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 WATTENBERG GAS SPACED AREA AND THE CODELL-NIOBRARA SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NOS. 232, 407 and 499

ORDER NOS. 232-52, 407-77

and 499-2

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 18, 1991 and on January 21, 1992 at 8:30 a.m., 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 Bataa Oil, Inc., for an order pooling all interests in the drilling and spacing unit consisting of the E1/2 Section 36, Township 1 North, Range 67 West, 6th P.M., Weld County, Colorado for the development and operation of the "J" Sand, Dakota, Codell and Niobrara Formations for the production of oil and/or gas underlying said unit, pursuant to Colorado Revised Statutes, 34-60-116, as amended. Further, the order should allow a well to be drilled at an exception location not less than 600 feet FNL and not less than 2940 feet FWL of said Section 36 and the downhole commingling of production from all zones should be allowed. In addition, all production should be allocated to each owner in proportion that the number of mineral acres held by each owner in the E1/2 of said Section 36 bears to the total number of mineral acres in the E1/2 of Section 36.

FINDINGS

The Commission finds as follows:

1. Bataa Oil, Inc., 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.

4. On November 17, 1973, the Commission authorized Order No. 232-1 to be issued, which among other things, established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the "J" Sand Formation underlying certain lands. The units consist of the E1/2 and W1/2 or the N1/2 and S1/2 of each section, according to the governmental survey, with the permitted well located no closer than 990 feet from the boundaries of the unit. The E1/2 of Section 36, Township 1 North, Range 67 West, 6th P.M. has been established as a drilling and spacing unit.

5. On April 16, 1991, the Commission authorized Order Nos. 407-66 and 232-47 to be issued, which among other things, allowed production from the "J" Sand Formation to be commingled with production from the Codell-Niobrara Formations for certain lands.

6. On October 23, 1991, the Commission authorized Order No. 499-1 to be issued, which among other things, established 320-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Dakota Formation underlying certain lands, with the 320-acre drilling and spacing units to be identical to those previously established for the "J" Sand Formation required by Cause No. 232.

7. Efforts have been made to obtain the voluntary pooling of all interests.

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, 1991 and on January 16, 1992, and recommended for approval, the Commission should enter an order pooling all interests in the 320-acre drilling and spacing unit herein described in order to insure proper and efficient development of the oil and gas from the "J" Sand, Dakota, Codell and Niobrara Formations underlying said unit and in addition, the order should allow a well to be drilled at an exception location not less than 600 feet FNL and not less than 2940 feet FWL of said Section 36 and all production should be allocated to each owner in proportion that the number of mineral acres held by each owner in the E1/2 of said Section 36. Further, approval should be given to allow the downhole commingling of production from the "J" Sand, Dakota, Codell and Niobrara Formations.

9. Prior to the completion and commingling of the Codell and Niobrara Formations, the applicant should present an approved allocation method to the Director.

10. 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.

11. 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.

12. 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. Pursuant to the provisions of 34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the E1/2 of Section 36, Township 1 North, Range 67 West, 6th P.M., Weld County, Colorado, are hereby pooled for the development of oil, gas and associated hydrocarbons from the "J" Sand, Dakota, Codell and Niobrara Formations 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 in said drilling unit.

3. 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.

4. 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).

5. 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.

6. 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 an exception to the permitted well location as provided for in Cause No. 232, Cause No. 407, and Cause No. 499 for the Wattenberg Field is hereby granted for a well to be drilled not less than 600 feet FNL and not less than 2940 feet FWL in said Section 36, for production of oil, gas and associated hydrocarbons from the "J" Sand, Dakota, Codell and Niobrara Formations, with the downhole commingling of production from said formations also granted.

IT IS FURTHER ORDERED, that prior to the completion and commingling of the Codell and Niobrara Formations, the applicant shall present an approved allocation method to the Director.

IT IS FURTHER ORDERED, that all production shall be allocated to each owner in proportion that the number of mineral acres held by each owner in the E1/2 of said Section 36 bears to the total number of mineral acres in the E1/2 of Section 36.

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 28th day of February, 1991, as of January 21, 1992.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

February 28, 1992