IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN A PORTION OF THE CODELLNIOBRARA SPACED AREA UNDERLAIN BY THE SUSSEX FORMATION IN WELD COUNTY, COLORADO Cause No. 407, 493 Order No. 493-2, 407-67

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 20, 1991, 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 Freedom Energy, Inc. and Prima Oil and Gas Company, for an order to establish 80-acre drilling and spacing units for production from the Sussex formation, in accordance with the field rules adopted in Cause No. 407 for the Codell-Niobrara formations, and further, to allow the downhole commingling of production from the Sussex formation with production from the Codell and Niobrara formations.

FINDINGS The Commission finds as follows:

1. Freedom Energy, Inc. and Prima Oil and Gas Company as applicants herein, are interested parties 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. 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.

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

- 1 -(493-2 & 407-67) Township 3 North, Range 64 West, 6th P.M. Sections 1 through 36: All

Township 3 North, Range 65 West, 6th P.M. Sections 1 through 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: N/2 Sections 32 through 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: N/2 and SW/4 Sections 26 through 29: All Sections 31 through 34: All Section 35: NE/4 and SW/4 Section 36: All

- 2 -(493-2 & 407-67)

Township 4 North, Range 66 West, 6th P.M. Sections 4 through 9: All Sections 16 through 22: All Sections 26 through 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 19-36: All

6. Eighty (80) acres drilling and spacing units should be established for production of oil, gas and associated hydrocarbons from the Sussex formation, with permitted wells located in accordance with Order No. 407-1.

7. 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.

8. The 80-acre drilling and spacing units previously established for production from the Codell and Niobrara formations should remain the same for the commingled production from the Sussex formation with the production from the Codell and Niobrara formations.

9. Wells previously drilled and completed as productive in the Sussex formation under equities differing from 80-acre drilling and spacing units are not obligated to conform to these units.

10. Current operators of wells previously drilled and completed as productive in the Sussex formation should advise the Commission of the number of acres in the drilling and spacing unit and the unit designation assigned to such wells.

12. 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 Sussex formation, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herein:

Rule 1: Eighty (80) acre drilling and spacing units shall be and the same are hereby established for the production of oil, gas and associated hydrocarbons from the Sussex formation underlying the following

- 3 -(493-2 & 407-67)

described lands in Weld County, Colorado, to-wit:

Township 3 North, Range 64 West, 6th P.M. Sections 1 through 36: All

Township 3 North, Range 65 West, 6th P.M. Sections 1 through 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: N/2 Sections 32 through 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: N/2 and SW/4 Sections 26 through 29: All Sections 31 through 34: All Section 35: NE/4 and SW/4 Section 36: All - 4 -(493-2 & 407-67)

Township 4 North, Range 66 West, 6th P.M. Sections 4 through 9: All Sections 16 through 22: All Sections 26 through 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 19-36: All

Rule 2: Said drilling units shall consist of 80-acres, more or less, and consist of the E/2 and W/2 or the N/2 and S/2 of a quarter section according to the governmental survey, the unit to be designated by the operator upon drilling the first well in the quarter section. The permitted well shall be located in the center of either 40-acre tract within the unit, with a tolerance of 200 feet in any direction. The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.

Rule 3: Wells previously drilled and completed as productive in the Sussex formation under equitities differing from 80-acre drilling and spacing units are not required to conform to these units. Nothing herein contained is intended to change any existing equities in the Sussex formation in any well drilled or permitted prior to the effective date of this order. If in any well heretofore drilled or permitted, the ownership of the well and/or the sharing of production from the Sussex formation has been established on a basis that would be inconsistent with these rules, then such well or wells shall be exempt from the portion of these rules establishing 80-acre drilling and spacing units. If such exemption results in the inability of any owner in any quarter section of land to form an 80-acre drilling and spacing unit, then as to such lands Rule 318 of the Commission shall apply with respect to location of wells.

