IN THE MATTER OF GENERAL RULES AND REGULATIONS WITH RESPECT TO THE CONSERVATION OF OIL AND GAS IN THE STATE OF COLORADO, AND RULES OF PRACTICE AND PROCEDURE PERTAINING THERETO AND IN PARTICULAR WITH REFERENCE TO RULE 323

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE WATTENBERG GAS SPACED AREA AND THE CODELL AND NIOBRARA SPACED AREA, ADAMS AND WELD COUNTIES, COLORADO

)

CAUSE NOS. 499, 232, 407

493 and 496

ORDER NOS. 499-15, 232-89,

407-125, 493-22

and 496-3

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 Commission's own motion for an order to amend Cause Nos. 499, 232, 407, 493 and 496 to establish 320-acre drilling and spacing units for production from the Dakota Formation and further to allow wells drilled to the Dakota Formation to be recompleted to the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations, and further, to allow the downhole commingling of production from the Dakota Formation with production from the "J" Sand, Codell, Niobrara, Sussex and Shannon Formations.

FINDINGS

The Commission finds as follows:

1. The Commission 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 No. 499-1, the Commission established 320-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Dakota Formation, identical to the 320-acre drilling and spacing units previously established for the "J" Sand Formation required by Cause No. 232, with the permitted well located in the NW1/4 and the SE1/4 of the section and no closer than 990 feet from the boundaries of the quarter section for certain lands in Weld County, Colorado. Order No. 499-5 established 320-acre drilling and spacing units for additional lands, with the permitted well to be located in the NW1/4, SW1/4, SE1/4 or NE1/4 of the section and no closer than 990 feet from the boundaries of the quarter section, for the production of oil, gas and associated hydrocarbons from the Dakota Formation, and allowing the multiple completion and downhole commingling of production from the Dakota, "J" Sand, Codell, Niobrara, Shannon and Sussex Formations. Subsequent Order No. 499-7 included additional lands under the provisions of Order No. 499-5.

5. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand in the Wattenberg Field with one well allowed for each unit to be located in the NE1/4 and SW1/4 and no closer than 990 feet to the boundaries of the quarter section. On August 21, 1979, the Commission issued Order No. 232-20 which allowed a second well to be drilled on each 320-acre unit.

6. In Order No. 407-1, the Commission 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 from the Niobrara Formation in certain lands and to allow the downhole commingling of production from the Codell and Niobrara Formations.

7. In Order No. 493-2, the Commission established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Sussex 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 and the downhole commingling of production from the Sussex, Codell and Niobrara Formations shall be allowed.

8. In Order No. 496-1, the Commission established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Shannon 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 and the downhole commingling of production from the Shannon, Codell and Niobrara Formations shall be allowed. Subsequent Order No. 496-2 included additional lands.

9. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell and Niobrara Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Adams and Weld Counties, Colorado to-wit:

ADAMS COUNTY

Township 1 South, Range 64 West, 6th P.M.

Sections 4-9 & 16-18: All

Township 1 South, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 South, Range 64 West, 6th P.M.

W1/2

Township 2 South, Range 65 West, 6th P.M.

Sections 1-24: All

WELD COUNTY

Township 1 North, Range 64 West, 6th P.M.

W1/2

Township 1 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 63 West, 6th P.M.

W1/2

Township 2 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 63 West, 6th P.M.

W1/2

Township 3 North, Range 66 West, 6th P.M.

Sections 4-9: All

Sections 16-21: All

Sections 28-33: All

Township 3 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 63 West, 6th P.M.

W1/2

Township 4 North, Range 64 West, 6th P.M.

Sections 1-3: All

Sections 10-15: All

Sections 22-27: All

Section 31: S1/2

Sections 34-36: All

Township 4 North, Range 65 West, 6th P.M.

Sections 6-8: All

Sections 17-20: All

Section 25: SE1/4

Section 30: All

Section 35: NW1/4 and SE1/4

Township 4 North, Range 66 West, 6th P.M.

Sections 1-2: All

Section 3: S1/2

Sections 10-15: All

Sections 23-25: All

Township 4 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 68 West, 6th P.M.

E1/2

Township 5 North, Range 63 West, 6th P.M.

Sections 19-21 and 28-33

Township 5 North, Range 64 West, 6th P.M.

