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

REPORT OF THE COMMISSION

The Commission heard this matter on November 15, 2012, at the offices of the Colorado Oil and Gas Conservation Commission, 1120 Lincoln Street, Denver, Colorado, upon application for an order to approve up to four horizontal wells within each of three approximate 640-acre drilling and spacing units established for Sections 25, 26 and 35, Township 8 North, Range 60 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.         Carrizo Oil and Gas, Inc. (“Carrizo” 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 September 19, 2011, the Commission entered Order No. 535-70 which, among other things, established two approximate 640-acre drilling and spacing units, and approved up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Section 25, Township 8 North, Range 60 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

5.         On October 31, 2011, the Commission entered Order No. 535-91 which, among other things, established two approximate 640-acre drilling and spacing units, and authorized up to two horizontal wells within each unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.  Sections 26 and 35, Township 8 North, Range 60 West, 6^th P.M. are subject to this Order for the Niobrara Formation.

6.         On July 9, 2012, the Commission entered Order No. 535-188 which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit for the development and operation of the Niobrara Formation.  Section 25, Township 8 North, Range 60 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

7.         On July 9, 2012, the Commission entered Order No. 535-189 which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit for the development and operation of the Niobrara Formation.  Section 26, Township 8 North, Range 60 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

8.         On July 9, 2012, the Commission entered Order No. 535-187 which, among other things, pooled all interests in an approximate 640-acre drilling and spacing unit for the development and operation of the Niobrara Formation.  Section 35, Township 8 North, Range 60 West, 6^th P.M. is subject to this Order for the Niobrara Formation.

9.         On September 17, 2012, Carrizo, by its attorneys, filed with the Commission pursuant to § 34-60-116 C.R.S., a verified application (“Application”) for an order to approve up to four horizontal wells within each of three approximate 640-acre drilling and spacing units established for the below-described lands (“Application Lands”), for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the horizontal wellbore to be no closer than 600 feet from the unit boundaries, and no closer than 600 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 25:    All                                                       (“DSU #1”)

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 26:    All                                                       (“DSU #2”)

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 35:    All                                                       (“DSU #3”)

10.       On October 31, 2012, companion protests to the Application were filed on behalf of Diversified Operating Corporation and Foundation Energy Management LLC (“Protestants”).  Both protests asserted that: 1) Rule 530 should be applicable to the additional wells that Carrizo seeks to authorize in the drilling units comprised of the Application Lands, 2) the prior force pooling order did not apply to wells for which the information required by Rule 530 had not been supplied, 3) Carrizo had not supplied the requisite information to the Protestants, and 4) allowing additional wells to be drilled in the future and applying the prior force pooling order to future wells would violate both C.R.S. §34-60-116 and Commission Rule 530.

11.       On November 6, 2012, a Prehearing Conference was held to address the protests.  Prior to the prehearing conference, Carrizo’s attorney entered a Motion to Dismiss the companion protests on the grounds that: 1) with respect to Sections 25 and 26 of the Application Lands, the Protestants are not “owners” as defined by the Act and the Commission Rules with standing to protest the modification of a drilling unit order; and 2) pooling issues are not germane to an application to modify a drilling unit by allowing additional wells, so that Rule 530 is inapplicable.  The Motion to Dismiss further argued that the proper procedural course for Protestants to raise issues related to the pooling orders applicable to the Application Lands would be to file an application to vacate or modify such pooling orders.

12.       At the prehearing conference, Carrizo’s attorney offered to resolve the matter by providing Carrizo’s assurance that it will offer to Protestants, with respect to the Application Lands in which one or both is an “owner,” an opportunity to participate in any subsequent wells to be drilled in the units comprised of the Application Lands and in any well for which Protestants were not provided with proper notice and an opportunity to participate. Protestants acknowledged that proper notice and an opportunity to participate were provided for the Hemberger 26-34-8-60 Well spudded July 26, 2012.

13.       On November 2, 2012, Carrizo, 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.

14.       Land testimony and exhibits submitted in support of the Application by Craig E. Wiest, Land Manager – Western US for Carrizo, showed that Carrizo has a right to drill in the Application Lands.

15.       Geologic testimony and exhibits submitted in support of the Application by Douglas Reid, Geological Manager for Carrizo, included an isopach map of the interval from the top of the Niobrara Formation to the top of the Codell Formation which showed the total thickness of the Niobrara Formation underlying the Application Lands averages approximately 310 feet.  A type log of the Niobrara Formation showed resistivity and density values similar to logs from analogous wells producing from the Niobrara Formation.  Stratigraphic cross-sections and gross thickness isopach tests showed the Niobrara to be consistent, continuous, and underlying all the Application Lands.

16.       Engineering testimony and exhibits submitted in support of the Application by Stephen C. Peters, Manager of Reservoir Engineering for Carrizo, showed an estimated ultimate recovery (“EUR”) of 200 MBO and a drainage area estimated at 70-acres per well.  Testimony concluded that applying reasonable resource recovery and price projections to the Application wells generates a positive rate of return sufficient for economic investment.

17.       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.

18.       Carrizo agreed to be bound by oral order of the Commission. 

19.       Based on the facts stated in the verified Application, having resolved all protests, and based on the Hearings Officer review of the Application under Rule 511., the Commission should enter an order to approve up to four horizontal wells within each of three approximate 640-acre drilling and spacing units established for Sections 25, 26 and 35, Township 8 North, Range 60 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 up to four horizontal wells within each of three approximate 640-acre drilling and spacing units established for the below-described lands, are hereby approved, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the horizontal wellbore to be no closer than 600 feet from the unit boundaries, and no closer than 600 feet from the treated interval of any other wellbore located in the unit, without exception being granted by the Director:

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 25:    All                                                       (“DSU #1”)

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 26:    All                                                       (“DSU #2”)

                        Township 8 North, Range 60 West, 6^th P.M.

                        Section 35:    All                                                       (“DSU #3”)

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 _____ day of November, 2012, as of November 15, 2012.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Robert J. Frick, Secretary