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

REPORT OF THE COMMISSION

The Commission heard this matter on March 25, 2013, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Suite 801, Denver, Colorado, upon application for an order to establish an approximate 160-acre drilling and spacing unit for Section 25, Township 7 North, Range 67 West, 6^th P.M., and approve up to three directional wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

FINDINGS

The Commission finds as follows:

1.         Bayswater Exploration & Production, LLC (“Bayswater” 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, 1988, 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 Cretaceous Age Formations from the base of the Dakota Formation to the surface. Rule 318A. supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of Greater Wattenberg Area wells.   On December 5, 2005, Rule 318A was amended, among other things, to allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  On August 8, 2011, Rule 318A was again amended, among other things, to address drilling of horizontal wells.  Section 25, Township 7 North, Range 67 West, 6^th P.M. is subject to Rule 318A for the Codell and Niobrara Formations.

5.         On December 13, 2012, Bayswater, by its attorneys, filed with the Commission pursuant to §34-60-116 C.R.S., a verified application (“Application”) for an order to establish an approximate 160-acre drilling and spacing unit for the below-described lands (“Application Lands”), and approve up to five directional wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the treated interval of the wellbore to be located no closer than 460 feet from the unit boundary, without exception being granted by the Director:

Township 7 North, Range 67 West, 6^th P.M.

Section 25:      NW¼

Applicant stated the surface location of the proposed directional wells shall be located in the NE¼ NE¼ of Section 26, Township 7 North, Range 67 West, 6^th P.M.

6.         On January 29, 2013, Bayswater, 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.

7.         Land testimony and exhibits submitted in support of the Application by Ben Schuessler, Landman for Bayswater, showed that Bayswater owns significant leasehold in the Application Lands, and that all of the interested parties received notice of the Application.

8.         Geologic testimony and exhibits submitted in support of the Application by Dennis P. Holler, Senior Geological Associate for MHA Petroleum Consultants for Bayswater, showed the Codell Formation under the Application Lands is approximately 20 feet thick, and the Niobrara Formation under the Application Lands is just over 300 feet thick.  Testimony further showed the Codell-Niobrara Formation is present and continuous throughout the Application Lands.

9.         Engineering testimony and exhibits submitted in support of the Application by John Arsenault, Vice-President for MHA Petroleum Consultants for Bayswater, showed estimated ultimate recovery (“EUR”) from both the Codell and Niobrara Formations to be 36,000 BO and 41 MMCF of gas per vertical well.  Additional testimony estimated a recovery factor of 4.4% from the Niobrara and 7.1% from the Codell, for each vertical well.  Further testimony concluded the economics of the project were sound.

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.       On February 8, 2013, Bayswater, by its attorneys, requested and Commission staff granted a continuance to the March 25, 2013 hearing.

12.       On February 12, 2013, Bayswater republished an Amended Notice of Hearing, requesting the Commission approve up to three wells within the drilling and spacing unit.

13.       On March 5, 2013, Scott McBride submitted a Rule 510 statement.

14.       On March 13, 2013, Scott McBride, by e-mail, withdrew his Rule 510 statement from the record.

15.       Bayswater agreed to be bound by oral order of the Commission. 

16.       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 160-acre drilling and spacing unit for Section 25, Township 7 North, Range 67 West, 6^th P.M., and approve up to three directional wells within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 160-acre drilling and spacing unit for the below-described lands, is hereby established, and up to three directional wells within the unit, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the treated interval of the wellbore to be located no closer than 460 feet from the unit boundaries, and no closer than 150 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

Township 7 North, Range 67 West, 6^th P.M.

Section 25:      NW¼

IT IS FURTHER ORDERED, the surface location of the proposed directional wells shall be located on adjacent lands in the NE¼ NE¼ of Section 26, Township 7 North, Range 67 West, 6^th P.M. with surface owner consent.

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   5^th   day of April, 2013, as of March 25, 2013.      

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert J. Frick, Secretary