IN THE MATTER OF GENERAL RULES AND REGULATIONS WITH RESPECT TO THE CONSERVATION OF OIL AND GAS IN THE STATE OF COLORADO, AND RULES OF PRACTICE AND PROCEDURE PERTAINING THERETO AND IN PARTICULAR WITH REFERENCE TO RULE 323

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE CODELL-NIOBRARA SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NO. 407

ORDER NO. 407-59

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 19, 1990, in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing, as required by law on the verified application of Conquest Oil Company for an order to confirm the previously established 80-acre drilling and spacing unit consisting of the S1/2 NE1/4 in Section 23, Township 5 North, Range 65 West, 6th P.M., Weld County, Colorado for production of oil and gas and associated hydrocarbons from the Codell and Niobrara formations underlying said lands, and to request an order pooling all interests in the 80-acre tract consisting of the N1/2 NE1/4 of Section 23, Township 5 North, Range 65 West, 6th P.M., Weld County, Colorado for the development and operation of oil and gas from the Codell-Niobrara formation underlying said unit, pursuant to Colorado Revised Statutes, 34-60-116, 1984.

FINDINGS

The Commission finds as follows:

1. Conquest Oil Company as applicant herein, is an interested party in the subject matter of the above-entitled 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.

4. On December 19, 1983 the Commission authorized Order No. 407-1 to be issued which established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Codell formation. The units consist of the E1/2 and W1/2 or the N1/2 and S1/2 of each governmental quarter-quarter section with a tolerance of 200 feet and the option to drill an additional well in the undrilled 40-acre tract. Subsequent Order No. 407-10 included the Niobrara formation and allowed downhole commingling of production from the Codell and Niobrara formations. The NE1/4 of Section 23, Township 5 North, Range 65 West, 6th P.M. Weld County, Colorado lies within the area spaced by these orders.

5. No wells have been drilled in the N1/2 of the NE1/4 of said Section 23 to establish production from the Niobrara or Codell formations.

6. Based on the facts stated in the verified application and having been heard by the Hearing Officer who recommended approval of the application, and having received no protests, the Commission should approve the request and confirm Order No. 407-24 which established the S1/2 NE1/4 as the 80-acre drilling and spacing unit of said Section 23 for the commingled production of oil, gas and associated hydrocarbons from the Niobrara and Codell formations.

7. Efforts have been made to obtain the voluntary pooling of all interests for the 80-acre unit consisting of the N1/2 NE1/4 of Section 23, Township 4 [sic] North, Range 65 West, 6th P.M.

8. Based on the facts stated in the verified application, and receiving no protests and having been heard by the Director as Hearing Officer on November 14, 1990, and recommended for approval, the Commission should enter an order pooling all interests in the 80-acre drilling and spacing unit consisting of the N1/2 NE1/4 of said Section 23 in order to insure proper and efficient development of the oil and gas from the Codell-Niobrara formation underlying said unit.

9. An order of the Commission pooling all interests in 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 oil and/or gas from the common source of supply underlying said drilling unit.

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

11. At the time of administrative hearing the parties agreed to be bound by the verbal order of the Commission in this matter.

ORDER

NOW, THEREFORE, IT IS ORDERED, that, 1. [sic] Order 407-24 which was issued September 15, 1986 to establish an 80-acre drilling and spacing unit consisting of the S1/2 NE1/4 in Section 23, Township 5 North, Range 65 West, 6th P.M., Weld County, Colorado for production of oil, and [sic] gas and associated hydrocarbons from the Codell and Niobrara formations underlying said lands, be confirmed, and, in addition, the Commission hereby pools all interests in the 80-acre drilling and spacing unit consisting of the N1/2 NE1/4 to insure proper and efficient development of the oil and gas from the Codell-Niobrara formation underlying said unit.

2. The production obtained from said drilling unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest is said drilling unit.

3. An order of the Commission pooling all interests in 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 oil and/or gas from the common source of supply underlying said drilling unit.

4. The owner of the unleased tract should be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling unit.

5. Within thirty (30) days from the date of receipt of said AFE by the owner of said tract, such owner shall indicate whether he consents to the cost of the drilling of the well and agrees to participate in such costs. Such election shall be made in writing either by executing the AFE or similar document. In the event a written election to participate is not made by said owner within such time period, said owner shall be deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well and be subject to the penalties as provided for by 34-60-116 (7).

6. Any non-consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owner's proportionate 87.5% share of production, the costs specified in C.R.S. 34-60-116 (7) (b), as amended. After recovery of such costs, the non-consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

7. The operator of any well drilled on the above described unit shall furnish all non-consenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

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.

ENTERED this 30th day of November, 1990, as of November 19, 1990.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203