REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on March 21, 1988, at 9:00 A.M. in Room 110, State Centennial Building, 1313 Sherman Street, Denver, Colorado, after giving Notice of Hearing, as required by law, on the application of Benson Mineral Group, Inc. for an order establishing 80-acre drilling and spacing units and on the Commission's own motion for operators in the area to present testimony and recommendations concerning practices in the area to prevent waste in accordance with 34-60-103 (11) C.R.S. and 34-60-103 (13) C.R.S., as amended, for the production of oil and associated hydrocarbons from the D' Sand formation underlying certain lands in Weld County, Colorado.

FINDINGS

The Commission finds as follows:

1. Benson Mineral Group, 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 Notices, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. Evidence presented at the hearing was inconclusive as to whether the D' marine bar sand constitutes a common source of supply underlying the following described lands nor underlying lands in the previously spaced Lilli Field: Township 9 North, Range 59 West, 6th P.M. Section 36: S/2 Township 8 North, Range 59 West, 6th P.M. Sections 1, 12, 13: N/2 Township 9 North, Range 58 West, 6th P.M. Section 31: S/2 Township 8 North, Range 58 West, 6th P.M. Section 17: NW/4 Section 18: N/2

5. In order to prevent waste of oil and gas as defined by law; to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the oil and gas resources, an order should be made establishing 80-acre, more of less, drilling and spacing units for the production of oil and associated hydrocarbons from the D' Sand formation, that the units should consist of 80-acres, more or less, and consist of the E/2 and W/2 or the N/2 and S/2, of a governmental quarter section, with the unit described by the operator of the first well drilled in the quarter section. The permitted well for each unit should be located in the center of the NW/4 and the SE/4 of each quarter section with a tolerance of 200 feet in any direction. Exceptions to the permitted well locations may be granted by the Director, provided owners of the contiguous and cornering units file a waiver or consent in writing agreeing to such exception.

6. All available geological and engineering data concerning said D' Sand formation indicates that one well will efficiently and economically drain an area of approximately 80-acres, more or less, and that the drilling units of the size and shape hereinabove described are not smaller than the maximum area that can be efficiently and economically drained by one well producing from said D' Sand formation.

7. Testimony presented at the hearing indicates that the present production practices in the field constitutes waste by the inefficient, excessive, and improper use and dissipation of the reservoir energy and in order to prevent such waste and to protect the correlative rights of owners in the field, a production restriction should be placed on wells producing from the D' Sand reservoir located in the area described in Finding 4.

8. A maximum allowable of 125 bbls of oil per day and 250 MCF of gas per day should be imposed on wells with a gas-oil ratio of 3000 cubic feet of gas per barrel of oil or less. Wells in excess of 3000 cubic feet of gas per barrel of oil should have a maximum allowable of 350 MCF of gas per day and should be further adjusted based on quarterly gas-oil ratio tests and a field wide static bottom hole pressure survey of each well in the area. A well should be considered a gas well with a GOR in excess of 3000 to 1. cubic ft/bbl. Such restrictions to remain in effect until July 31, 1988.

9. No Changes should be made in the Lilli Field spacing and production practices as ordered in Order Nos. 451-1, 2, 3, 4 and 5 at this time.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well drilled, completed, or recompleted in the D' Sand formation underlying the West Lilli Area herein described, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herewith.

Rule 1. Eighty (80) acres, more or less, drilling and spacing units shall be and the same are hereby established for t production of oil and associated hydrocarbons from the D' Sand formation underlying the following described lands in the West Lilli Area, Weld County, Colorado, to-wit:

Township 9 North, Range 59 West, 6th P.M. Section 36: S/2 Township 8 North, Range 59 West, 6th P.M. Sections 1, 12, 13: N/2 Township 9 North, Range 58 West, 6th P.M. Section 31: S/2 Township 8 North, Range 58 West, 6th P.M. Section 17: NW/4 Section 18: N/2 -- 2 --

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Rule 2. Said drilling units shall consist of 80-acres, more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a governmental quarter section, with the unit designated by the operator of the first well drilled in the quarter section. The permitted well for each unit shall be located in the center of the NW/4 and the SE/4 of each quarter section with a tolerance of 200 feet in any direction. Exceptions to the permitted well locations may be granted by the Director, provided owners of the contiguous and cornering units file a waiver or consent in writing agreeing to such exception.

Rule 3. Commencing March 22, 1988, the maximum daily allowable, during any one month, for wells producing with a gas-oil ratio of 3000 cubic feet of gas per barrel of oil or less shall be 125 barrels of oil per day or 250 MCF of gas per day, whichever is produced first. Wells producing with a gas-oil ratio in excess of 3000 cubic feet of gas per barrel of oil shall have a maximum daily allowable, during any one month, of 350 MCF of gas per day. A well shall be considered a gas well with a gas-oil ratio in excess of 3000 to 1 cubic feet per barrel.

Rule 4. Individual gas-oil ratio tests shall be conducted on all wells with a gas-oil ratio of 5000 cubic feet per barrel, or less, upon completion and between May 1, 1988, and May 15, 1988. Each well is to be individually tested with the amount of gas, oil and water accurately measured. Each well shall be produced under each operator's existing plan of operation for a period of seventy-two (72) hours with the individual well tests taken during the last twenty four (24) hours of such period. In the event of a work-over or a test failure, approval for a second test may be allowed and is to be conducted in the same manner as above. Notification of when such tests are to be run shall be delivered to the office of the Commission and all operators in the field at least twenty-four (24) hours prior to the commencement of the seventy-two (72) hour testing period. Tests may be witnessed by the staff of the Commission and any operator in the field at his own risk.

Rule 5. Results of the individual tests shall be submitted to the office of the Commission and to other operators in the field by thirty (30) days after completion and May 17, 1988 respectively. The amount of oil, gas and water produced during the last twenty-four (24) hour test period shall be the basis for computing the gas-oil ratio and shall be the basis for the daily allowable as set by the Commission.

Rule 6. Preliminary monthly production data shall re-submitted to the Commission and the other operators in the field on a letter head format by the twentieth (20th) of the month following production. Under production may be made up only during the month following the month in which it occurred, and any over production, which shall not exceed one hundred (100) percent of the allowable, shall be made up in the month following such over production.

Rule 7. The Director shall meet with the operators in the field prior to June 1, 1988 to establish a time and procedures for static bottom hole pressure tests to be conducted on the entire field before june 30, 1988.

IT IS FURTHER ORDERED, that the above Order shall remain in effect until July 31, 1988 and that operators and any interested party in the West Lilli Field shall appear at the July 1988 hearing with the results of the bottom hole pressure survey, production data, gas-oil ratio test results and additional information concerning production practices in the field.

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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 rights, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

Entered this thirteenth day of April 1988, as of March 21, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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