IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE CODELL-NIOBRARA SPACED AREA, WELD COUNTY, COLORADO Cause No. 407 Order No. 407-116

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 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 C & F Energy, Inc., to establish two 40-acre drilling and spacing units for production from the Codell and Niobrara Formations underlying an undrilled 80-acre unit.

FINDINGS

The Commission finds as follows:

1. C & F Energy, 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. On December 19, 1983, the Commission authorized Order No. 407-1 to be issued, which established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation. 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. In Order Nos. 407-10 and 407-13, the Commission amended Order No. 407-1 to include production fro m the Niobrara Formation in certain lands and to allow the downhole commingling of production from the Codell and Niobrara Formations. The N1/2 SW1/4 of Section 21, Township 5 North, Range 64 West, 6th P.M., Weld County, Colorado lies within the area spaced by these orders.

5. No wells have been drilled in the N1/2 of the SW1/4 of said Section 21 to establish production from the Codell or Niobrara Formations.

6. Efforts have been made to obtain the voluntary pooling of all interests. An A.F.E. was furnished to Union Pacific Resources Company, a non-consenting interest on or around September 2, 1992, and consent has not been given.

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. Based on the facts stated in the verified application, and having been heard by the Director as Hearing Officer on September 15, 1992, the Commission should approve the request and amend Order Nos. 407-1 and 407-10 and establish two 40-acre drilling and spacing units consisting of the NW1/4 SW1/4 and the NE1/4 SW1/4 of said Section 21 for the commingled production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations and ent er an order pooling all interests in the 40-acre drilling and spacing unit consisting of the NE1/4 SW1/4 in order to insure proper and efficient development of the oil and gas from the Codell and Niobrara Formations underlying said unit.

10. C & F Energy, Inc. should be approved as the operator for the 40-acre drilling and spacing units consisting of the NW1/4 SW1/4 and the NE1/4 SW1/4 Section 21, Township 5 North, Range 64 West, 6th P.M., Weld County, Colorado, for the development and operation of the Codell and Niobrara Formations.

11. That publication for five consecutive weeks is occurring and that the order should become effective ten (10) days after final publication should no protests be received.

O R D E R

NOW, THEREFORE IT IS ORDERED, that, 1. The unit consisting of the N1/2 of the SW1/4 of Section 21, Township 5 North, Range 64 West, 6th P.M., Weld County, Colorado be segregated into two 40-acre drilling and spacing units consisting of the NW1/4 SW1/4 and the NE1/4 SW1/4 for the commingled production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations underlying these lands.

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 NE1/4 SW1/4 of Section 21, Township 5 North, Range 64 West, 6th P.M., Weld County, Colorado, are hereby pooled for the development of gas from the Codell and Niobrara Formations 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) C.R.S.

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. C & F Energy, Inc. is hereby designated the operator for the 40-acre drilling and spacing unit consisting of the NW1/4 SW1/4 and the NE1/4 SW1/4 Section 21, Township 5 North, Range 64 West, 6th P.M., Weld County, Colorado, for the development and operation of the Codell and Niobrara Formations.

9. The order shall become effective ten (10) days after the fifth and final publication, should no protests be received.

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 September 21, 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 October 8, 1992 ??

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