REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on October 18, 1982 at 9:00 A.M., in Room 110, State Centennial Building, Denver, Colorado, and was continued to October 19, 1982 in Hearing Room F, State Capitol Building, after giving Notice of Hearing as required by law, on the application of Shell Oil Company for an order approving a certain Unit Agreement and Unit Operating Agreement providing for involuntary unit operations of a reservoir consisting of the Leadville formation of Mississippian Age underlying the McElmo Dome Unit Area.

FINDINGS

The Commission finds as follows:

1. Shell Oil 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. The Leadville formation of Mississippian Age was encountered in the interval between the stratigraphic depths of 7720 feet to 8026 feet in the Shell Sand Canyon (Deep) Unit 9-36-18 No. 1 well, located in the NE/4 of Section, Township 36 North, Range 18 West, N.M P.M., Montezuma County, Colorado, and in the interval between the stratigraphic depths of 7634 feet to 7978 feet in the Gulf Fulks No. 1 well, located in the NW/4 of Section 27, Township 37 North, Range 17 West, N.M P.M., Montezuma County, Colorado. Sail Leadville formation, as so encountered, is a pool or common source of supply and has been defined and determined by drilling to be productive underlying the following described lands in Dolores and Montezuma Counties, Colorado, to-wit:

Township 36 North, Range 17 West, N.M P.M. Sections 3 thru 10: All Sections 16 thru 21: All Sections 29 and 30: All

Township 36 North, Range 18 West, N.M P.M. Sections 1 thru 12: All Section 13: N /2, SE/4 Sections 14 thru 23: All Section 24: NE/4, S/2 Section 25: NE/4, S/2 Sections 26 thru 35: All

Township 36 North, Range 19 West, N.M P.M. Sections 1 thru 36: All

Township 36 North, Range 20 West, N.M P.M. Sections 1 thru 3: All Sections 10 thru 15: All Sections 23 thru 25: All

Township 37 North, Range 17 West, N.M P.M. Sections 3 thru 10: All Sections 14 thru 23: All Sections 26 thru 35: All

(over)

Township 37 North, Range 18 West, N.M P.M. Sections 1 thru 36: All

Township 37 North, Range 19 West, N.M P.M. Sections 1 thru 17: All Sections 20 thru 29. All Sections 31 thru 36: All

Township 37 North, Range 20 West, N.M P.M. Sections 1 and 2: All Sections 11 and 12: All Sections 34 thru 36: All

Township 38 North, Range 17 West, N.M P.M. Sections 18 thru 20: All Sections 28 thru 33: All

Township 38 North, Range 18 West, N.M P.M. Sections 2 thru 36: All Township 38 North, Range 19 West, N.M P.M. Sections 1 thru 36: All Township 38 North, Range 20 West, N.M P.M. Section 1: All Sections 12 and 13: All Sections 24 and 25: All Sections 35 and 36: All

Township 39 North, Range 18 West, N.M P.M. Sections 18 thru 20: All Sections 28 thru 34: All

Township 39 North, Range 19 West, N.M P.M. Sections 13 thru 15: All Sections 21 thru 29: All Sections 31 thru 36- All

5. The terms and conditions provided by the Unit Agreement and Unit Operating Agreement meet the requirements of the statute and are just and reasonable to all interests contained within said unit area. The plan for unit operations as presented by the Applicant, providing for the conduct of operations to recover oil and gas, including carbon dioxide, on a field-wide basis is necessary to increase the ultimate recovery of carbon dioxide and will result in lower total costs for conducting such operations.

6. The relative value of each tract within the Unit Area can be determined"on the basis of the surface area of that tract. Oil, gas and carbon dioxide produced from the Unit Area is to be allocated, as set out in the Unit Agreement, among the separately owned tracts on the basis of the proportion of the total surface areas represented by the respective tracts, and this allocation is just and reasonable.

7. The plan of unit operations includes the following provisions, all of which are just and reasonable:

(a) The interests of working interest owners are to be adjusted for credits and charges for their respective investments in wells, tanks, pumps, machinery, materials and equipment contributed to the unit operations as set out in the Unit Operating Agreement, and the costs of the unit operations, including capital investments, are to be determined and charged as set out in the Unit Operating Agreement.

(b) The shares of unit expense allocable to working interest owners who have not signed the Unit Agreement and the Unit Operating Agreement may be carried by other working interest owners. The amount so carried, with interest at a rate of twelve percent (12%) per year, may be recovered solely out of such non-signatory working interest owners respective shares of production and without suit, foreclosure or the creation of any other obligation to pay.

(c) Any working interest owner who has not signed the Unit Agreement and Unit Operating Agreement shall not, as to any well drilled under the plan of unit operations and not completed as a well productive of oil or gas in commercial quantities, be required to participate in paying the costs of such well unless such working interest owner has affirmatively voted for or otherwise elected to participate in the drilling of such well.

