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 SHANNON FORMATION IN WELD COUNTY, COLORADO

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CAUSE NOS. 496 and 407

ORDER NOS. 496-2 and 407-78

AMENDED

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on November 18, 1991 at 8:30 a.m., 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 Gerrity Oil and Gas Corporation, for an order to establish 80-acre drilling and spacing units in accordance with the field rules adopted in Cause No. 407, for the production of oil and associated hydrocarbons from the Shannon Formation underlying certain lands in Weld County, Colorado.

FINDINGS

The Commission finds as follows:

1. Gerrity Oil and Gas Corporation, 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. 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 No. 407-10, 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. In Order No. 496-1 and 407-69, the Commission established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Shannon Formation and authorized the downhole commingling of production from the Shannon and/or Codell and/or Niobrara Formations.

6. That evidence presented at the time of the administrative hearing indicates that the Shannon Formation underlies the following described lands in Weld County, Colorado, to-wit:

Township 4 North, Range 66 West, 6th P.M.

Section 5: S1/2 NE1/4, N1/2 SE1/4

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

Section 28: W1/2 NE1/4, W1/2 W1/2, E1/2 SE1/4

Section 33: N1/2, SW1/4

7. That in order to prevent the waste of oil and gas, as defined by law; to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure the proper and efficient development and promote conservation of the oil and gas resources of the State, an order should be made establishing 80-acre drilling and spacing units for the production of oil and associated hydrocarbons from the Shannon Formation, a common source of supply underlying the lands described herein; that said units should consist of the E1/2 and W1/2 or N1/2 and S1/2 of each quarter section, according to the governmental survey, with the unit designated by the operator of the first well drilled in the quarter section.

8. That the permitted well should be located in accordance with the provisions of Cause No. 407 of the Commission and wells previously drilled, currently drilling, or having an approved location exception for the Shannon Formation should be established as the permitted well location for the 80-acre drilling and spacing unit. Exceptions may be granted by the Director, provided the owners toward whom the well location is proposed to be moved file a waiver or consent in writing. Unit designations with equities differing from 80-acres should remain as originally designated.

9. That engineering testimony presented indicated that prudent engineering practices would allow commingled production from the Shannon Formation and the Codell and/or Niobrara Formations, resulting in increased recovery of reserves and no irremediable reservoir damage.

10. That all available geological and engineering data concerning said Shannon Formation indicated that one well will efficiently and economically drain an area of approximately 80-acres and that the drilling units of the size and shape herein described are not smaller than the maximum area that can be efficiently and economically drained by one well producing from said formations.

11. Based on the facts stated in the verified application, receiving no protests and having been heard by the Director as Hearing Officer on November 13, 1991 and recommended for approval, the Commission should enter an order establishing 80-acre drilling and spacing units on the lands described in Finding 6, with permitted well locations to be in accordance with Cause No. 407 of the Colorado Oil and Gas Conservation Commission, and further to allow the downhole commingling of production from the Shannon Formation with production from the Codell and/or Niobrara Formations.

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 Shannon Formation underlying the lands herein described, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herewith:

Rule 1. Eighty (80) acre drilling and spacing units shall be and the same are hereby established for the production of oil and associated hydrocarbons from the Shannon Formation underlying the following described lands in Weld County, Colorado:

Township 4 North, Range 66 West, 6th P.M.
Section 5: S1/2 NE1/4, N1/2 SE1/4

Township 5 North, Range 66 West, 6th P.M.
Section 28: W1/2 NE1/4, W1/2 W1/2, E1/2 SE1/4
Section 33: N1/2, SW1/4

Rule 2. Said drilling units shall consist of the E1/2 and W1/2 or N1/2 and S1/2 of each quarter section according to the governmental survey, with the unit designated by the operator of the first well drilled in the quarter section.

Rule 3. The permitted well shall be located in accordance with the provisions of Cause No. 407 of the Colorado Oil and Gas Conservation Commission and wells previously drilled, currently drilling, or having an approved location exception for the Shannon Formation shall be established as the permitted well location for the 80-acre drilling and spacing unit. Exceptions may be granted by the Director, provided the owners toward whom the well location is proposed to be moved file a waiver or consent in writing. Unit designations with equities differing from 80-acres shall remain as originally designated.

Rule 4. Wells drilled or to be drilled in the lands described herein, shall be allowed commingled production from the Shannon Formation and 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 18th day of December, 1991, as of November 18, 1991.

AMENDED this 11th day of June, 1993.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Patricia C. Beaver, Secretary

Dated at Suite 380

1580 Logan Street

Denver, Colorado 80203

June 11, 1993