REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on July 18, 1988 at 8:30 A.M. in Room 101, State Education Building, 201 East Colfax Avenue, Denver, Colorado as a result of Order Nos. 451-4 and 459-2 which established a production restriction on wells located in the spaced area of the Lilli Field and West Lilli Area and further ordered that operators in the field and any interested parties were to appear at the hearing scheduled for July 1988 and present additional information including results of a field wide pressure survey conducted in June 1988, concerning production practices in the field and area.

FINDINGS

The Commission finds as follows:

1. The Commission has jurisdiction over the subject matter embraced in the notice of the aforesaid hearing and of the parties interested therein, as well as jurisdiction to promulgate the hereinafter prescribed order.

2. Due Notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. By Order No. 451-4 and 459-2, a maximum allowable of 125 bbls of oil per day and 250 MCF of gas per day was imposed on wells with a gas-oil ration 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 have a maximum allowable of 350 MCF of gas per day. A well is 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. Gas-oil ratio test were taken on each well located in the area described therein.

4. Testimony presented by the Lilli Field Technical Committee at the hearing indicated that the edge of the "D" Sand has been relatively well determined, that. the bottom hole pressure survey indicated the gas area has appreciably higher reservoir pressure, the gas-oil contact has not migrated very far from its last reported position, and there are no severe pressure anomalies indicating non-uniform production. Exhibits A and B showed that Lilli Field and West Lilli Area are geologically one common reservoir in the "D" sand.

5. Further testimony was presented in the form of written recommendations to the Commission. The main recommendation is to lower the pressure in the gas well area at a faster rate by increasing the production allowable for gas wells over the next six months. Recommendations were made concerning the determination of gas wells through gas-oil ratio tests and the determination that an oil well will remain an oil well for production c even though the individual gas-oil ratio of a well may exceed 3000 to 1 cubic feet per/barrel.

6. Additional recommendations were that any subsequent production restrictions should be reviewed in January, 1989, that the spaced area of the Lilli Field be increased with the addition of Section 34 and Section 35, Township 9 North, Range 58 West and other lands the staff may recommend.

7. The Commission should adopt the recommendations contained in Exhibit D of the Technical Committee Report and amend Order Nos. 451-4 and 459-2 as appropriate.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply to wells producing from the "D" Sand reservoir underlying the following described lands in the Lilli Field and West Lilli Area, Weld County, Colorado: Township 8 North, Range 58 West, 6th P.M. Section 2: All Section 8: All Section 3: All Section 9: All Section 4: All Section 10: All Section 5: All Section 11: All Section 6: All Section 17: NW/4 Section 7: All Section 18: N/2

Township 8 North, Range 59 West, 6th P.M. Section 1, 12, 13: N/2

Township 9 North, Range 58 West, 6th P.M. Section 31: S/2 Township 9 North, Range 59 West, 6th P.M. Section 36: S/2 and that the recommendations of the Lilli Technical Committee are adopted and Order Nos. 451-4 and 459-2 are amended:

Rule 1. Commencing August 1, 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 the greater of 125 barrels of oil or liquid hydrocarbons or 700 MCF of gas per day, whichever is produced first. A well shall be considered a gas well with a gas-oil ratio in excess of 3000 to 1. cubic feet per/barrel. If during the initial gas-oil ratio test, the well is determined to be an oil well in accord with the above gas-oil ratio, for production restriction purposes, the well shall remain an oil well, regardless of future increases in the gas-oil ratio of the well.

Rule 2. For wells drilled and completed in the Lilli and West Lilli areas which are spaced for oil production but the produced gas-oil ratio is in excess of 3000 to 1. cubic feet per/barrel, the allowable rate shall be one-half that of gas wells or 62 /2 barrels of oil and 350 MCF per/day unless the well is the only producing well within the entire quarter section, in which case the well shall have the full gas well allowable.

Rule 3. Individual gas-oil ratio tests shall be conducted on all oil wells with a gas-oil ratio of 5000 cubic feet per/barrel, or less, between August 1, 1988 and August 15, 1988, and again between November 1, 1988 and November 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 test 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 o[ 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 4. Results of the individual tests shall be submitted to the office of the Commission and to other operators in the field by August 17, 1988 and November 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.

-- 2 --(451-7 & 459-3)

Rule 5. Preliminary monthly production data shall be submitted to the Commission and the other operators in the field on a letterhead 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 ten (10) percent of the allowable, shall be made up in the month following such over operation.

Rule 6. The Director shall meet with the operators in the field prior to December 1, 1988 to establish a time and procedures for static bottom hole pressure tests to be conducted on the entire field before December 31, 1988.

IT IS FURTHER ORDERED, that the above Order shall remain in effect until January 31, 1989 and that the operators and any interested party in the Lilli Field shall appear at the January 1989 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.

IT IS FURTHER ORDERED, that the Commission give Notice of Hearing to create drilling and spacing units in additional sands around Lilli Field and West Lilli Area as the staff may recommend, and to combine the field and area into one field.

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 2nd day of August 1988, as of July 18, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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(451-7 & 459-3)

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