S1/2

Township 5 North, Range 67 West, 6th P.M.

S1/2

10. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Weld County, Colorado to-wit:

Township 3 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 66 West, 6th P.M.

Sections 1-3: All

Sections 10-15: All

Township 3 North, Range 66 West, 6th P.M. (Cont.)

Sections 22-27: All

Sections 34-36: All

Township 4 North, Range 64 West, 6th P.M.

Sections 4-9: All

Sections 16-21: All

Sections 28-30: All

Section 31: N1/2

Sections 32-33: All

Township 4 North, Range 65 West, 6th P.M.

Sections 1-5: All

Sections 9-16: All

Sections 21-24: All

Section 25: N1/2 and SW1/4

Sections 26-29: All

Sections 31-34: All

Section 35: NE1/4 and SW1/4

Section 36: All

Township 4 North, Range 66 West, 6th P.M.

Section 5: N1/2 NE1/4, S1/2 SE1/4 and E1/2

Sections 6-9: All

Sections 16-22: All

Sections 26-36: All

Township 5 North, Range 65 West, 6th P.M.

Sections 19-36: All

Township 5 North, Range 66 West, 6th P.M.

Sections 19-27: All

Section 28: E1/2 NE1/4, E1/2 W1/2 and W1/2 SE1/4

Sections 29-32: All

Section 34: E1/2 and NW1/4

Sections 35-36: All

11. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell, Niobrara, Sussex and Shannon Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Weld County, Colorado to-wit:

Township 4 North, Range 66 West, 6th P.M.

Section 3: N1/2

Section 4: NE1/4

Section 5: S1/2 NE1/4 and N1/2 SE1/4

Township 5 North, Range 66 West, 6th P.M.

Section 28: W1/2 NE1/4, W1/2 W1/2 and E1/2 SE1/4

Section 33: All

Section 34: SW1/4

12. 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.

13. That additional rules be established for the protection of correlative rights and procedures to process recompletion, commingled and dual completion requests.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well or wells drilled, completed or recompleted in the Dakota, "J" Sand, Codell, Niobrara, Sussex and Shannon Formations, where the production is commingled or dually completed with the Dakota and "J" Sand Formations underlying the Codell-Niobrara Spaced Area and the Wattenberg Field described herein below, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herein:

Rule 1. Three hundred and twenty (320) acre drilling and spacing units shall be and the same are hereby established for the production of oil, gas and associated hydrocarbons from the Dakota Formation underlying the following described lands in Adams and Weld Counties, Colorado, to-wit:

ADAMS COUNTY

Township 1 South, Range 64 West, 6th P.M.

Sections 4-9 & 16-18: All

Township 1 South, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 South, Range 64 West, 6th P.M.

W1/2

Township 2 South, Range 65 West, 6th P.M.

Sections 1-24: All

WELD COUNTY

Township 1 North, Range 64 West, 6th P.M.

W1/2

Township 1 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 63 West, 6th P.M.

W1/2

Township 2 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 63 West, 6th P.M.

W1/2

Township 3 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 63 West, 6th P.M.

W1/2

Township 4 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 68 West, 6th P.M.

E1/2

Township 5 North, Range 63 West, 6th P.M.

Sections 19-21 and 28-33

Township 5 North, Range 64 West, 6th P.M.

S1/2

Township 5 North, Range 65 West, 6th P.M.

S1/2

Township 5 North, Range 66 West, 6th P.M.

S1/2

Township 5 North, Range 67 West, 6th P.M.

S1/2

Rule 2. Said drilling units shall consist of the E1/2 and W1/2 or the N1/2 and the S1/2 of each section, according to governmental survey, and said units shall be identical to the 320-acre drilling and spacing units previously established for the "J" Sand Formation required by Cause No. 232, with the permitted well to be located any quarter section of the 320-acre drilling and spacing unit, no closer than 990 feet from the boundary of the quarter section.

Rule 3. That the Director may, without further notice and hearing, approve exceptions to the permitted well locations for the Dakota or "J" Sand Formations, due to topography or surface hazards or the recompletion or deepening of existing "J" Sand Formation wells previously authorized at an approved exception location. The Director may approve exceptions to the permitted well locations for the Dakota and "J" Sand Formation [sic], upon the receipt of waivers from the leaseholders and unleased mineral interest owners toward whom the well location is proposed to be moved. This rule takes precedence over previous rules in orders issued in Cause No. 499.

