112-163

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND

ESTABLISHMENT OF FIELD RULES TO GOVERN

OPERATION IN THE IGNACIO-BLANCO FIELD,

LA PLATA COUNTY, COLORADO

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CAUSE NO. 112

ORDER NO. 112-163

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on March 18, 2002 at 10:00 a.m. in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to pool all non-consenting owners in a 320-acre drilling and spacing unit for the development and operation of the Mesaverde Formation and in a 640-acre drilling and spacing unit for the development and operation of the Dakota Formation.

FINDINGS

The Commission finds as follows:

1. Williams Production Company (“WPC”), 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 the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On October 20, 1959, the Commission issued Order No. 112-6 which established 320-acre drilling and spacing units for the production of gas from the Mesaverde Formation underlying certain lands in the Ignacio-Blanco Field and 640-acre drilling and spacing units for the production of gas from the Dakota Formation, with the permitted well to be located no closer than 990 feet from the boundaries of the quarter section. Section 13, Township 33 North, Range 9 West, N.M.P.M. was included in this order.

5. On July 16, 1979, the Commission issued Order No. 112-46 which amended Order No. 112-6 to allow the drilling of additional wells on each of the 320-acre and 640-acre drilling and spacing units for the production of gas from the Mesaverde and Dakota Formations, including Section 13, Township 33 North, Range 9 West, N.M.P.M.

6. On January 17, 2002 WPC by its attorney filed with the Commission a verified Application for an order to pool all non-consenting owners in the 320-acre drilling and spacing units consisting of the W½ of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Mesaverde Formation and in the 640-acre drilling and spacing unit consisting of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Dakota Formation. WPC proposes to drill the Bondad 33-9 #7A Well in the NW¼ SW¼ of Section 13, Township 33 North, Range 9 West, N.M.P.M. for production of gas from the Mesaverde and Dakota Formations.

7. Testimony and exhibits presented at the administrative hearing indicated that WPC owns 94.5½% of the Mesaverde Formation minerals in the W½ of Section 13 and 82.4% of the Dakota Formation minerals in Section 13. Offers to lease were submitted on November 20, 2001 to the unleased mineral owners in both the 320-acre and 640-acre units at $125 per acre with a 1/8 royalty. The terms are typical of those prevailing in the area. Four members of the Royall Family have agreed to lease but have not signed leases and the remaining mineral owners have not agreed to lease and have not protested WPC’s application for pooling.

8. Testimony and exhibits presented at the administrative hearing indicated that offers to participate in the well including an Authorization for Expenditure (“AFE”) were sent on November 20, 2001 to the unleased mineral owners and to Elm Ridge Resources who has a lease on 12.5% of the Dakota Formation minerals via certified mail. Testimony indicated that the AFE represents an accurate cost for drilling and completing the proposed well. The unleased mineral owners have not agreed to participate in the well and Elm Ridge Resources declined to participate in a December 17, 2001 letter to WPC.

9. Testimony indicated that all of the requirements of Rule 530. and §34-60-116 for involuntary pooling have been met by WPC.

10. At the time of the administrative hearing, Williams Production Company agreed to be bound by oral order of the Commission.

11. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to pool all non-consenting owners in the in the 320-acre drilling and spacing unit consisting of the W½ of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Mesaverde Formation and in a 640-acre drilling and spacing unit consisting of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Dakota Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that, 1. Pursuant to the provisions of §34-60-116, C.R.S. as amended, of the Oil and Gas Conservation Act of the State of Colorado, all owners in the 320-acre drilling and spacing unit consisting of the W½ of Section 13, Township 33 North, Range 9 West, N.M.P.M. and the 640-acre drilling and spacing unit consisting of Section 13, Township 33 North, Range 9 West, N.M.P.M. are hereby pooled for the development and operation of the Mesaverde and Dakota Formations.

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

3. Said owners are hereby deemed to have elected not to participate and shall therefore be deemed to be non‑consenting as to the well(s) and be subject to the penalties as provided for by §34‑60‑116 (7).

4. Any nonconsenting 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/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the nonconsenting owner's proportionate 87.5% share of production, the costs specified in §34‑60‑116 (7)(b), C.R.S. as amended. After recovery of such costs, the nonconsenting mineral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

5. The operator of any well drilled on the above-described units shall furnish all nonconsenting 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.

6. Williams Production Company shall be designated as the operator for the 320-acre drilling and spacing unit consisting of the W½ of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Mesaverde Formation and for the 640-acre drilling and spacing unit consisting of Section 13, Township 33 North, Range 9 West, N.M.P.M. for the development and operation of the Dakota Formation.

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

ENTERED this day of March 2002, as of March 18, 2002.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

March 26, 2002