REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on January 23, 1991 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 J-W Operating Company, for an order pooling all interests in the drilling and spacing unit consisting of the SE/4 of Section 23, Township 4 North, Range 47 West, 6th P.M., Yuma County, Colorado, for the production of gas and associated hydrocarbons from the Niobrara formation underlying said unit, pursuant to Colorado Revised Statutes, 34-60-116, 1984.

FINDINGS

1. J-W Operating Company, as Applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2. Donald S. Walker is also an interested party in the subject matter of the above-referenced hearing and filed a Notice of Protest with the Commission on January 17, 1991.

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

4. 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.

5. The SE/4 of Section 23, Township 4 North, Range 47 West, 6th P.M. has been established as a drilling and spacing unit by the Commission by Order No. 489-1 issued January 23, 1991 and J-W Operating Company purposes to drill its #1-23 B. Day Well at a legal location within said drilling and spacing unit to test the Niobrara formation underlying said drilling and spacing unit.

6. Efforts have been made to obtain the voluntary pooling of all interests. A.F.E.'s have been furnished to all interested parties and notice timely given to said interested parties as required by the rules of this Commission.

7. Based upon certain evidence submitted at the hearing, it was determined that the Applicant and the Protestant had been unable to

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agree upon the terms and conditions of the operating agreement that will govern the drilling and operation of the #1-23 B. Day Well. Further, based upon the evidence submitted at the hearing, it was determined that the Commission should enter an order pooling all interests in the 160-acre drilling and spacing unit herein described in order to ensure proper and efficient development of the gas and associated hydrocarbons from the Niobrara formation underlying said unit.

8. An order of the Commission pooling all interests in said drilling and spacing unit is necessary in order to afford each owner of an interest in said drilling and spacing unit the opportunity to recover and receive his just and equitable share of the oil and/or gas from the common source of supply underlying said drilling and spacing unit.

9. Production obtained from said drilling and spacing 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 and spacing unit.

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10. During the course of the hearing the parties came to agree that the applicable operating agreement to be utilized by the interested parties should be as set forth in this order.

11. Protestant Donald S. Walker should make his election as to whether he consents to the cost of the drilling of the well and agrees to participate in such costs no later than January 28, 1991. Other parties should have such time for election as provided for in the order below.

ORDER

NOW, THEREFORE, IT IS ORDERED, that:

1. Pursuant to the provisions of 34-60-116, C.R.S., 1984, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the SE/4 of Section 23, Township 4 North, Range 47 West, 6th P.M., Yuma County, Colorado, are hereby pooled for the production of gas and associated hydrocarbons from the Niobrara formation underlying said unit.

2. The production obtained from said drilling and spacing 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 and spacing unit; each owner of an interest in said drilling and spacing unit shall be entitled to receive his share of the production of the well located on said drilling and spacing unit applicable to his interest in said drilling and spacing unit.

3. The owner of any unleased tract shall be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling and spacing unit. Within thirty (30) days from the date of this order, 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 C.R.S. 34-60-116(7).

4. 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

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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 8/8th 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.

5. The lessee of any oil and gas leasehold interests shall be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling and spacing unit. Within thirty (30) days from the date of this order, 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 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 C.R.S. 34-60-116(7). Provided, however, as to Protestant Donald S. Walker it has been agreed that said Protestant shall make his election as to whether or not he wishes to participate in such well costs no later than January 28, 1991.

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6. Operations for the drilling, completion and operating of the #1-23 B. Day Well and any subsequent well drilled upon said drilling and spacing unit shall be governed by the terms and provisions of the operating agreement which was submitted as Applicant's Exhibit 3 in the hearing except as modified below.

(a) Section 15.8 of Article XV shall be modified by changing the number 20% appearing in line 4 of said paragraph to 12.5%.

(b) Paragraph (e) to Exhibit "D" Insurance shall be modified to provide as follows:

Umbrella Liability Insurance with annual aggregate of not less than $10,000,000 at inception, subject to any reduction in limits as a result of claims, in excess of the underlying limits as stated in (b), (c), and (d). Provided, however, that said $10 million may be modified by majority vote based on the percentage shown on Exhibit A of Applicant's Exhibit 3 of the working interest ownership, but in no event shall it be modified to an amount less than $3 million.

7. The operator of any well drilled on the above described unit shall furnish all non-consenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

IT IS FURTHER ORDERED, that the Protestant shall be offered terms in the operating agreement no less favorable than those offered to other parties in this drilling and spacing unit as of the date of the hearing.

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 stated provisions.

ENTERED this day of January, 1991, to be effective as set forth above.

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 January 31, 1991

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Amended March 22, 1991

0913I

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