Rule 4. Wells previously permitted and/or drilled to the Dakota Formation prior to the hearing, whether or not in accordance with the herein described well locations, are hereby designated as the permitted well for the unit. Operators of such wells shall file with the Commission a designation of unit declaration within 30 days of this order.

Rule 5. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell and Niobrara Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Adams and Weld County, Colorado to-wit:

ADAMS COUNTY

Township 1 South, Range 64 West, 6th P.M.

Sections 4-9 & 16-18: All

Township 1 South, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 South, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 South, Range 64 West, 6th P.M.

W1/2

Township 2 South, Range 65 West, 6th P.M.

Sections 1-24: All

WELD COUNTY

Township 1 North, Range 64 West, 6th P.M.

W1/2

Township 1 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 1 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 63 West, 6th P.M.

W1/2

Township 2 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 66 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 2 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 63 West, 6th P.M.

W1/2

Township 3 North, Range 66 West, 6th P.M.

Sections 4-9: All

Sections 16-21: All

Sections 28-33: All

Township 3 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 68 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 63 West, 6th P.M.

W1/2

Township 4 North, Range 64 West, 6th P.M.

Sections 1-3: All

Sections 10-15: All

Sections 22-27: All

Section 31: S1/2

Sections 34-36: All

Township 4 North, Range 65 West, 6th P.M.

Sections 6-8: All

Sections 17-20: All

Section 25: SE1/4

Section 30: All

Section 35: NW1/4 and SE1/4

Township 4 North, Range 66 West, 6th P.M.

Sections 1-2: All

Section 3: S1/2

Sections 10-15: All

Sections 23-25: All

Township 4 North, Range 67 West, 6th P.M.

Sections 1-36: All

Township 4 North, Range 68 West, 6th P.M.

E1/2

Township 5 North, Range 63 West, 6th P.M.

Sections 19-21 and 28-33

Township 5 North, Range 64 West, 6th P.M.

S1/2

Township 5 North, Range 67 West, 6th P.M.

S1/2

Rule 6. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Weld County, Colorado to-wit:

Township 3 North, Range 64 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 65 West, 6th P.M.

Sections 1-36: All

Township 3 North, Range 66 West, 6th P.M.

Sections 1 through 3: All

Sections 10 through 15: All

Sections 22 through 27: All

Sections 34 through 36: All

Township 4 North, Range 64 West, 6th P.M.

Sections 4 through 9: All

Sections 16 through 21: All

Sections 28 through 30: All

Section 31: N1/2

Sections 32 and 33: All

Township 4 North, Range 65 West, 6th P.M.

Sections 1 through 5: All

Sections 9 through 16: All

Sections 21 through 24: All

Section 25: N1/2 and SW1/4

Sections 26 through 29: All

Sections 31 through 34: All

Section 35: NE1/4 and SW1/4

Section 36: All

Township 4 North, Range 66 West, 6th P.M.

Section 5: N1/2 NE1/4, S1/2 SE1/4 and E1/2

Sections 6 through 9: All

Sections 16 through 22: All

Sections 26 through 36: All

Township 5 North, Range 65 West, 6th P.M.

Sections 19 through 36: All

Township 5 North, Range 66 West, 6th P.M.

Sections 19 through 27: All

Section 28: E1/2 NE1/4, E1/2 W1/2 and W1/2 SE1/4

Sections 29 through 32: All

Section 34: E1/2 and NW1/4

Sections 35 and 36: All

Rule 7. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell, Niobrara, Sussex and Shannon Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in Weld County, Colorado to-wit:

Township 4 North, Range 66 West, 6th P.M.

Section 3: N1/2

Section 4: NE1/4

Section 5: S1/2 NE1/4 and N1/2 SE1/4

Township 5 North, Range 66 West, 6th P.M.

