REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 16, 1994 at 8:30 a.m., in Room 318, State Centennial Building, 1313 Sherman Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of OXY USA, Inc. for an order extending the 160-acre drilling and spacing units established in the Spear Field to include additional lands in certain sections of Township 2 South, Range 49 West, 6th P.M., for production from t he Niobrara Formation. In addition, the applicant requests an order pooling all interests in the 160-acre drilling and spacing unit consisting of the NE1/4 Section 30, Township 2 South, Range 49 West, 6th P.M., for the development and operation of the Niobrara Formation for the production of gas and associated hydrocarbons underlying said unit, pursuant to Colorado Revised Statutes, 34-60-116, 1984.

FINDINGS

The Commission finds as follows:

1. OXY USA, 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. Order No. 342-1 issued September 18, 1978 established 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Niobrara Formation, with the units consisting of a governmental quarter section, with the permitted well to be located no closer than 900 feet from the boundaries of the quarter section. Subsequent Order No. 342-2 extended the provisions of Order No. 342-1 to include additional lands. Section 30, T ownship 2 South, Range 49 West, 6th P.M. was included in the Spear Field. Order No. 342-3 issued July 15, 1985 allowed an additional well to be drilled on each 160-acre drilling and spacing unit, with said well to be located no closer than 600 feet from the outer boundary of the unit and no closer than 1000 feet from any other well producing from the Niobrara Formation.

5. Evidence presented at the administrative hearing indicates that the common source of supply of gas and associated hydrocarbons from the Niobrara Formation extends beyond the present limits of the spaced area as established in Cause No. 342. Therefore, the following described lands should be included in the spaced area of the Spear Field and made subject to Order Nos. 342-1 and 342-3:

Township 2 South, Range 49 West, 6th P.M. Section 19: SE1/4 Section 20: SW1/4 Section 29: W1/2 Section 30: E1/2

6. Protests were filed by Sensor Oil & Gas, Inc., Rex H. Paullus, Jr., and Paullus & Banister, L.L.C. on the portion of the application requesting the pooling of all interests in the NE1/4 Section 30, Township 2 South, Range 49 West, 6th P.M.

7. Efforts have been made to obtain the voluntary pooling of all interests. A.F.E.'s and operating agreements were furnished to Sensor Oil & Gas, Inc., Rex H. Paullus, Jr., and Paullus & Banister, L.L.C., owners of fifty (50%) percent of the working interest underlying the NE1/4 of said Section 30, on or around March 11, 1994, and consent has not been given.

8. Testimony presented at the hearing indicated that OXY USA, Inc. owns fifty (50%) percent of the working interest underlying the NE1/4 of said Section 30, and that operating costs designated in the operating agreement provided by the applicant are just and reasonable, and consistant with costs prevailing in the Rocky Mountain region, as published in a national survey.

9. Based on the facts stated in the verified application, and having been heard by the Hearing Officers who recommend approval of including additional lands into the provisions of Order Nos. 342-1 and 342-3, and based on testimony presented by the applicant and the protestants at the hearing, the Commission should enter an order extending the Spear Field spacing to include the lands described in Finding 5, and enter an order pooling all interests in the 160-acre drilling and spacing unit consisting of the NE1/4 Section 30, Township 2 South, Range 49 West, 6th P.M., in order to insure proper and efficient development of oil and gas from the Niobrara Formation underlying said unit.

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. OXY USA, Inc. should be approved as the operator for the 160-acre drilling and spacing unit consisting of the NE1/4 of Section 30, Township 2 South, Range 49 West, 6th P.M., for the development and operation of the Niobrara Formation underlying said unit.

O R D E R

NOW, THEREFORE IT IS ORDERED, that, the area set forth in Finding 5 herein shall be subject to the provisions of Order Nos. 342-1 and 342-3, and the Spear Field shall henceforth include the following described lands in Washington County, Colorado, to-wit:

Township 2 South, Range 49 West, 6th P.M. Section 19: SW1/4 and SE1/4 Section 20: SW1/4 Section 29: W1/2 Section 30: All Section 31: NW1/4

Township 2 South, Range 50 West, 6th P.M. Section 24: S1/2 Section 25: All Section 26: E1/2 Section 35: NE1/4 Section 36; N1/2

IT IS FURTHER ORDERED, that, 2. 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 NE1/4 of Section 30, Township 2 South, Range 49 West, 6th P.M., Washington County, Colorado, are hereby pooled for the development of gas and associated hydrocarbons from the Niobrara Formation underlying said unit.

3. 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.

4. 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.

5. 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).

6. 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.

7. 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.

8. OXY USA, Inc. is hereby approved as the operator for the 160-acre drilling and spacing unit consisting of the NE1/4 of Section 30, Township 2 South, Range 49 West, 6th P.M., for the development and operation of the Niobrara Formation underlying said unit.

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 , 1994, as of May 16, 1994.

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 June 2, 1994 ??

(342#5)