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

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission on June 27, 2011, Elbert County Fairgrounds, Ag Building, 95 Ute Avenue, Kiowa, Colorado, for an order to establish an approximate 640-acre drilling and spacing unit for Section 28, Township 5 North, Range 63 West, 6^th P.M., and approve one horizontal well 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.     Bonanza Creek Energy Operating Company, LLC (“Applicant” or “Bonanza”), 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.     Rule 318.a. of the Rules and Regulations of the Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  Section 28, Township 5 North, Range 63 West, 6^th P.M. is subject to this Rule for the Codell and Niobrara Formations.

5.     On April 27, 1998, 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 of the Cretaceous Age Formations from the base of the Dakota Formation to the surface.  On December 5, 2005, Rule 318A. was amended to, among other things, allow interior infill and boundary wells to be drilled and wellbore spacing units to be established.  Section 28, Township 5 North, Range 63 West, 6^th P.M. is subject to this Rule for the Codell and Niobrara Formations.

6.  On April 28, 2011, Bonanza, by its attorney, filed with the Commission a verified application (the “Application”) for an order to establish a 640-acre drilling and spacing unit for the below-described lands, (the “Application Lands”) and approve one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the treated interval of the permitted well to be no closer than 460 feet from the boundaries of the unit:

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

7.     On June 14, 2011, 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. At the same time, Bonanza withdrew the Codell Formation from the Application. Sworn written testimony and exhibits were submitted in support of the Application.

8.     Land testimony and exhibits submitted in support of the Application by R. Michael McPhetridge, Vice-President of Land for Bonanza, showed that Bonanza has a majority oil and gas leasehold interest in the Niobrara Formation in the Application Lands.

9.     Geologic testimony and exhibits submitted in support of the Application by Brian Cunningham, Petroleum Geologist for Bonanza, showed that the Niobrara Formation is a common source of supply throughout the Application Lands.  The regional dip of the Application Lands is ½ degree to the west.  Total thickness of the Niobrara Formation ranges from 220 to 300 feet under the Application Lands, with the thickest area to the eastern portion.

10.   Engineering testimony and exhibits submitted in support of the Application by Patrick Graham, Executive Vice President of Bonanza, showed that the estimated probable drainage from vertical Niobrara wells in the Application Lands is substantially less than analogous horizontal Niobrara wells by factors of 9 to 14.  The testimony concludes that a 640-acre drilling and spacing unit is therefore not less than the maximum area that can be efficiently, economically and effectively drained by one horizontal well producing oil, gas and associated hydrocarbons from the Niobrara Formation on the Application Lands.  The testimony further concludes that vertical completions in the Niobrara Formation alone in the Application Lands are uneconomic or marginally economic, while horizontal development provides an attractive economic rate of return. 

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 June 10, 2011, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the Application. 

12.   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 gas, and will not violate correlative rights.

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 establishing a 640-acre drilling and spacing unit for Section 28, Township 5 North, Range 63 West, 6^th P.M., and approve one horizontal well 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 640-acre drilling and spacing unit is hereby established for the below-described lands, and one horizontal well is approved within the unit, for the production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations, with the treated interval of the permitted well to be no closer than 460 feet from the boundaries of the unit:

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

                        IT IS FURTHER ORDERED, that the treated interval of the permitted well shall be no closer than 460 feet from the boundaries of the unit.

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    30^th    day of June, 2011, as of June 27, 2011.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________       

                                                                                    Robert A. Willis, Acting Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 30, 2011