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 OPERATIONS IN THE IGNACIO-BLANCO FIELD, LA PLATA COUNTY, COLORADO	) ) ) )	CAUSE NO.   112 ORDER NO.   112-167

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 10:00 a.m. on September 23, 2002 in Suite 801, 1120 Lincoln Street, Denver, Colorado on the verified application of Chevron USA, Inc. for an order to pool all nonconsenting interests in the 320-acre drilling and spacing unit consisting of S½ of Section 8U, Township 34 North, Range 9 West, N.M.P.M. (SUL) for the development and operation of the Fruitland coal seams.

FINDINGS

                        The Commission finds as follows:

                        1.  Chevron USA, Inc. (“Chevron”), as applicant herein, is an interested party in the subject matter of the above-referenced matter.

                        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.  On June 15, 1988, the Commission issued Order No. 112-60 which established 320-acre drilling and spacing units for the production of gas from the Fruitland coal seams, underlying certain lands in the Ignacio-Blanco Field, with the units to consist of a governmental half section and the permitted well when north of the north line of Township 32 North to be located in the NW¼ and the SE¼ of each section and when south of the north line of Township 32 North to be located in the NE¼ and SW¼ 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 8U, Township 34 North, Range 9 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 8U, Township 34 North, Range 9 West, N.M.P.M. (SUL) for the production of gas from the Fruitland coal seams.

                        6.  On August 1, 2002, Chevron, by its attorney filed with the Commission a verified Application for an order to pool all nonconsenting owners in the 320-acre drilling and spacing unit consisting of the S½ of Section 8U, Township 34 North, Range 9 West, N.M.P.M. for the development and operation of the Fruitland coal seams.  The applicant intends to drill the Koshak A-3 Well in the S½ of Section 8U, Township 34 North, Range 9 West, N.M.P.M. for the production of gas from the Fruitland coal seams.

                        7.  Testimony and exhibits presented at the administrative hearing indicated that Chevron had leased all of the minerals in the S½ of Section 8U, except those in the W½ SE¼ and the SE¼ SW¼ of Section 8, which are owned by Union Pacific Railroad Company (“UPRR”). 

                        8.  Testimony and exhibits presented at the administrative hearing indicated that an offer to participate in the well was sent to UPRR in care of McLendon Management Company, L.L.C., the agent for the minerals owned by UPRR. 

                        9.   Testimony and exhibits presented at the administrative hearing indicated a letter was sent to Chevron from McLendon Management Company, declining to sign a lease or to participate in the proposed well.  The letter further states that UPRR wishes to continue its nonconsenting mineral owner status under the 320-acre drilling and spacing unit.

                        10.  Testimony and exhibits presented at the administrative hearing indicated that all of the requirements of Rule 503. and §34-60-116, C.R.S. for involuntary pooling have been met by Chevron.

                        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 nonconsenting owners in the 320-acre drilling and spacing unit consisting of the S½ of Section 8U, Township 34 North, Range 9 West, N.M.P.M. (SUL) for the development and operation of the Fruitland coal seams.

ORDER

                        NOW, THEREFORE IT IS ORDERED, 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 S½ of Section 8U, Township 34 North, Range 9 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 nonconsenting 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 unit 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. Chevron USA, Inc. shall be designated as the operator for the 320-acre drilling and spacing

unit consisting of the S½ of Section 8U, Township 34 North, Range 9 West, N.M.P.M. for the production of gas  and associated hydrocarbons from 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 October 2002, as of September 23, 2002.

                                                                OIL AND GAS CONSERVATION COMMISSION

                                                                 OF THE STATE OF COLORADO

                                                                     By

                             Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

October 7, 2002