IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE SPINDLE FIELD, ADAMS COUNTY, COLORADO Cause No. 250 Order No. 250-36

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 16, 1992, 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 Basin Operating Company, amended at the time of hearing, for an order to establish 40-acre drilling and spacing units for certain lands for production from the Sussex and Shannon Formations, to pool all interests in a 40-acre u nit, and to approve the downhole commingling of production from the Sussex and Shannon Formations.

FINDINGS

The Commission finds as follows:

1. Basin Operating Company, 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 Order Nos. 250-12, 262-4 and 266-4, the Commission established 80-acre drilling and spacing units for the production of oil and associated hydrocarbons from the Sussex and Shannon Formations. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 200 feet in any direction and the downhole commingling of production from the Sussex and Shannon Formations was allowed.

5. That in order to prevent the waste of oil and gas, as defined by law, to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the oil and gas resources of the State, an order should be made establishing 40-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Sussex and Shannon Form ations, for the below-listed lands:

Township 1 South, Range 67 West, 6th P.M. Section 3: SW1/4 SW1/4 and NW1/4 SE1/4

and that said units should be 40-acre, more or less, with the permitted well to be located in the center of the quarter-quarter with a tolerance of 200 feet in any direction, with the downhole commingling of production from the Sussex and Shannon approved.

6. That evidence presented at the hearing indicates that the Sussex and Shannon Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying Section 3, Township 1 South, 67 West, 6th P.M., in Adams County, Colorado.

7. Engineering testimony presented indicated that prudent production engineering practices would allow commingled production from the various reservoirs resulting in increased recovery of reserves and no irremediable reservoir damage.

8. Efforts have been made to obtain the voluntary pooling of all interests in the SW1/4 SW1/4 of Section 3, Township 1 South, Range 67 West, 6th P.M., for production from the Sussex and Shannon Formations. A.F.E.'s have been furnished to all non-consenting interests no later than October 12, 1992, and consent has not been given.

9. 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.

10. 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.

11. Based on the facts stated in the amended application, receiving no protests, having been heard by the Director as Hearing Officer on November 13, 1992, and recommended for approval, the Commission should enter an order establishing 40-acre drilling and spacing units for production from the Sussex and Shannon Formations for the lands described herein, pooling all interests in one 40-acre drilling and spacing unit herein described in order to insure p roper and efficient development of the oil and gas from the Sussex and Shannon Formations underlying said unit, and approving the downhole commingling of production form the Sussex and Shannon Formations.

ORDER

NOW, THEREFORE, IT IS ORDERED, that, 1. Forty (40) acre drilling and spacing units shall and are hereby established for production of oil, gas and associated hydrocarbons from the Sussex and Shannon Formations, for the below-listed lands:

Township 1 South, Range 67 West, 6th P.M. Section 3: SW1/4 SW1/4 and NW1/4 SE1/4

and that said units shall be 40-acres, more or less, with the permitted well to be located in the center of the quarter-quarter with a tolerance of 200 feet in any direction, with the downhole commingling of production from the Sussex and Shannon approved.

2. Multiple zone completions and downhole commingling of oil and associated hydrocarbons from the Sussex and Shannon Formations is hereby approved.

3. 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 drilling and spacing unit consisting of the SW1/4 SW1/4 of Section 3, Township 1 South, Range 67 West, 6th P.M., Adams County, are hereby pooled for the development of gas and associated hydrocarbons from the Sussex and Shannon Formations underlying said unit.

4. 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.

5. 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.

6. 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 C.R.S. 34-60-116 (7).

7. 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.

8. 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 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 , 1992, as of November 16, 1992.

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 December 4, 1992

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