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-NIOBRARA SPACED AREA, WELD COUNTY, COLORADO

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CAUSE NOS. 232 and 407

ORDER NOS. 232-50 and 407-74

AMENDED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 16, 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 North American Resources Company to establish 320-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the "J" Sand Formation, to segregate certain 320-acre units into 160-acre units, and further allow wells to be drilled at the well location established in Cause No. 407-1, for commingled production of oil, gas and associated hydrocarbons from the "J" Sand, Codell and Niobrara Formations underlying the following described lands:

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

Section 17: N1/2, S1/2 (320-acre units)

Section 17: NE1/4, NW1/4 (160-units)

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

Section 29: E1/2, W1/2 (320-acre units)

Section 29: NE1/4, SE1/4 (160-acre units)

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

Section 19: S1/2, N1/2 (320-acre units)

Section 19: SE1/4, SW1/4 (160-acre units)

Section 23: SE1/4, SW1/4 (160-acre units)

FINDINGS

The Commission finds as follows:

1. North American Resources Company, 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 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, gas and associated hydrocarbons from the Codell Formation. The units consist of the E1/2 and W1/2 or the N1/2 and S1/2 of each governmental quarter-quarter section with a tolerance of 200 feet and the option to drill an additional well in the undrilled 40-acre tract. Subsequent Order No. 407-10 included the Niobrara Formation and allowed downhole commingling of production from the Codell and Niobrara Formations. The lands included in this application lie within the area spaced by these orders.

5. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand Formation 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. The lands included in this application lie within the area spaced by these orders.

6. In Order Nos. 407-66 and 232-47, the Commission allowed production from the "J" Sand Formation to be commingled or dually completed with production from the Codell and/or Niobrara Formations, including the following described lands in Weld County, Colorado, to-wit:

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

Section 17: All

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

Section 29: All

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

Section 19: All

Section 23: All

7. Testimony presented at the administrative hearing indicated that wells drilled for production from the "J" Sand Formation at locations as established by Cause No. 407-1 should not result in damage to the correlative rights of surrounding minerals [sic] owners.

8. No wells have been drilled in these lands to establish production from the "J" Sand, Codell, or Niobrara Formations.

9. Based on the facts stated in the verified application and having been heard by the Hearing Officer who recommended approval of the application, and having received no protests, the Commission should approve the request and amend Order Nos. 232-1 and 407-1 and establish 320-acre units, and further segregate certain units into 160-acre drilling and spacing units for the following described lands:

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

Section 17: N1/2, S1/2 (320-acre units)

Section 17: NE1/4, NW1/4 (160-units)

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

Section 29: E1/2, W1/2 (320-acre units)

Section 29: NE1/4, SE1/4 (160-acre units)

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

Section 19: S1/2, N1/2 (320-acre units)

Section 19: SE1/4, SW1/4 (160-acre units)

Section 23: SE1/4, SW1/4 (160-acre units)

for the commingled production of oil, gas and associated hydrocarbons from the Codell and Niobrara Formations.

ORDER

NOW, THEREFORE, IT IS ORDERED, that lands described in Finding 9 be segregated into 160-acre drilling and spacing units consisting of the below-described units and further that wells shall be allowed to be drilled to the "J" Sand Formation at well locations in accordance with those established in Order No. 407-1 for the commingled production of oil, gas and associated hydrocarbons from the "J" Sand, Codell and/or Niobrara Formations underlying these lands. North American Resources Company shall be designated the operator for the following units:

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

Section 17: NW1/4

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

Section 29: SE1/4

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

Section 19: SW1/4

Section 23: SE1/4

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective after, in the absence of a protest, the fifth and final publication scheduled for October 22, 1991 which allows an additional ten day protest period as required by C.R.C.P. Rule 4(h) and (g); should a protest be received, the matter will be scheduled for the next regular Commission hearing.

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 9th day of October, 1991, as of September 16, 1991.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

September 27, 1991