REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 18, 1975 at 9 A.M., in Room 532, State Services Building, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Gulf Oil Corporation, for an order requiring the pooling of all tracts of land within the designated unit consisting of the NE/4 Section 34 and the NW/4 Section 35, Township 6 South, Range 104 West, and the desig-nated unit consisting of the SE/4 Section 34, and the SW/4 Section 35, Township 6 South, Range 104 West, 6th P.M. for the development of gas from the Dakota formation underlying said units.

FINDINGS

The Commission finds as follows:

1. That due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

2. That the Commission has jurisdiction over the subject matter embraced in said Notice, and of the parries interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

3. That on December 20, 1973, the Commission issued its Order No. 285-1 which established 320-acre drilling and spacing units for the production of gas from the Dakota formation underlying the South Canyon Area. Garfield County, Colorado. The units are to consist of the E/2 and W/2 or the N/2 and S/2 of a section; however two (2) units were designated, one consisting of the NE/4 Section 34 and the NW/2 Section 35, Township 6 South, Range 104 West, and the second consisting of the SE/4 Section 34 and SW/4 Section 35, Town-ship 6 South, Range 104 West, 6th P.M.

4. That some effort has been made to obtain the voluntary pooling of all interests in said drilling units for the development and operation thereof, but that it has not been possible to secure the agreement of all owners of interests in said units for the voluntary pooling thereof.

5. That Applicant is an "interested person" within the meaning of 34-60-116 (6), CRS 1973, as amended, of the Oil and Gas Conservation Act of the State of Colorado.

6. That Well No. 1 Govt., located in the W/2 SW/4 Of said Section 35, and Well No. 2 Govt. located in the NE/4 NE/4 of said Section 34, have been drilled and completed as commercial producers of gas from the Dakota formation.

7. That in order to insure proper and efficient development of said drilling units and to promote conservation of the gas resources of the State, an order should be made pooling all interests in each of the 320-acre drilling units described herein.

8. That an order of the Commission pooling all interests in each said drill-ing unit is necessary in order to afford each owner of interest in each said drilling unit the opportunity to recover and receive his just and equitable share of the gas from the common source of supply underlying each said drilling unit.

(over)

9. That production obtained from each said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in such tract bears to the total number of acres within said drilling unit.

10. That to make the effective date of this order retroactive to the date of the Commission's Order No. 285-1, December 20, 1973, would result in Gulf Oil Corpora-tion receiving the benefits of production prior to the date of the application requesting the pooling, when it had taken no risk in the drilling of the wells and further, had not made an effort to obtain a pooling order within a reasonable time, and that the receipt of such bene-fits by Gulf Oil Corporation would not be just and equitable.

11. That it is just and reasonable that the effective date of this order should be the date of hearing, November 18, 1975 and that said date will afford the owners of each tract or interest in said drilling and spacing units the opportunity to recover or receive his just and equitable share.

ORDER

NOW, THEREFORE, IT IS ORDERED, that pursuant to the provisions of 34-60-116, CRS 1973, as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling unit consisting of the NE/4 Section 34 and the NW/2 Section 35, Township 6 South, Range 104 West, and the drilling unit consisting of the SE/4 Section 34 and the SW/4 Section 35, Township 6 South, Range 104 West, 6th P.M., are hereby pooled for the development and operation of said drilling units.

IT IS FURTHER ORDERED, that the production obtained from each said drilling unit shall, from and after the date of this order, be allocated to each tract therein on the basis of the proportion that the number of acres in such tract bears to the total number of acres within said drilling unit, and each owner of interest in said tracts in said drilling units shall be entitled to receive his share of the production of the well located on each said drilling unit, applicable to his interest in said drilling unit.

IT IS FURTHER ORDERED, that this order shall become effective November 18, 1975.

ORDERED this 20th day of January, 1976.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO By Frank J. Piro, Secretary

(#285 -2)

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

IN THE MATTER OF THE PROMULGATION ) AND ESTABLISHMENT OF FIELD RULES TO ) CAUSE NO. 285 GOVERN OPERATIONS IN THE SOUTH ) CANYON AREA, GARFIELD COUNTY, ) ORDER NO. 285-2 COLORADO ) (ON REMAND)

REPORT OF THE COMMISSION

This cause came on For hearing before the Commission on November 18, 1975 at 9 A.M., in Room 532, State Services Building, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Gulf Oil Corporation, for an order requiring the pooling of all ,tracts of land within the designated unit consisting of the NE/4 Section 34 and the NW/4 Section 35, Township 6 South, Range 104 West; and the designated unit consisting of the SE/4 Section 34 and the SW/4 Section 35, Township 6 South, Range 104 West, 6th P.M. for the development of gas from the Dakota formation underlying 'said units.

