IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE WATTENBERG AREA, ADAMS COUNTY, COLORADO AMENDED Cause No. 407, 467 Order No. 467-9, 407-88

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 21, 1992 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 verified application as amended of Martin Exploration Management Company, for an order to establish drilling and spacing units for the Dakota Formation in accordance with those units established in Order No. 467-6 for the "J" Sand Formation. The order should also establish 80-acre drilling and spacing units for the Niobrara Formation in accordance with the spacing units and well locations established in Cause No. 407 for the Codell Formation. Further, the order should allow wells drilled to the Dakota Formation to be recompleted to the "J" Sand, Codell and Niobrara Formations and allow the downhole commingling of production from the Dakota Formation with production from the "J" S and Formation, the Codell Formation and Niobrara Formation, pursuant to rules adopted in Order Nos. 467-8 and 407-75.

FINDINGS

The Commission finds as follows:

1. Martin Exploration Management Company, 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. On July 16, 1991, the Commission authorized Order No. 467-6 to be issued, which 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 wel l shall be located no closer than 990 feet from the boundaries of the unit.

5. 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. Subsequent orders included the Niobrara Formation and allowed the downhole commingling of production from the Codell Formation with production fro m the Niobrara Formation.

6. That evidence presented at the hearing indicates that the Dakota and the Niobrara Formations constitute a common source of supply of the following described lands in 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

7. Engineering testimony presented indicated that prudent production engineering practices would allow commingled production from all reservoirs, resulting in increased recovery of reserves and no irremediable reservoir damage. The testimony also showed that several of the potential reservoirs would not be produced unless commingling would be authorized.

8. That additional rules be established for the protection of correlative rights and procedures to process recompletion, commingled and dual completion requests.

9. Based on the facts stated in the verified application, as amended, receiving no protests and having been heard by the Director as Hearing Officer on February 12, 1992, and recommended for approval, the Commission should enter an order establishing drilling and spacing units for the Dakota Formation in accord with those units established in Order No. 467-6 for the "J" Sand Formation. The order should also establish 80-acre drilling and spacing units for the Niobrara Formation in accordance with the spacing units and well locations established in Cause No. 407 for the Codell Formation. Further, the order should allow wells drilled to the Dakota Formation to be recompleted to the "J" Sand, Codell and Niobrara Formation and allow the downhole commingling of production from the Dakota Formation with production from the "J" Sand Formation, the Codell Formation and Niobrara Formation, pursuant to rules ad opted in Order Nos. 467-8 and 407-75.

O R D E R

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 Dakota and Niobrara Formations, where the production is commingled or dually completed with the "J" Sand, Codell, and Niobrara Formations underlying the area spaced for the Dakota and Niobrara Formations, described herein below, in addition to other applicable rules and regulations and orders of the Com mission, if any, heretofore adopted and not in conflict herein:

Rule 1. That evidence presented at the hearing indicates that the Dakota, "J" Sand, Codell and Niobrara Formations constitute common sources of supply of oil, gas and associated hydrocarbons underlying the following described lands in 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: The location of all wells drilled to the Codell and Niobrara Formations 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 and Niobrara Formations is either (i) 160-acres or (ii) the same size as the unit for production from the Dakota and "J" Sand Formations, with the unit for the Codell and Niobrara Formations not less than that prescribed by Cause No. 407; and

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

Rule 3: If an applicant wishes to produce oil, gas or associated hydrocarbons from the Codell and Niobrara Formations 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 th e 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 o wner 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 materials required in Rule 5 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 hearing. If a written objection is filed, or upon motion of the applicant or the Director, the application shall be heard in accor dance with the rules of the Commission.

Rule 4: Multiple zone completions and downhole commingling of oil, gas and associated hydrocarbons from the Dakota, "J" Sand, Codell and Niobrara 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 Sundr y 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 writ ten consent to the commingling. If the well to be commingled is within a voluntary unit for production from the Codell and Niobrara Formations 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 t he 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 afte r receiving notice, then the application shall be heard in accordance with the rules of the Commission.

Rule 5: An operator may allocate the commingled production from the Dakota, "J" Sand, Codell and 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 Direc tor 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 6: 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.

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 , 1992, as of February 19, 1992.

AMENDED this day of , 1993.

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 August 23, 1993 ??

(467-9 & 407-88)