REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on July 16, 1984 at 9:00 A.M., in Room 110, State Centennial Building, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Harvey Exploration, Kaiser Energy, Inc., and Belgrove Development Co., for an order establishing a 40-acre drilling and spacing unit for the production of oil and associated hydrocarbons from the Niobrara formation underlying certain lands in Moffat County, and further to pool all interests in said proposed unit for the production of oil and associated hydrocarbons pursuant to 34-60-116 C.R.S. 1973, as amended.

FINDINGS

The Commission finds as follows:

1. Harvey Exploration, Kaiser Energy, Inc., and Belgrove Development Co., 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. Evidence presented at the hearing indicates that the Niobrara formation constitutes a common source of supply of oil and associated hydrocarbons underlying the following described lands in Moffat County, Colorado, to-wit:

Township 4 North, Range 90 West, 6th P.M. Section 8: N/2NW/4SE/4, South 20-acres of Lot 2

5. In order to prevent 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 proper and efficient development and promote conservation of the oil and gas resources, an order should be made establishing a 40-acre drilling and spacing unit for the production of oil and associated hydrocarbons from the Niobrara formation, a common source of supply underlying the lands defined herein; that said unit should be 40-acres, more or less, and consist of the lands described herein. The permitted well for the unit should be Well No. W. T. Durham, located 330 feet from the east line and 330 feet from the south line of Lot 2, Section 8, Township 4 North, Range 90 West, 6th P.M.

6. All available geological and engineering data concerning said Niobrara formation indicate that one well will efficiently and economically drain an area of approximately 40-acres, and that the drilling unit of the size and shape hereinabove described is not smaller than the maximum area that can be efficiently and economically drained by one well producing from said Niobrara formation.

7. In order to insure proper and efficient development of the spacing units and to promote conservation of the oil and gas resources of the State, an order should be made pooling all interests in the spacing units.

8. An order of the Commission pooling all interests in the spacing units is necessary in order to afford each owner of an interest in said units the opportunity to recover and receive his just and equitable share of the oil and associated hydrocarbons from the common source of supply underlying said unit.

9. Production obtained from the spacing unit should be allocated to each mineral owner therein on the basis of the proportion that the number of net mineral acres owned by each owner bears to the total number of mineral acres within said unit.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well drilled, completed, or recompleted in the Niobrara formation underlying that portion of the Waddle Creek Field 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. A 40-acre drilling and spacing unit shall be and the same is hereby established for the production of oil and associated hydrocarbons from the Niobrara formation underlying the following described lands in the Waddle Creek Field Moffat County, Colorado, to-wit: Township 4 North, Range 90 West, 6th P.M. Section 8: N/2NW/4SE/4, South 20-acres of Lot 2 Rule 2 Said drilling units shall consist of 40-acres, more or less, and consist of the lands described herein. The permitted well for the unit should be Well No. W. T. Durham, located 330 feet from the east line and 330 feet from the south line of Lot 2, Section 8, Township 4 North, Range 90 West, 6th P.M.

IT IS FURTHER ORDERED that pursuant to the provisions of 34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the N/2NW/4SE/4 and the South 20-acres of Lot 2, Section 8, Township 4 North, Range 90 West, 6th P.M. Waddle Creek, Moffat County, Colorado, are hereby pooled for the development of oil and associated hydrocarbons from the Niobrara formation underlying said unit.

IT IS FURTHER ORDERED, that the production obtained from said drilling unit shall be allocated to each owner therein in the unit to the total number of mineral acres within said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable--to his interest in said drilling unit.

IT IS FURTHER ORDERED, that the unleased mineral owner should be afforded the opportunity to elect whether to participate in the operating of said well, and pay his or her proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of net mineral acres owned by said unleased mineral owner by the total number of mineral acres in the Spacing Unit.

IT IS FURTHER ORDERED, that the operator responsible for drilling of the well on the spacing unit shall prepare an Authorization for Expenditure ("AFE"), which shall be submitted to the unleased mineral owner in the Spacing Unit.

IT IS FURTHER ORDERED, that within thirty (30) days from the date of receipt of said AFE by the unleased mineral owner, such mineral owner shall indicate whether he agrees to participate in the cost thereof. Such election shall be made in writing, either by executing the AFE or similar document. In the event a written election to participate is not made by an unleased mineral owner within such time period, said unleased mineral owner shall be deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well.

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(414-1)

IT IS FURTHER ORDERED, that the non-consenting unleased mineral owner within the Spacing Unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owners proportionate 87.5% share of production the costs specified in C.R.S. 34-60-116 (7)(b), as amended. After recovery of such costs, the non-consenting mineral owner shall then own his proportionate 8/8 the share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

IT IS FURTHER ORDERED, that this order shall not, nor shall it be construed to affect, adjudicate, expand, limit, validate or invalidate, or in any manner affect the ownership rights and obligations of any party or person in the mineral estate or leasehold estate underlying the subject lands. Specifically, the Commission takes no position regarding the validity or invalidity of any oil and gas lease which may purport to cover the mineral estate underlying the subject lands.

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 13th day Of August 1984, as of July 16, 1984 and corrected this 11th day of September 1984.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary 3 --(414-1)