Rule 4: Current operators of wells previously drilled and completed as productive in the Sussex formation shall advise the Commission of the number of acres in the drilling and spacing unit and the unit designation assigned to such wells within thirty (30) days of the date this order is entered. If a unit is not designated by the operator of the first well drilled in the unit, the Director shall designate a proposed unit and advise the operator of same. If within 30 days of receipt of such notice operator objects to such designation in writing to the Commission, the matter shall be set for hearing before the Commission

Rule 5: If an applicant wishes to produce oil, gas or associated hydrocarbons from the Sussex formation and the well is not located at a legal location the applicant shall file with the Commission waivers or consents signed by the owners of the adjoining spacing unit toward whom the well is located agreeing to the existing or proposed location. If written waivers or consents are not obtained from all of

- 5 -(493-2 & 407-67)

said owners, then the applicant shall give written notice of the proposed operation by certified mail to said owners. If the owner of the well is also the owner of a lease toward which the well is located, then the applicant must also obtain a waiver or consent or give written notice by certified mail to the mineral interest owner subject to such lease. 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 30 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 to whom notice was sent prior to approval of any exception location under the 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 7 and 8 below. If no written objections are filed within 30 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.

- 6 -(493-2 & 407-67)

Rule 6: Multiple zone completions and downhole commingling of oil, gas and associated hydrocarbons from the Sussex, Codell and Niobrara formations may be approved by the Director without hearing provided the well is located at a legal location or at an approved exception location for each formation from which it is being proposed that production be commingled and the applicant files with the Commission prior to commencing operations, (1) a completed Application for Permit-to-Drill, in the case of new wells and/or (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 an exhibit showing the location of all wells on adjacent premises and all offset wells on adjacent lands. In the event the well is not in a legal location or an approved exception location for each formation from which it is being proposed that production be commingled each application shall also designate the adjoining drilling and spacing unit toward whom the well is located and indicate that the owners have given written consent to the commingling. In the absence of common ownership, the application shall also include a statement that each person sharing in the costs and/or proceeds from such well has agreed to a method for allocating commingled production.

If an agreement among the necessary parties regarding commingling or allocation of commingled production cannot be reached, then the applicant shall file with the Commission, prior to commencing operations, the same information described in the preceding paragraph, excluding the statement that the parties have agreed, and in addition shall give written notice by certified mail to each person who owns an interest in the tract where production is to be commingled. The notice shall state that anyone who objects to the proposed operation may file a protest with the Commission within 30 days. The applicant shall provide the Director with a copy of the notice and a list of the addressees to whom the notice was sent. If any such owner, or the Commission itself, does not file written objection to the application within 30 days after receiving notice, then the application shall be approved. If any such owner, or the Commission itself, files written objection to the application within 30 days after receiving notice, then the application shall be heard in accordance with the rules of the Commission.

Rule 7: An operator may allocate the commingled production from the Sussex, Codell and/or Niobrara formations underlying lands subject to these rules, provided the method is equitable to all of the persons sharing in the costs and/or proceeds from the well and a description of the method to be used is provided to all of such persons with notification of their right to object to the Commission within 30 days. The applicant shall provide the Director with a copy of the notice and a list of the addressees to whom the notice was sent. However, any allocation method shall be subject to the Commission's right to object on its own account or upon application of any interested party. Any objection or application filed with the Commission shall be filed within 30 days after receipt of notice. If any such party, or the Commission

- 7 -(493-2 & 407-67)

itself, does not object to the proposed allocation method, then the operator may allocate production without action by the Commission.

Upon objection or application the Commission shall hear the matter in accordance with the rules of the Commission and may approve an allocation method if the method is equitable and has been approved in writing by (1) those persons who own at least 80% of the cost-free interest, such as royalties, overriding royalties and production payments, in each formation from which it is being proposed production be commingled and (2) those persons who own at least 80% of the cost bearing interests such as working interests, in each formation from which it is being proposed that production be commingled.

Rule 8: The 80-acre drilling and spacing units previously established for production from the Codell and Niobrara formations shall remain the same for the production from the Sussex formation, including that production from commingled and/or multiple completion techniques obtained from the Sussex and Codell and Niobrara formations.

Rule 9: 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.

- 8 -(493-2 & 407-67)

Rule 10: With respect to any wells heretofore or hereafter approved by the Commission for production from the Codell and/or Niobrara formations on 40-acre drilling and spacing units, the Sussex formation shall automatically qualify for an exemption from the portion of these rules establishing 80-acre drilling and spacing units for the Sussex formation. In those wells the Sussex formation shall be produced on the same 40-acre drilling and spacing units established for the Codell and/ or Niobrara formations.

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 , 1991, as of May 20, 1991.

CORRECTED this day of , 1991, as of May 20, 1991.

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 June 6, 1991 1245I

- 9 -(493-2 & 407-67)