Section 28: W1/2 NE1/4, W1/2 W1/2 and E1/2 SE1/4

Section 33: All

Section 34: SW1/4

Rule 8. The location of all wells drilled to the Dakota and "J" Sand Formations underlying areas subject to Cause Nos. 407, 493 or 496 and at an authorized location pursuant to Rule 318 or Cause Nos. 499 or 232 shall be automatically approved, without hearing, as an authorized location for production from the Codell, Niobrara, Sussex or Shannon Formations, provided the following conditions are met:

a. The size of the voluntary unit for production from the Codell, Niobrara and Sussex Formations is either (i) 160-acres or (ii) the same size as the unit for production from the Dakota and "J" Sand Formation, with the unit for the Codell, Niobrara, Sussex and Shannon Formations not less than that prescribed by Cause No. 407, 493 or 496; and

b. The location of the wellbore in the Codell, Niobrara, Sussex and Shannon Formations is not less than 920 horizontal feet from any existing wellbore in the Codell, Niobrara, Sussex and Shannon Formations capable of producing from such Formation and, in addition, not less than 920 horizontal feet from any proposed, permitted well for which the Codell, Niobrara, Sussex and Shannon Formations is the identified objective Formation.

c. If the size of the unit or the well location is not in accordance with the provisions of Rule 8.a. and b., the operator shall comply with the provisions of Rule 9 as described herein.

Rule 9. If an applicant wishes to produce oil, gas or associated hydrocarbons from the Codell, Niobrara, Sussex and Shannon Formations and the well is not located at an authorized location under these rules or under Cause Nos. 407, 493 or 496, the applicant shall file with the Commission waivers or consents signed by the owners toward whom the well is located, agreeing that the well may be located where the applicant proposes to drill the well. If written waivers or consents are not obtained from all of said owners, then the applicant shall give written notice of the proposed operation by certified mail to said owners. The notice and any request for waiver or consent shall state that anyone who objects to the proposed operation should file a protest with the Commission within 15 days of the date of the notice. The applicant shall provide the Director with a copy of the notice and a list of the addressees prior to approval of any exception location under this rule. If the applicant intends to commingle production from the well for which an exception location is requested, then the applicant should file contemporaneously with the exception location application, the application materials required in Rules 10 and 11 below. If no written objections are filed within 15 days after notice is received, the Director is authorized to approve the proposed location as an exception location without a hearing. If a written objection is filed, or upon motion of the applicant or the Director, the application shall be heard in accordance with the rules of the Commission.

Rule 10. Multiple zone completions and downhole commingling of oil, gas and associated hydrocarbons from the Dakota, "J" Sand, Codell, Niobrara, Sussex and Shannon Formations may be approved by the Director without hearing provided the well is located at an authorized location for each formation from which production is obtained; and further that the applicant files with the Commission prior to commencing operations, (1) a complete Application for Permit to Drill, (2) a Sundry Notice setting forth the manner and method of completion proposed, including a diagrammatic sketch of the mechanical installation for multiple zone completion and commingling, and (3) an exhibit showing the location of all wells producing from the same formations in the cornering and contiguous drilling and spacing units, along with the designation of those cornering and contiguous drilling and spacing units. If the mineral ownership in the formations to be commingled is common, no allocation method and no additional notice are required.

Rule 11. In the absence of common ownership, or for other reasons, the operator may allocate the commingled production from the Dakota, "J" Sand, Codell, Niobrara, Sussex or Shannon Formations using a method of allocation which accurately reflects the production from each of the commingled formations. The operator shall provide written notice of the proposed method of allocation to the owners in the spacing units for the formations to be commingled. The notice shall state that any owner who objects to the proposed method of allocation, shall, within 15 days of the date the notice is received by the owner, file a written objection with the operator of the proposed allocation method and simultaneously file a copy with the Commission. The operator shall provide the Director with a copy of the notice and a list of the addressees. If no such owner objects to the proposed method of allocation, then the Director shall approve the method of allocation. Upon application by the operator, the matter shall be heard at the next available hearing, in accordance with the rules of the Commission, and the Commission may approve a method of allocation determined to accurately reflect production from each of the formations to be commingled.

Rule 12. Any application, protest or objection filed pursuant to these rules shall be subject to the rules of practice and procedure of the Commission; however, in the event of a conflict between the terms and provisions of these rules and the Commission's rules of practice and procedure, the terms and provisions of these rules shall control.

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 4th day of December, 1992, as of November 16, 1992.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

December 2, 1992