FINDINGS

On remand, the Commission finds as follows:

1. Due notice of the time, place and.purpose of the hearing has been given in all respects as required by law.

2. 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.

3. Some effort has been made to obtain the voluntary pooling of all inter-ests in said drilling units for the development and operation thereof, but that it has not been possible to secure the agreement of all owners of interests in said units for the voluntary pooling thereof.

4. Applicant is an "interested person" within the meaning of 34-60-116, C.R.S. 1973, as amended, of the Oil and Gas Conservation Act of the State of Colorado.

5. Walter S. Fees, Jr., LeRoy Bacon, Stelbar Oil Corporation and Robert J. Gutru, Protestants, are the owners of United States Oil and Gas Lease C-15014, dated March 1, 1972, which covers the following-described land in Garfield County, Colorado to-wit:

Township 6 South, Range 104 West, 6th P.M. Unit 1: NE/4 Section 34 and W/2 NW/4 Section 35 (240-acres more or less)

Unit 2: SE/4 Section 34 and W/2 SW/4 Section 35 (240-acres more or less)

6. Applicant together with Union Oil Company of California, Forest Oil Corporation and Terra Resources, Inc. (hereinafter referred to collectively as the "South Canyon Unit owners") own the working interest in and to United States Oil and Gas Lease ('-0785, dated October 1, 1950, which covers the following described land in Garfield County, Colorado to-wit:

Township 6 South, Range 104 West, 6th P.M. Unit 1: E/2 NW/4 Section 35 (80-acres more or less)

Unit 2: E/2 SW/4 Section 35 (80-acres more or less)

(over)

7. The United State of America is the owner of all the minerals under the land covered by the oil and gas leases above-described and such leases each specify a royalty of 12 /2%.

8. On December 20, 1972, Protestants commenced the drilling of the Government Well No. 1 in the W/2 SW/4 Section 35, Township 6 South, Range 104 West, 6th P.M., and same was completed as the commercial producer of gas on January 3, 1973, at a total cost to Protestants of $64,676.66.

9. On November 23, 1973, Belco Petroleum Corporation filed an applica-tion for the establishment of 320-acre drilling and spacing units for the development and production of gas from the Dakota formation Unnamed Field, Garfield County, Colorado. Said application, was amended on November 28, 1973. Said application, as amended, requested, among other things. that drilling and spacing units be established for all sec-tions in Township 6 South, Range 104 West, 6th P.M., and that they consist of either the E/2 and W/2 or the N/2 and S/2 of said sections.

Protestants filed a protest, dated December 11, 1973, to the applica-tion of Belco, wherein they recited that they had drilled the Government Well No. 1 in the SW/4 SW/4 of Section 35, Township 6 South, Range 104 West, 6th P.M., and that they planned to drill an additional well in the NE/4 NE/4 of Section 34, Township 6 South, Range 104 West, 6th P.M. Said protest requested that a 320-acre drilling and spacing unit for the Government Well No. 1 be established as the SW/4 Section 35 and the SE/4 Section 34,, all in Township 6 South, Range 104 West, 6th P.M., and that another 320-acre drilling and spacing unit for the proposed well be established as the NW/4 Section 35 and the NE/4 Section 34, all in Township 6 South, Range 104 West, 6th P.M.

Applicant, by telegram dated December 14, 1973, informed the Oil and Gas Conservation Commission of the State of Colorado of its preference for the establishment of E/2 and W/2 "standup" drilling and spacing units for Section 35, Town-ship 6 South, Range 104 West, 6th P.M.

