112-164

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

)

CAUSE NO. 112

ORDER NO. 112-164

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on April 22, 2002 at 10:00 a.m. in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to pool all non-consenting owners (excluding those lands owned by the Southern Ute Indian Tribe) in a 320-acre drilling and spacing unit for the development and operation of the Fruitland coal seams.

FINDINGS

The Commission finds as follows:

1. MarkWest Resources, Inc. (“MarkWest”), 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 June 15, 1988, the Commission issued Order No. 112-60 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Fruitland coal seams, underlying certain lands in the Ignacio-Blanco Field, with the permitted well when South of the Ute Line to be located in the NE¼ and the SW¼ of each section and when North of the Ute Line to be located in the NW¼ and SE¼ of each section, no closer than 990 feet from the boundaries of the quarter section, nor closer than 130 feet to any interior quarter section line. Order Nos. 112-61 and 112-85 were subsequently adopted amending Order No. 112-60 to establish additional field rules for the Fruitland coal seams. Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) was included in these orders.

5. On July 28, 2000, the Commission issued Order No. 112-157, which among other things, allowed the drilling of additional wells on certain 320-acre drilling and spacing units in the Ignacio-Blanco Field including Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) for the production of gas and associated hydrocarbons from the Fruitland coal seams.

6. On February 7, 2002 MarkWest, filed with the Commission a verified Application for an order to pool all non-consenting owners (excluding those lands owned by the Southern Ute Indian Tribe) in the 320-acre drilling and spacing unit consisting of the E½ of Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) for the development and operation of the Fruitland coal seams. The Oxford #1 Well located in the SE¼ of Section 24 has been recompleted for production from the Fruitland coal seams and MarkWest intends to drill the Cummins 34-8 #25-2 Well in the NE¼ of Section 24 from the Fruitland coal seams.

7. Testimony and exhibits presented at the administrative hearing indicated that the applicant has leased 88.28125% of the Fruitland coal minerals in the E½ of Section 25. MarkWest has been unable to lease the remaining 11.71875% mineral interest in the E½ of Section 25. Offers to lease were submitted to the three unleased mineral interests on January 9, 2001. The offers to lease included a three year term, $100 per acre, and a 1/6 royalty. The terms are typical of those prevailing in the area.

8. Testimony and exhibits presented at the administrative hearing indicated that the offer to lease was increased on April 25, 2001. The increased offer was for a one year term, $150 per acre, and an 18.75% royalty. Three members of the Cummins family have agreed to lease. The three remaining mineral owners have not agreed to lease and have not protested MarkWest’s application for pooling.

9. Testimony and exhibits presented at the administrative hearing indicated that offers to participate in the well including an Authorization for Expenditure (“AFE”) were sent to the three unleased mineral owners on October 22, 2001 via certified mail. Testimony indicated that the AFE represents an accurate cost estimate for drilling and completing the proposed well and the AFE and the accompanying letter contain information on the depth and location of the well, and the estimated spud date of the well. The unleased mineral owners have not agreed to participate in the well.

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

11. At the time of the administrative hearing, MarkWest agreed to be bound by oral order of the Commission.

12. 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 (excluding those lands owned by the Southern Ute Indian Tribe) in the 320-acre drilling and spacing unit consisting of the E½ of Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) for the development and operation of the Fruitland coal seams.

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 interests in the 320-acre drilling and spacing unit consisting of the E½ of Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) are hereby pooled for the development and operation of the Fruitland coal seams.

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. MarkWest Resources, Inc. shall be designated as the operator for the 320-acre drilling

and spacing unit consisting of the E½ of Section 25, Township 34 North, Range 8 West, N.M.P.M. (SUL) for the development and operation of the Fruitland coal seams.

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 April 2002, as of April 22, 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

April 30, 2002