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/NIOBRARA SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NO. 407

ORDER NO. 407-31

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on December 21, 1987 at 9:00 a.m. in Room 110, State Centennial Building, 1313 Sherman Street, Denver, Colorado after giving Notice of Hearing for five consecutive weeks, as required by law, for persons unknown who may claim an interest in this matter, on the application of Golden Buckeye Petroleum Corporation for an order pooling all interests in the unit consisting of the N1/2 SE1/4 and the unit consisting of the S1/2 NW1/4 Section 5, Township 4 North, Range 65 West, 6th P.M. for operation and development of the Codell and Niobrara formations underlying said units.

FINDINGS

The Commission finds as follows:

1. Golden Buckeye Petroleum Corporation, as applicant herein, is an interested party in the subject matter of the above-entitled 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 20, 1983, the Commission authorized Order No. 407-1 to be issued by which 80 acre drilling and spacing units were established for production of oil and gas from the Codell formation. Underlying certain lands in Adams, Boulder, Jefferson, Larimer and Weld Counties in Colorado. [sic] The units consist of the N1/2 and S1/2 or the E1/2 and W1/2 of a governmental quarter section with the option to drill an additional well on each 80-acre unit. By subsequent order, production from the Niobrara formation was included. The N1/2 SE1/4 Section 5, Township 4 North, Range 65 West, 6th P.M. and the S1/2 NW1/4 Section 5, Township 4 North, Range 65 West, 6th P.M. have been designated drilling and spacing units.

5. In order to insure proper and efficient development of each spacing unit and to promote conservation of the oil and gas resources of the State, an order should be made pooling all interests in the spacing unit.

6. An order of the Commission pooling all interests in each Spacing Unit is necessary in order to afford each owner of an interest in said unit the opportunity to recover and receive his just and equitable share of the oil and associated hydrocarbons from the common source of supply underlying said unit.

7. Production obtained from each spacing unit should be allocated to each mineral owner therein on the basis of the proportion that the number of net mineral acres owned by each owner bears to the total number of mineral acres within said unit.

8. Testimony presented at the time of hearing indicates that an undivided twenty (20) percent of the mineral interest in the units is leased to Golden Buckeye and the owners of the remaining eighty (80) percent could not be located or determined. However, there is a dispute of the mineral interest by Nancy Mercure which may become the subject of judicial proceedings.

ORDER

NOW, THEREFORE, IT IS ORDERED, that:

1. 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 consist of the N1/2 SE1/4 and the drilling and spacing unit consist of the S1/2 NW1/4 Section 5, Township 4 North, Range 65 West, 6th P.M. Weld County, Colorado, are hereby pooled for the development of oil, gas and associated hydrocarbons from the Codell formation underlying said units.

2. The production obtained from each 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 each said drilling unit shall be entitled to receive his share of the production of the well located on each said drilling unit applicable to his interest in said drilling unit.

3. The interest of each owner in said units shall be based on the twenty (20) percent under lease by Golden Buckeye and the remaining eighty (80) percent as interest by persons unknown and undetermined. The dispute of the mineral ownership by Nancy Mercure shall be determined by a court of competent jurisdiction as well as that of the interest of parties unknown.

4. Each unleased mineral owner should be afforded the opportunity to consent to the drilling of the proposed well on each spacing unit and to elect whether to participate in the drilling and operating of said well, and pay his or her proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of net mineral acres owned by aid [sic] unleased mineral owner by the total number of mineral acres in the Spacing Unit.

5. The operator responsible for drilling the proposed well on each spacing unit shall prepare an Authorization for Expenditure ("AFE"), which shall be submitted to each unleased mineral owner in the Spacing Unit.

6. Within thirty (30) days from the date of receipt of said AFE by the unleased mineral owner, such mineral 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 an unleased mineral owner within such time period, said unleased mineral owner shall be deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well.

7. Each non-consenting unleased mineral owner within each 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 owners recover, only out of the non-consenting owners [sic] 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 8/8 [sic] the [sic] 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.

8. If during the pending of any litigation over mineral ownership in said units, a bona fide dispute arises as to the proper distribution of proceeds of production from the unit well, the amount of proceeds in dispute shall either be escrowed by the operator, or paid into the registry of the appropriate court pending resolution of the dispute concerning ownership figures.

9. The designated operator of the wells to be drilled on the units for the purpose of this pooling order shall be the applicant, Golden Buckeye.

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 and/or all of the above orders.

ENTERED this 14th day of January, 1988, as of December 21, 1987.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Frank J. Piro, Secretary