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 AREA, ADAMS COUNTY, COLORADO

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CAUSE NOS. 467 and 407

ORDER NOS. 467-8 and 407-75

AMENDED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 16, 1991 at 8:30 a.m., in Room 101, State Education Building, 201 East Colfax Avenue, Denver, Colorado, after giving Notice of Hearing as required by law, on the Commission's own motion to adopt additional field rules for Township 1 South, Range 68 West, 6th P.M. [sic] Adams County, Colorado.

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. 467-6, the Commission established 160-acre drilling and spacing units, consisting of a governmental quarter section, for production of oil, gas and associated hydrocarbons from the "J" Sand Formation. The permitted well shall be located no closer than 600 feet from the boundaries of the unit, except in those sections which are adjacent to the lands in Cause No. 232, in which the permitted well shall be located no closer than 990 feet from the boundaries of the unit.

5. On August 20, 1991, the Commission authorized Order Nos. 467-7 and 407-72 to be issued, which established procedures to allow wells drilled to the "J" Sand Formation to be recompleted to the Codell Formation, and further to allow the downhole commingling of production from the "J" Sand Formation with production from the Codell Formation.

6. After receiving public testimony at the July, August and September Commission hearings from industry and private citizens, and upon further review of the draft proposed field rules, additional rules should be adopted to protect the health, safety and welfare of the citizens of Colorado, particularly those citizens living in residential areas.

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 Township 1 South, Range 68 West, 6th P.M., Adams County, Colorado, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herein:

Rule 1. One Hundred Sixty (160) acre drilling and spacing units shall be and the same are hereby established for the production of "J" Sand Formation underlying the following described lands in the Wattenberg Field, Adams County, Colorado, to-wit:

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

Section 1: All

Section 2: E1/2 and NW1/4

Sections 3 through 13: All

Section 14: W1/2 and NE1/4

Section 15: SW1/4

Sections 16 through 23: All

Section 24: E1/2 and SW1/4

Sections 25 through 36: All

Rule 2. Said drilling units shall consist of one hundred sixty (160) acres, and each such drilling unit shall consist of a governmental quarter section. The permitted well shall be located no closer than 600 feet from the boundaries of the unit, except in those sections which are adjacent to the lands in Cause No. 232, in which the permitted well shall be located no closer than 990 feet from the boundaries of the Cause No. 232 lands.

Rule 3. The following units are hereby designated for the below-listed lands; based on information pertaining to existing agreements and wells capable of production submitted by Martin Exploration Management Company, Vessels Oil and Gas Company, and Basin Operating Company, Inc. An additional well shall be allowed on the undrilled 160-acre tract in each 320-acre drilling and spacing unit.

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

Section 1:	SE1/4 and SW1/4	160 acres
Section 2:	NE1/4, SE1/4 and SW1/4	160 acres
Section 4:	S1/2	320 acres
Section 6:	W1/2	320 acres
Section 8:	E1/2	320 acres
Section 9:	N1/2 and S1/2	320 acres
Section 10:	N1/2 and S1/2	320 acres
Section 11:	W1/2	320 acres
Section 11:	NE1/4 and SE1/4	160 acres
Section 12:	NW1/4 and SW1/4	160 acres
Section 13:	NE1/4, SE1/4 and SW1/4	160 acres
Section 14:	W1/2	320 acres
Section 14:	NE1/4 and SE1/4	160 acres
Section 16:	N1/2 and S1/2	320 acres
Section 17:	E1/2	320 acres
Section 21:	NE1/4 and NW1/4	160 acres
Section 22:	E1/2	320 acres
Section 23:	W1/2	320 acres

Rule 4: That evidence presented at the hearing indicates that the "J" Sand and the Codell Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the lands herein described in Rule 1.

