REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on December 19, 1988 in Room 101, State Education Building, 201 East Colfax, Denver, Colorado on the verified application of Diversified Operating Corporation for an order pooling all interests in the drilling and spacing unit consisting of the NE/4 Section 11, Township 8 North, Range 58 West, 6th P.M., Weld County, Colorado, for the operation and development of the unit for the production of gas and associated hydrocarbons from the Lilli "D" Sand underlying said unit pursuant to 34-60-116 C.R.S. 1972, as amended.

FINDINGS

The Commission finds as follows:

1. Diversified Operating Corporation, as applicant herein, is an interested party in the subject matter of the above referenced hearing by virtue of its present ownership of leasehold interests and mineral interests in the subject lands.

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. The NE/4 Section 11, Township 8 North, Range 58 West, 6th P.M. has been established as a drilling and spacing unit by the Commission by Order No. 451-1 and subsequent orders.

5. Based on the facts stated in the verified application and receiving no objections and having been reviewed and recommended by the Director, the Commission should enter an order pooling all interests in the 160-acre drilling and spacing unit herein described for the operation and development of the Lilli "D" Sand underlying said unit for the production of gas and associated hydrocarbons.

6. This matter was continued from the November 1988 hearing at the request of the applicant to allow Notice of Hearing to be served on two unleased mineral interest owners, Thomas E. Self, jr. and Don C. Self, which has been done.

7. Leases have been offered to the unleased mineral interests on terms no less favorable than those prevailing in the area at the time of application. An Authorization for Expenditure ("AFE") has not been tendered by the applicant to the unleased mineral interests at the time of hearing. It has not been possible to secure the agreement of all owners of interest in said unit for the voluntary pooling thereof.

8. There is an existing well DOC #2-11 Plains located in the unit consisting of the NE/4 of Section 11 completed in the Lilli "D" Sand.

9. 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.

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 NE/4 Section 11, Township 8 North, Range 58 West, 6th P.M., Weld County, Colorado, are hereby pooled for the development of gas and associated hydrocarbons from the Lilli "D" Sand 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 operating of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of net mineral acres in the unit.

4. The operator responsible for drilling the well on the said unit shall prepare an Authorization for Expenditure ("AFE"), which shall be submitted to the unleased owner in the 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 designated operator of the well for the unit, DOC #2-11 Plains, NE/4 Section 11, Township 8 North, Range 58 West, 6th P.M. for the purpose of this pooling order shall be Diversified Operating Corporation.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall be effective forthwith retroactive to the date that costs were incurred in the drilling of the well.

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 22nd day of 1988, as of December 19, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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