10. A hearing on the Belco Petroleum Corporation application was held on December, 18, 1973, and pursuant to the evidence submitted at the hearing, the Oil and Gas Conservation Commission of the State of Colorado centered its Order No. 285-1, dated December 20, 1973. Finding No. 7 of said order recites that all available geological and engineering data concerning the Dakota formation underlying Units 1 and 2 and other land indicate that one well will efficiently and economically drain an area of approximately 320-acres, and that drilling units of that size are not smaller than the maximum area that can be efficiently and economically drained by one well producing from said Dakota formation. Order 285-1 established 320-acre drilling and spacing units for all sections in Township 6 South, Range 104 West, Garfield ,County, Colorado, said units to consist of the E/2 and W/2 or the N/2 and S/2 of a section except that the following described two 320-acre drilling and spacing units were established by special designation in accordance with the protest of Protestants: , Township 6 South, Range 104 West, 6th P.M. Unit 1: NE/4 Section 34 and NW/4 Section 35 Unit 2: SE/4 Section 34 and SW/4 Section 35

11. The Government Well No. 1 is the permitted well for the 320-acre drilling and spacing unit comprising Unit 2 and the Government Well No. 2 is the per-mitted well for the 320-acre drilling and spacing unit comprising Unit 1.

12. Record of gas sales by Protestants from the Government Well No. 1 is as follows:

January 1973 - November 1973 - Shut-in December 1973 - May 1974 -292,296 Mcr June 1974 - February 1975 -Shut-in March 1975 - June 1975 -216,353 Mcr July 1975 -Shut-in August 1975 - June 1976 -622,923 Mcf TOTAL, CUMULATIVE PRODUCTION THROUGH JUNE 1976 - 1,131,572 Mcf ' 2 --(#285-2) 13. Protestants commenced the drilling of the Government well No. 2 in the NE/4 NE/4 Section 34, Township 6 South, Range 104 West, 6th P.M. (Unit 1) on October 25, 1974, and the same was completed as a commercial producer of gas on November 4, 1974 at a total cost to Fees et al of $90,628.45.

14. Record of gas sales. by the Protestants from the Government Well No. 2 is as follows:

November 1974 - February 1975 - Shut-in March 1975 - June 1975 - 23,919 Mcf July 1975 - Shut-in August 1975 - June 1976 - 60,771 Mcf TOTAL C TOTAL CUMULATIVE PRODUCTION THROUGH JUNE 1976 - 84,690 MCF

15. Gas produced from the Protestants oil and gas lease is dedicated to a gas purchase contract entered into by Protestants and Rocky Mountain Natural Gas Co., the same being dated October 13, 1973 and gas produced from oil and gas lease described in paragraph G hereof is dedicated to a gas purchase contract entered into by Gulf and Western Slope Gas Co., the same being dated June 8, 1959.

16. Base price payable by Rocky Mountain Natural Gas Co. to Protestants is as follows:

October 1973 - December 1974 - $.35 per Mcf January 2975 - present - .45 per Mcf

Base price payable, subject to BTU adjustments under the Gulf/Western Slope Gas Co.-gas purchase contract is as follows:

August 17, 1972 -. May 14, 1974-$.15 per Mcf May 15, 1974 - September 24, 1975-.35 per Mcf September 2.5, 1975 - present-.62 per Mcf

The increases in the price paid to Applicant and the South Canyon Unit non-operating owners under the terms of the Western Slope Gas Co. gas purchase con-tract resulted from the operations of the most favored nations clause, Article VII Section 7.'5 of the contract.

17. On March 15, 1974, Applicant sent a letter to Protestants, indicating that the South Canyon Unit, operated by Applicant, owned the E/2 SW/4 of said Section 35, and that in order for all of said South Canyon Unit participants "to make a decision as to participation" in the Government Well No. 1, they required submission of well records, test results, actual revenue and cost data.

18. On March 28, 1974, Walter S. Fees, Jr., on behalf of Protestants, sent a letter to Applicant enclosing the information requested by Applicant's aforemen-tioned letter of March 15, 1974. Protestants also offered to meet with representatives of Applicant.

19. On May 7, 1974, the Applicant wrote a letter to Protestants expressing a desire to participate, and asserting participation rights upon the following schedule:

Walter S. Fees, Jr. 75.000% Gulf Oil Company-U.S. 12.500% Union Oil Company of California 3.372% Terra Resources, Inc. 5.428% Forest Oil Corporation 3.700%

Copies of said letter were also sent to the latter three requesting that they advise Protestants if they wished to participate in the well.

-- 3 --(#285-2)

20. On May 21, 1974, Protestant Fees wrote to Applicant asserting that Applicant was entitled to only 3% of the remaining gas under the acreage for the Govern-ment Well No. 1. Again, Protestants offered to meet with representatives 0 Applicant.