(d) Unit operations are to be conducted and supervised under the procedures set out in the Unit Operating Agreement, and under such procedures each working interest owner shall have a vote corresponding to the percentage of unit costs chargeable to that owner's interest in the unit.

(e) Unit operations shall commence at the time, and shall terminate in the manner and under the circumstances, set out in the Unit Operating Agreement.

8. As to working interest owners who have voluntarily subscribed to and signed the Unit Agreement and the Unit Operating Agreement, it is not necessary that such agreements include a provision for carrying or otherwise financing the participation of any of such working interest owners in wells approved by a vote of the working interest owners as set out in the Unit Operating Agreement.

9. Testimony presented at the hearing indicates that, as of that date, the Unit Agreement and the Unit Operating Agreement had been approved in writing by the applicant, and by Mobil Producing Texas New Mexico, Inc., which appeared at the hearing in support of the application, and that the applicant and Mobil Producing Texas New Mexico, Inc. represent eighty-seven percent (87%) of the interests owned by persons who will be required to pay the costs of unit operations, but that the Unit Agreement had not then been approved by the owners of at least eighty percent (80%) of the production or proceeds thereof that will be credited to interests that are free of costs.

10. The approval of the unit plan of operations should not become effective unless or until, the applicant demonstrates, by affidavit submitted to the Director of the Commission, that persons owning the required percentages of interests in the unit area approve said agreements.

ORDER

NOW, THEREFORE, IT IS ORDERED, that,

1. The plan for unit operations covering the Leadville formation of Mississippian Age underlying lands in the McElmo Dome (Leadville) unit Area is hereby approved as being in the public interest for conservation.

2. The said Leadville formation reservoir is a pool or common source of supply and underlies the following described lands in Montezuma and Dolores Counties, Colorado, to-wit:

Township 36 North, Range 17 West, N.M P.M. Sections 3 thru 10: All Sections 16 thru 21: All Sections 29 and 30: All

Township 36 North, Range 18 West, N.M P.M. Sections 1 thru 12: All Section 13: N /2, SE/4 Sections 14 thru 23: All Section 24: NE/4, S/2 Section 25: NE/4, S/2 Sections 26 thru 35: All

Township 36 North, Range 19 West, N.M P.M. Sections 1 thru 36: All

Township 36 North, Range 20 West, N.M P.M. Sections 1 thru 3: All Sections 10 thru 15: All Sections 23 thru 25: All

Township 37 North, Range 17 West, N.M P.M. Sections 3 thru 10: All Sections 14 thru 23: All Sections 26 thru 35: All

Township 37 North, Range 18 West, N.M P.M. Sections 1 thru 36: All Township 37 North, Range 19 West, N.M P.M. Sections 1 thru 17: All Sections 20 thru 29: All Sections 31 thru 36: All Township 37 North, Range 20 West, N.M P.M. Sections 1 and 2: All Sections 11 and 12: All Sections 34 thru 36: All Township 38 North, Range 17 West, N.M P.M. Sections 18 thru 20: All Sections 28 thru 33: All Township 38 North, Range 18 West, N.M P.M. Sections 2 thru 36: All Township 38 North, Range 19 West, N.M P.M. Sections 1 thru 36: All Township 38 North, Range 20 West, N.M P.M. Section 1: All Sections 12 and 13: All Sections 24 and 25: All Sections 35 and 36: All Township 39 North, Range 18 West, N.M P.M. Sections 18 thru 20: All Sections 28 thru 34: All Township 39 North, Range 19 West, N.M P.M. Sections 13 thru 15: All Sections 21 thru 29: All Sections 31 thru 36: All and such area shall hereafter be known as the McElmo Dome (Leadville) Unit Area.

The provisions contained in the Unit Agreement and Unit Operating Agreement, as amended at the hearing and including the new Section 12.9 of the Unit Operating Agreement voluntarily submitted by Applicant, are incorporated herein as the plan of unit operations approved by the Commission for such lands.

4. The conduct of operations for the recovery of oil and gas, including carbon dioxide, from the McElmo Dome (Leadville) Unit Area on a field-wide basis is hereby approved as being necessary to increase the ultimate recovery from such reservoir.

IT IS FURTHER ORDERED, that the plan of unit operations shall not become effective unless, or until the persons owning the required percentages of interests in the unit approve said plan.

IT IS FURTHER ORDERED, that within a period of six (6) months from the date of this order, and upon affidavit submitted to the Director of the Commission by Shell Oil Company, and stating that the approval of the required percentage of interest for the plan of unit operations has been obtained, the plan for unit operations shall become effective. In the event such approval has not been obtained within this period of time, or an extended period of time as provided in the statute, the approval of the Commission and the plan of unit operations shall become ineffective and this order shall be revoked.

- 4 - (#389-1) IT IS FURTHER ORDERED, that this order shall become effective forthwith.

ENTERED this 17th day of November 1982, as of October 19, 1982.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary