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 CODELL FORMATION, LARIMER COUNTY, COLORADO

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CAUSE NO. 407

ORDER NO. 407-2

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on March 19, 1984 at 1:30 p.m., in Room 110, State Centennial Building, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Sunset Hill Oil Co., Inc., for an order pooling all interests in the drilling and spacing unit consisting of the S1/2NE1/4, Section 12, Township 6 North, Range 68 West, 6th P.M., Larimer County, Colorado, for the development and operation of the Codell formation for the production of oil and/or gas underlying said unit, pursuant to 34-60-116 C.R.S. 1973, as amended.

FINDINGS

The Commission finds as follows:

1. Sunset Hill Oil Co., 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. The S1/2NE1/4 Section 12, Township 6 North, Range 68 West, 6th P.M. has been established [sic] a drilling and spacing unit by the Commission by Order No. 407-1, issued December 20, 1983.

5. Effort has been made to obtain the voluntary pooling of all interests in said drilling unit for the development and operation thereof, but that it has not been possible to secure the agreement of all owners of interest in said unit for the voluntary pooling thereof.

6. Applicant is an "interested person" within the meaning of 34-60-116 (6), C.R.S. 1973, as amended, of the Oil and Gas Conservation Act of the State of Colorado.

7. In order to insure proper and efficient development of said drilling unit and to promote conservation of the oil and/or gas resources of the State, an order should be made pooling all interests in the 80-acre drilling unit described herein.

8. 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.

9. 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.

ORDER

NOW, THEREFORE, IT IS ORDERED, that pursuant to the revisions 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 S1/2NE1/4 Section 12, Township 6 North, Range 68 West, 6th P.M., Larimer County, Colorado, are hereby pooled for the development of oil and/or gas from the Codell formation underlying said unit.

IT IS FURTHER ORDERED, that the production obtained from said drilling unit shall be allocated to each owner therein in the unit 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.

IT IS FURTHER ORDERED, that the non-consenting owner should be afforded the opportunity to consent to the drilling of the proposed well on the unit and to elect whether to participate in the drilling and operating of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of net mineral acres owned by said unleased mineral owner by the total number of mineral acres in the unit.

IT IS FURTHER ORDERED, that the operator responsible for drilling the proposed well on the said unit shall prepare an Authorization for Expenditure ("AFE"), which shall be submitted to the non-consenting owner in the unit.

IT IS FURTHER ORDERED, that within thirty (30) days from the date of receipt of said AFE by the non-consenting owner, such owner shall indicate whether he consents to the drilling of the well and agrees to participate in the cost thereof. 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 a non-consenting 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.

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 10th day of April, 1984, as of March 19, 1984.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Frank J. Piro, Secretary