232-92

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 WATTENBERG GAS SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NO. 232

ORDER NO. 232-92 (Amended)

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on December 21, 1992 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 Bataa Oil, Inc., to segregate an undrilled 320-acre unit and establish two 160-acre drilling and spacing units for production from the "J" Sand Formation, to allow a well to be located at an exception location, and to pool all interests in a 320-acre unit for the development and operation of the "J" Sand Formation.

FINDINGS

The Commission finds as follows:

1. Bataa Oil, Inc., 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 of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand in the Wattenberg Field with one well allowed for each unit to be located in the NE1/4 and SW1/4 and no closer than 990 feet to the boundaries of the quarter section. On August 21, 1979, the Commission issued Order No. 232-20 which allowed a second well to be drilled on each 320-acre unit. The E1/2 of Section 24, Township 1 North, Range 68 West, 6th P.M., Weld County, Colorado lies within the area spaced by these orders.

5. No wells have been drilled in the E1/2 of said Section 24 to establish production from the "J" Sand Formation.

6. A protest was filed with the Commission by MGF Oil Corporation on December 15, 1992.

7. At the time of hearing, the applicant and the protestant presented conflicting testimony on whether 160-acres is less than the maximum area which can be efficiently and economically drained by one well producing oil, gas and associated hydrocarbons from the "J" Sand Formation.

8. The applicant presented geological testimony at the hearing to show the presence of a fault at the permitted location as to the reason an exception to the permitted well location is requested.

9. The Application was amended at the time of hearing to request that all interests be pooled in the 320-acre drilling and spacing unit consisting of the E½ of Section 24, Township 1 North, Range 68 West, 6th P.M.

10. An order of the Commission pooling all interests in said drilling unit is necessary in order to afford each owner of interest in each said drilling 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 unit.

11. Production obtained from said drilling 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 unit.

12. Based on the testimony presented by the applicant and the protestant at the time of hearing, the Commission should deny the request to segregate the 320-acre unit consisting of the E1/2 of Section 24, Township 1 North, Range 68 West, 6th P.M. into two 160-acre drilling and spacing units consisting of the NE1/4 and the SE1/4, approve the request to allow a well to be drilled at an exception location no closer than 700 feet FSL and 800 feet FEL in the SE1/4 of Section 24 and enter an order pooling all interests in the 320-acre drilling and spacing unit consisting of the E1/2 of said Section 24 in order to insure proper and efficient development of the oil and gas from the "J" Sand Formation underlying said unit.

13. Bataa Oil, Inc. should be approved as the operator for the 320-acre drilling and spacing unit consisting of the E1/2 of Section 24, Township 1 North, Range 68 West, 6th P.M., Weld County, Colorado, for the development and operation of the "J" Sand Formation.

ORDER

NOW, THEREFORE, IT IS ORDERED, that, 1. [sic] The request to segregate the 320-acre unit consisting of the E1/2 of Section 24, Township 1 North, Range 68 West, 6th P.M., Weld County, Colorado into two 160-acre drilling and spacing units consisting of the NE1/4 and the SE1/4 for production of oil, gas and associated hydrocarbons from the "J" Sand Formation underlying these lands is hereby denied.

2. That Cause No. 232 shall be amended to allow a well to be drilled and completed at an exception location no closer than 700 feet FSL and 800 feet FEL in the SE1/4 of Section 24, Township 1 North, Range 68 West, 6th P.M., for production from the "J" Sand Formation.

3. That should a commercial well be completed at the location set forth above, the Commission shall, upon application of any interested person, take such action as will offset any advantage which the person securing the exception may have over other procedures by reason of the drilling of the well as an exception location.

4. 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 E1/2 of Section 24, Township 1 North, Range 68 West, 6th P.M., Weld County, Colorado, are hereby pooled for the development of gas from the "J" Sand Formation underlying said unit.

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

6. The owner of the unleased tract should 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 unit.

7. Within thirty (30) days from the date of receipt of said AFE by the owner of said tract, 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 34-60-116 (7).

8. 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 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 8/8ths 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.

9. 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.

10. Bataa Oil, Inc. is hereby designated the operator for the 320-acre drilling and spacing unit consisting of the E1/2 Section 24, Township 1 North, Range 68 West, 6th P.M., Weld County, Colorado, for the development and operation of the "J" Sand 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 13th day of January, 1993, as of December 21, 1992.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

January 4, 1993