REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on August 17, 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 Marathon Oil Company for an order approving a unit agreement and unit operating agreement and approving enhanced recovery involving injection of gas and water into the Morrow Formation reservoir.

FINDINGS

The Commission finds as follows:

1. Marathon Oil Company 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. The Morrow Formation of Pennsylvanian Age was encountered at an interval between the stratigraphic depths of 5043 feet and 5186 feet in the Kriss A No. 1 Well, located in the NE1/4 NW1/4 of Section 18, Township 16 South, Range 41 West, 6th P.M., below the surface of the below-listed lands. Said Morrow Formation, as so encountered, is a common source of supply and has been defined and determined by drilling to be productive underlying the following d escribed lands in Cheyenne County, Colorado:

Township 16 South, Range 41 West, 6th P.M. Section 7: S1/2 SW1/4 and SW1/4 SE1/4 Section 18: N1/2, N1/2 SW1/4 and SW1/4 SW1/4

Township 16 South, Range 42 West, 6th P.M. Section 13: SE1/4, E1/2 NE1/4, SW1/4 NE1/4, E1/2 SW1/4 and SW1/4 SW1/4 Section 23: SE1/4 and E1/2 NE1/4 Section 24: W1/2, N1/2 NE1/4 and SW1/4 NE1/4 Section 25: W1/2 NW1/4 and NW1/4 SW1/4 Section 26: NE1/4 and N1/2 SE1/4

5. The terms and conditions provided by the Unit Agreement and Unit Operating Agreement meet the requirements of the statute and are just and reasonable to all interests contained within said unit area. The plan for unit operations as presented by the Applicant, providing for the conduct of operations to recover oil and gas is necessary to increase the ultimate recovery and the value of the estimated additional cost incident to conducting such operatio ns.

6. The provisions contained in said Unit Agreement and Unit Operating Agreement are just and reasonable and include the following:

a. The description of the pool to be so operated;

b. The nature of said operation;

c. The allocation to the separately owned tracts in the Morrow Formation of all the oil and gas that is produced from said Unit Area and is saved;

d. The provisions for the credits and charges to be made in the adjustments among the owners in the Morrow Formation Unit Area for their respective investments in wells, tanks, pumps, machinery, materials and equipment contributed to the unit operations;

e. The provision providing how the cost of unit operations, including capital investments, shall be determined and charged to the separately owned tracts, and how said costs shall be paid, including the provision providing when, how, and by whom the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owners, may be sold and the proceeds applied to the payment of such costs;

f. The provision for the supervision and conduct of the unit operations, in respect to which each person shall have a vote with a value corresponding to the percentage of the cost of unit operations chargeable against the interest of such person; and

g. The time when the unit operations shall commence, and the manner in which, and the circumstances under which the unit operations shall terminate.

7. Re-injection of produced gas and water from the Morrow reservoir underlying said unit area should be allowed in order to prevent waste and promote conservation and maintain pressure maintenance in the reservoir. In addition, outside sources of gas and water may be used when deemed necessary.

8. All injection wells should be approved by the Director in accordance with the rules and regulations of the Commission prior to any injection occurring.

9. The plan for unit operations has been approved by those persons required to pay at least eighty percent of the cost of the unit operations, and by the owners of at least eighty percent of the production proceeds.

10. Unit operations should become effective as of September 1, 1992. 11. The spacing provisions as established by orders in Cause No. 463 as they pertain to the Morrow Formation underlying lands described in Finding 4 herein above, should be rescinded upon approval of the plan for unit operations by the Commission, and notice from the Unit Operator that unit operations have commenced.

12. A protest was filed by the Remuda Corporation.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that:

1. The Unit Agreement and Unit Operating Agreement covering the Morrow Formation of Pennsylvanian Age underlying lands in the Second Wind Field are hereby approved as being in the public interest for conservation.

2. Said Morrow Formation reservoir is a common source of supply and underlies the lands described in Finding 4 herein above, and such area shall hereafter be known as the Second Wind Unit.

3. The conduct of operations for the recovery of oil and gas from the Morrow Formation underlying said Unit Area is hereby approved as being necessary to increase the ultimate recovery from such reservoir and to prevent waste.

4. A re-injection project of produced gas and water from the unit reservoir, as well as injection of gas and water from outside sources when deemed necessary, as presented by the Applicant is hereby approved and the operator is authorized to commence and maintain such a project.

5. All injection wells shall be approved by the Director in accordance with the rules and regulations of the Commission prior to any injection occurring.

6. The conduct of operations for the recovery of oil and gas from the Morrow Formation underlying said unit area is hereby approved as being necessary to increase the ultimate recovery from such reservoir and prevent waste.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective as of September 1, 1992. The Unit Operator shall submit complete Certificates of Clearance (Form 10) for each well in the unit upon the effective date.

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 day of , 1992, as of August 17, 1992.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Secretary

Dated at Suite 380 1580 Logan Street Denver, Colorado 80203 August 23, 1992 ??

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