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

REPORT OF COMMISSION

                        This cause came on for hearing before the Commission on August 8, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to establish an approximate 640-acre drilling and spacing unit for Section 32, Township 11 North, Range 65 West, 6^th P.M., and approve one 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.    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 32, Township 11 North, Range 65 West, 6^th P.M. is subject to this Rule for the Niobrara Formation.

5.    On April 28, 2011, Chesapeake, by its attorneys, filed with the Commission a verified application (the “Application”) for an order to establish an approximate 640-acre drilling and spacing unit for the below-listed lands (the “Application Lands”), and approve one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore for the permitted well to be no closer than 600 feet from the unit boundaries, without exception being granted by the Director:

Township 11 North, Range 65 West, 6^th P.M. 

Section 32:  All

6.    On July 27, 2011, Chesapeake, 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 Nick Watkins, District Landman for Chesapeake, showed that Chesapeake is a leaseholder of the Application Lands.

8.    Geology testimony and exhibits submitted in support of the Application by Cameron Thompson, Geologist for Chesapeake, showed that the Niobrara Formation underlies the entirety of the Application Lands with a total thickness of approximately 300 feet to 310 feet under the proposed spacing area with a regional dip of approximately 50 feet per mile to the west.

9.  Engineering testimony and exhibits submitted in support of the Application by Matthew Nikkel, Reservoir Engineer for Chesapeake, showed an estimated ultimate recovery of 324,000 barrels of oil for a well drilled within the Application Lands, with a resulting drainage area of 241 acres.  Testimony also showed that the proposed 640-acre drilling and spacing unit is not smaller than the maximum area that can be efficiently drained by one horizontal Niobrara well.

10.  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 July 29, 2011, the CDPHE Oil & Gas Coordinator indicated that CDPHE does not believe any additional conditions of approval are necessary for approving the Application.

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 gas, 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 establishing an approximate 640-acre drilling and spacing unit for Section 32, Township 11 North, Range 65 West, 6^th P.M., and approve one horizontal well within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that an approximate 640-acre drilling and spacing unit is hereby established for the below-listed lands, and one horizontal well is hereby approved within the unit, for the production of oil, gas and associated hydrocarbons from the Niobrara Formation, with the treated interval of the wellbore for the permitted well to be no closer than 600 feet from the unit boundaries, without exception being granted by the Director:

Township 11 North, Range 65 West, 6^th P.M. 

Section 32:  All

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   12^th   day of August, 2011, as of August 8, 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

August 12, 2011