21. On June 12, 1974, Applicant wrote to Protestant Fees disputing the offer of 3%, and asserting that well participation should be according to the ratio 0 acres being contributed by each party to the drilling unit for the Government Well No. 1. Applicant told Protestant Feesto call certain employees of Applicant in order to resolve the dispute.

22. It was not until January 24, 1975, that Applicant again corresponded with Protestants this time for the purpose of setting up a meeting in Denver on February 5, 1975, regarding the well participation ratios for both the Government Wells No. 1 and No. 2.

23. On March 17, 1975, Applicant wrote Protestant Fees inquiring as to whether or not Protestant Fees was preparing an Operating Agreement and Communitiza-tion Agreement for the units.

24. On March 24,/975, Protestant Fees wrote to Applicant confirming that he was having such documents drawn by counsel in Denver. Said documents were transmitted to Applicant by Protestant's counsel by letter of April 16, 1975.

25. Applicant returned said documents to Protestant Fees by letter of May 5, 1975, having signed the Operating Agreement, but leaving the Communitization Agreement unsigned. The terms of the Communitization Agreement were such that participation in the wells would begin for Applicant upon the execution of the documents bv the neccessary parties. Applicant asserted that its participation should begin on the date of the spacing order.

26. Counsel for Protestant Fees responded to Applicant by letter of May 21, 1975 in which he asserted that Protestants had never agreed to accept a voluntary pooling arrangement which was retroactive to the date of the spacing order.

27. On June 20, 1975, Applicant again wrote Protestant's counsel assert-ing that the effective date any pooling agreement should be the date of the spacing order.

28. On September 26, 1975, Applicant filed for an order pooling the separately owned interests in Units 1 and 2 with the Commission. Said application specificaIIy requests that the effective date of the compulsory pooling order be estab-lished by the Commission as December 20, 1973, the date of the Commission's order which established Units 1 and 2 byspecial designation. On or about October 17, 1975, Protestants Filed a protest to the application of Gulf with the Commission wherein they admitted the statutory right of the South Canyon Unit participants to obtain the pooling order, but denied that the effective f{ate of said order should be December 20, 1973.

29. In order to insure proper and efficient development of said drilling units and to promote conservation of the gas resources of the State, an order should be made pooling all interests in each of the 320-acre drilling units described herein.

30. An order of the Commission pooling all interests in each said drilling unit is necessary in order to afford each owner of interest in each said drilling unit the opportunity to recover and receive his just and equitable share of the gas from the common source of supply underlying each said drilling unit.

31. Production obtained from each said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in such tract bears to the total number of' acres within said drilling unit.

-- 4 --(#285-2)

32. To make the effective date of this order retroactive to the date of the Commissions Order No. 285-1, December 20, 1973 would result in the Applicants receiving the benefits of production prior to the date or the application requesting the pooling, when it had taken no risk-in the drilling of the wells. The Commission finds that there was a 11-month period where the well was shut-in and Applicant had ample time to request a compulsory pooling order, which would not have prejudiced either party. Instead it chose to wait until production commenced and then waited an additional 22-months before filing an application. Under the specific facts in this. case the receipts or such benefits by the Applicant would not be just and equitable.

33. It is just and reasonable that the effective date of this order should be the date of hearing, November 18, 1975 and that said date will afford the owners of each tract or interest in said drilling and spacing units the opportunity to recover or receive his just and equitable share.

ORDER

NOW, THEREFORE, IT IS ORDERED, that pursuant to the provisions of 34-60-116, C.R.S. 1973, as amended, or the Oil and Gas Conservation Act or the State of Colorado, all interests in the drilling unit consisting of the NE/4 Section 34 and the NW/2- Section 35, Township 6 South, Range 104 West, and the drilling unit consisting of the SE/4 Section 34 and the SW/4 Section 35, Township 6 South, Range 104 West, 6th P.M., are hereby pooled for the development and operation of said drilling units.

IT IS FURTHER ORDERED, that the production obtained from each said drilling unit shall, from and after the effective date of this order, be allocated to each tract therein on the basis of the proportion that the number of acres in such tract bears to the total number or acres within said drilling unit, and each owner or interest in said tracts in said drilling units shall be entitled to receive his share of the production or the well located on each said drilling unit, applicable to his interest in said drilling unit.

IT IS FURTHER ORDERED, that these orders shall become effective November 18, 1975.

ORDERED this 8th day of February, 1979.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary

-- 5 --(#285-2)

---------------------------------------------------------------------------------------