.

                        10.       Engineering Testimony and exhibits submitted in support of the Application by Patrick A. Graham, Executive Vice President of Bonanza, show the drainage area for nearby Niobrara type wells average eight acres for vertical wells, and 48 to 64-acres for horizontal wells.  Further testimony showed the economics of the proposed horizontal wells resulted in a significantly higher rate of return than traditional vertical wells, making the project economically viable.

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.       Bonanza 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 authorize one or more additional horizontal wells within an approximate 640-acre drilling and spacing unit for Section 28, Township 5 North, Range 63 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that one or more additional horizontal wells within an approximate 640-acre drilling and spacing unit for the below-described lands, is hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation:

Township 5 North, Range 63 West, 6^th P. M.

Section 28:      All

IT IS FURTHER ORDERED, that the surface facilities may be located anywhere on the surface or on surrounding lands, consistent with Rule 318A; with the completed interval of any horizontal well to be located no closer than 460 feet from the boundaries of the unit, and the distance between the completed interval of any horizontal wellbore to be located no closer than 150 feet from the wellbore of any existing or permitted oil and gas well, without exception being granted by the director:

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   4^th  day of June, 2012, as of May 29, 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

June 4, 2012