REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on July 16, 1990 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 Medallion Petroleum, inc. for an order pooling all interests in the drilling and spacing unit consisting of the E/2 of Section 23 Township 25 South, Range 45 West, 6th P.M. Prowers County, Colorado for the development and operation of the Morrow formation for the production of gas and associated hydrocarbons underlying said unit pursuant to the provisions of C.R.S. 34-60-116, as amended.

FINDINGS

The Commission finds as follows:

1. Medallion Petroleum, 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. That the E/2 of Section 23, Township 25 South, Range 45 West, 6th P.M. should be established as a drilling and spacing unit for the production of gas and associated hydrocarbons from the Morrow formation underlying said unit.

5. Based on the facts stated in the verified application, and receiving no protests and having been heard by the Director as Hearing Officer on July 13, 1990, and recommended for approval, the Commission should enter an order pooling all interests in the 320-acre drilling and spacing unit herein described in order to insure proper and efficient development of the gas and associated hydrocarbons from the Morrow formation underlying said unit.

6. Efforts have been made to obtain the voluntary pooling Of all interests or the leasing of unleased minerals including the tendering by the Applicant of the proposals required by Commission Rules 533 and 534 by letter from Applicant dated May 31, 1990. No response to these letters have been obtained and there has not been a voluntary pooling of all interests nor the leasing of unleased minerals.

7. 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.

8. 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.

9. At the time of administrative hearing the parties agreed to be bound by the verbal order of the Commission in this matter.

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, the E/2 of Section 23, Township 25 South, Range 45 West, 6th P.M. Prowers County, Colorado is hereby designated as a drilling and spacing unit and all interests in the drilling and spacing unit consisting of the E/2 Section 23, are hereby pooled for the development of gas and associated hydrocarbons from the formation underlying said unit.

2. 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.

3. The unleased mineral owner within the spacing unit have elected non-consent and shall be treated as the owner of the landowners 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.

4. 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 19th day of July 1990, as of July 16, 1990.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO By Dennis R. Bicknell, Secretary

Dated at Suite 380 1580 Logan Street Denver, Colorado 80203 04921

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