REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on April 18, 1988 at 9:00 A.M. in Room 110, State Centennial Building, 1313 Sherman Street, Denver, Colorado, on the verified application of Union Pacific Resources Company for an order to establish 40-acre drilling and spacing units for production of oil and associated hydrocarbons from the Morrow B' formation underlying certain lands along the Colorado-Kansas border and further to establish a Maximum Production Rate on wells located on such lands.

FINDINGS

The Commission finds as follows:

1. Union Pacific Resources Company, as applicant herein, is an interested party in the subject; matter of the above-entitled 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 matter was heard by the Director as Hearing Officer on April 15, 1988 and recommended for approval. No protests were received.

5. The Kansas Commission has-established 40-acre drilling and spacing units for production from the Morrow B' formation underlying certain lands adjacent to the Colorado border. In addition, a production allowable was imposed. Therefore the following order is needed to protect the correlative rights of owners in Colorado and prevent waste.

6. Evidence presented to the Hearing Officer indicates that the Morrow B' formation constitutes a common source of supply of oil and associated hydrocarbons underlying the following described lands in Cheyenne County, Colorado:

AREA A'

Township 15 South, Range 41 West, 6th P.M.

Section 7: All Section 19: All Section 18: All Section 30: All AREA B'

Township 15 South, Range 42 West 6th P.M.

Section 12: All Section 24: All Section 13: All Section 25: All

7. That in order to prevent the waste of oil and gas, as defined by law; to protect the correlative rights of all parties concerned; to prevent the drilling and unnecessary wells, and to insure. proper and efficient development and promote conservation of the Oil and gas resources of the State, an order should be made establishing 40 acre drilling and spacing units for the production of oil and associated hydrocarbons from the Morrow B' formation, common source of supply underlying the lands described herein; that said units as described in Area B' should consist of 40 acres, more or less, and consist of quarter-quarter section according to the governmental survey with [ permitted well located no closer than 460 feet to the boundaries of t quarter-quarter section. As to Area A', described herein above, the unit, where possible, should consist of a 40 acre tract a minimum of 920 feet in width and the length should be as required to constitute an attribution of 40 contiguous acres. Each such acreage attribution should be rectangular or square in shape. The permitted well should be at a location no closer than 460 feet from the boundaries of the attributed acreage tract. In those situations where there are small governmental tracts adjacent to the Colorado - Kansas border within Area A' which are less than 920 feet in width, the permitted well should be at a location as nearly as practical in the center of the tract from east to west, but no closer than 460 feet from the north and south boundary of the acreage attribution unit. The length of any such attribution unit should not exceed 1320 feet.

8. All available geological and engineering data concerning said Morrow B' formation indicate that one well will efficiently and economically drain an area of approximately 40 acres and that the drilling units of the size and shape herein above described are not smaller than the maximum area that can be efficiently and economically drained by one well producing from said formation.

9. In order to prevent waste, a maximum daily production rate for each well producing in Area A' or Area B' should be established at 200 barrels of oil per day or 100 MCF of gas per day leaving the lease, whichever is produced first, with underproduction and overproduction made up in the following month.

ORDER

NOW, THEREFORE IT IS ORDERED that the following rules and regulations shall apply hereafter to a well or wells drilled, completed, or recompleted in the Morrow B' formation underlying the Frontera Morrow B' 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. Forty (40) acre drilling and spacing units shall be and the same are hereby established for the production of oil and associated hydrocarbons from the Morrow B' formation following described lands in Cheyenne County, Colorado:

AREA A'

Township 15 South, Range 41 West, 6th P.M. Section 7: All Section 19: All Section 18: All Section 30: All AREA B' Township 15 South, Range 42 West, 6th P.M. Section 12: All Section 24: All Section 13: All Section 25: All

Rule 2. Said drilling units located in Area B, described herein above, shall consist of 40 acres, more or less, and shall consist of a quarter-quarter section according to the governmental survey. The permitted well shall be at a location no closer than 460 feet from the boundaries of the quarter-quarter section.

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Rule 3. Said drilling units located in Area A, described herein above, shall, where possible, consist of a 40 acre tract, a minimum of 920 feet in width and the length shall be as required to constitute an attribution of 40 contiguous acres. Each such acreage attribution shall be rectangular or square in shape. The permitted well shall be at a location no closer than 460 feet from the boundaries of the attributed acreage tract. In those situations where there are small governmental tracts adjacent to the Colorado - Kansas border within Area A' which are less than 920 feet in width, the permitted well shall be at a location as nearly as practical in the center of the tract from east to west, but no closer than 460 feet from the north and south boundary of the acreage attribution unit. The length of any such attribution unit shall not exceed 1320 feet.

Rule 4. For each well in Area A' & B', there shall be established a maximum daily production rate ("Maximum Daily Production Rate") which shall be calculated based on the following formula:

Attributable Acreage = Length of Unit X Width of Unit ------------------------------43,560

Acreage Factor - Attributable Acreage ---------------------40

Allowable = 200 bb/oi/day X Acreage Factor

Rule 5. The Maximum Daily Production Rate for each well shall be further limited to 100 MCF of gas per day removed from the lease and shall be deemed to have reached its Maximum Daily Production Rate even though it may not have produced its Maximum Daily Rate of oil under the above described formula. Where there are more or less than 40 acres attributed to the well, the produced gas limitation shall be proportionately adjusted by the average percentage factor for the well. The Maximum Daily Production Rate shall be effective April 18, 1988 for all wells drilled and completed on the effective date of this order.

Rule 6. 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. Each operator shall report to the Director the monthly production attributed to each well completed in the field, and shall mail a copy of such production information to any of the operators of other wells in the field upon request. The reporting shall be in accordance with Rule 307 of the Commission's Rules and Regulations. When more than one well is produced into a common tank battery, each well shall be allocated a production volume based upon a quarterly production test of each well producing into the battery. This allocation shall be performed by calculating the theoretical production percentage for each well contributing to the common tank battery and then multiplying that percentage by the total battery production to determine a total Daily Well Production Rate.

IT IS FURTHER ORDERED that, within thirty (30) days of the effective date of this Order, the operators of all wells drilled and completed in Area A' and B', herein above described, shall file with the Director an acreage attribution plat and a supervised test for each such well The method of such testing shall be in accordance and approval of the Director.

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IT IS FURTHER ORDERED that, the provisions of the above orders 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 5th day May 1988, as of April 18, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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