Rule 5: The location of all wells drilled to the "J" Sand Formation underlying areas subject to Cause No. 407 and at a legal location pursuant to Rule 318 or Cause No. 467 shall be automatically approved, without hearing, as a legal location for production from the Codell or Niobrara Formations, provided the following conditions are met:

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

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

Rule 6: If an applicant wishes to produce oil, gas or associated hydrocarbons from the Codell Formation and the well is not located at a legal location under these rules or under Cause No. 407, the applicant shall file with the Commission waivers or consents signed by the owners toward whom the well is located, including but not limited to owners of interests in other formations not participating in the proposed operation, 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. If an 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 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 Rule 7 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.

Rule 7: Multiple zone completions and downhole commingling of oil, gas and associated hydrocarbons from the "J" Sand, and Codell Formations may be approved by the Director without hearing provided the well is located at a legal 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 on adjacent premises and all offset wells on adjacent lands. Each application shall also designate the drilling and spacing units within 1/4 mile of the well proposed to be commingled and indicate that the owners have given written consent to the commingling. If the well to be commingled is within a voluntary unit for production from the Codell Formation and is not less than 460 feet from the boundary of the unit and not less than 920 feet from any well not included in the voluntary unit, then the applicant shall not be required to give notice to owners outside the voluntary unit. 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 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. 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 8: An operator may allocate the commingled production from the "J" Sand and Codell 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. 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 no such party, nor the Commission itself, objects 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-bearing interests in each formation from which commingled production will be obtained, and (2) by the owners of at least 80% of the cost-free interests, such as royalties, overriding royalties and production payments, in each formation from which commingled production will be obtained.

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.

Rule 10: That evidence presented at the hearing indicates that a residential area shall be defined as "Any area that has an average platted density of 2.5 acres or less per dwelling or any building or well-defined outside area commonly used for public assembly."

1. Any well drilled in a residential area shall comply with the following rules:

A. Surface locations of wellheads shall be located not less than 350 feet from any dwelling or facility as defined above.

B. Production tanks and/or associated on-site production equipment shall be located not less than 350 feet from any dwelling or facility as defined above.

C. All pumps, pits, wellheads and production facilities shall be adequately fenced to prevent access by unauthorized persons.

D. Each Survey plat accompanying an Application for Permit-to-Drill shall, in addition to the requirements of Rule 303, include the following information:

1. All visible improvements within 350 feet of a well location must be physically tied in and plotted on the survey plat with a horizontal distance to the well location. Visible improvements include all dwellings and facilities as described above, public roads, major above-ground utility lines, railroads, pipelines, mines, oil or gas wells, injection wells, water wells, bodies of water, and natural channels through which water may flow. Surface uses must be described, and all surface property boundaries defined.

2. 2. An 8.5" x 11" copy of the most current 1:24,000 scale topographic map of the area.

3. A lease map showing all individual leases in the drilling unit, identifying the lessee, lessor, and surface ownership.

E. Any equipment used in the drilling, completion or production of a well shall comply with C.R.S. 25-12-103, Maximum Permissible Noise Levels.

F. All operations associated with the drilling, completion or production of a well shall comply with C.R.S. 25-7-101, Colorado Air Quality Control Act, as it applies to fugitive dust and venting or flaring of natural gas.

G. If applicable, and where possible, development of multiple reservoirs by drilling on existing pads or by multiple completions or commingling in existing wellbores is required.

H. All other setbacks or safety requirements set out in the Colorado Oil and Gas Conservation Commission Rules and Regulations shall apply.

2(a). Exceptions to the location requirements set out in 1(A) and 1(B) may be granted by the Director if a copy of waivers from each owner of a dwelling or facility within 350 feet of the proposed location is submitted as part of the Application for Permit-to-Drill, and the proposed location complies with other safety requirements of the Rules and Regulations. An election by the owner to build a house less than 350 feet from an existing well, constitutes an election to waive the 350 foot setback rule.

2(b). This rule supercedes the existing Colorado Oil and Gas Conservation Commission Rule 603.

3 All wells drilled to the "J" Sand reservoir shall have surface casing set to a depth 50 feet below the base of the Fox Hills water sand and such casing will be cemented to surface

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 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

October 2, 1991