REPORT OF THE COMMISSION

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

This cause came on for hearing before the Commission on July 19, 1988, at 9:30 A.M. in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Williford Energy Company for an order approving a certain Unit Agreement and Unit Operating Agreement for the Rhoades Unit Area, providing for involuntary unit operations of the reservoir consisting of the Morrow "B" formation underlying certain lands in the Rhoades Unit Area, Cheyenne County, Colorado.

FINDINGS

The Commission finds as follows:

1. Williford Energy 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. The Morrow "B" Formation of Pennsylvanian age was encountered in the intervals between depths of 5392 feet to 5445 feet in well No. 3-32 Rhoades located in the SW/4, Section 32, Township 13 South, Range 48 West, 6th P.M. Said Morrow formation, as so encountered, is a common source of supply and has been defined and determined by drilling to be productive underlying the lands as shown in Exhibit 1, Attachment A which also shows wells excluded from the unit Said lands in Cheyenne County, Colorado are described as follows:

Township 13 South, Range 48 West, 6th P.M. Section 29: S/2 Section 31: All Section 30: S/4 Section 32: All

Township 14 South, Range 48 West, 6th P.M. Section 5: NW/4 Section 6: N/2

Township 13 South, Range 49 West, 6th P.M. Section 36: E/2 Township 14 South, Range 49 West, 6th P.M. Section 1: NE/4

5. The following described wells should be excluded from the unit area:

Township 13 South, Range 48 West, 6th P.M. CPC 1-29 James SE/SW Section 29 CPC 2-29 James SE/SE Section 29 CPC 3-29 James SW/SW Section 29 Caribou 1-3 McCormickSE/SE Section 30 CPC 2-31 Rhoades SE/NE Section 31 CPC 4-31 Rhoades SE/NE Section 31

Township 14 South, Range 48 West, 6th P.M. Mull I-A Rhoades Bros. C/N/2N/2 Section 6 WEC 2-6 Rhoades NW/NW Section 6

6. The terms and conditions provided by the Unit Agreement and Unit Operating Agreement meet the requirements of the statue and are just and reasonable to all interests contained within said unit area. The plan for unit operations as presented by the Applicant, providing for the conduct of operations to recover oil and gas is necessary to increase the ultimate recovery and the value of the estimated additional cost incident to conducting such operations.

7. The formula for determining unit participation is based on several factors shown in Exhibit 5. The weight given these factors was protested by Mull Drilling Company, Inc., Douglas McLeod dba Petrogulf Energy Corp. and a statement of protest was entered on behalf of the Rhoades brothers.

8. An exhibit "C" of the Unit Operating Agreement the working interest of Petro Gulf Energy Co. in Tract Number R-1 was increased to reflect the most recent information.

9. The provisions contained is said Unit Agreement and Unit Operating Agreement as they pertain to C.R.S. 34-60-118 of the Oil and Gas Conservation Act as just and reasonable and are incorporated herein as the Commission's plan of involuntary unit operations for such lands.

10. Re-injection of produced gas and water from the Morrow "B" reservoir underlying said unit area should be allowed in order to prevent waste and promote conservation and maintain pressure maintenance in the reservoir. In addition, outside sources of gas and water will be used when deemed necessary.

11. The initial gas injection well should be CPC Rhoades #3-31, located in the C-N/2 S/2, Section 31, Township 13 South, Range 48 West. The initial water injection well should be Phillips Petroleum Co. State 1-36, located in the SE/NE, Section 36, Township 13 South, Range 49 West. All injection wells shall be approved by the Director in accordance with the rules and regulations of the Commission prior to any injection occurring.

12. The plan for unit operations has not been approved by those persons required to pay at least eighty percent of the costs of the unit operations, nor by the owners of eighty percent of the production proceeds.

13. The spacing provisions as established by Orders No. 349-1 and Order No. 426-3 and the restrictions on production as established by Order No. 349-9 and Order No. 426-15 as they pertain to the lands in the Mount Pearl Field and Sorrento Field, described herein above, should be rescinded, upon approval of the plan for unit operations by the Commission.

ORDER

NOW, THEREFORE, IT IS ORDERED that:

1. The Unit Agreement and Unit Operating Agreement covering lands in the Rhoades Unit Area which agreements are attached to and made part of the original Order of this Commission on file in the office of the Commission, are approved as being in the public interest for conservation and subject to number 8 herein below. 2. The Morrow "B" Formation of Pennsylvanian age, common source of supply, underlies the following described lands in Cheyenne County, Colorado, to wit:

Township 13 South, Range 48 West, 6th P.M. Section 29: S/2 Section 31: All Section 30: S/4 Section 32: All Township 14 South, Range 48 West, 6th P.M. Section 5: NW/4 Section 6: N/2 Township 13 South, Range 49 West, 6th P.M. Section 36: E/2 Township 14 South, Range 49 West, 6th P.M. Section 1: NE/4 -- 2 --(349-9 & 426-18) containing 2560 acres more or less, and such area shall hereafter be known as the Rhoades Unit Area.

3. The following described wells shall be excluded from the unit area:

Township 13 South, Range 48 West, 6th P.M. CPC 1-29 James SE/SW Section 29 CPC 2-29 James SE/SE Section 29 CPC 3-29 James SW/SW Section 29 Caribou 1-3 McCormick SE/SE Section 30 CPC 1-31 Rhoades SE/NE Section 31 CPC 4-31 Rhoades SE/NE Section 31

Township 14 South, Range 48 West, 6th P.M. Mull i-A Rhoades Bros. C/N/2N/2 Section 6 WEC 2-6 Rhoades NW/NW Section 6

4. A re-injection project of produced gas and water from the unit reservoir, as well as injection of gas and water from outside sources when deemed necessary, as presented by the Applicant is hereby approved and the operator is authorized to commence and maintain such a project upon approval of the Director. Initial injection wells are as described in Finding 11 herein.

5. All injection wells shall be approved by the Director in accordance with the rules and regulations of the Commission prior to any injection occurring.

6. The conduct of operations for the recovery of oil and gas from the Morrow "B" formation underlying said unit area is hereby approved as being necessary to increase the ultimate recovery from such reservoir and prevent waste.

7. The spacing provision as established by Order No. 349-1 and Order No. 426-3 and the restrictions on production as established by Order 349-9 and Order No. 426-15 as they pertain to the lands in the Mount Pearl Field and Sorrento Field described herein above shall be rescinded subject to Number 8 herein below.

8. No order of the Commission providing for unit operations shall become effective unless the plan for unit operations prescribed by the Commission has been approved in writing by those persons who, under the Commission's order, will be required to pay at least eighty percent of the costs of the unit operation, and also by the owners of at least eighty percent of the production of proceeds thereof that will be credited to interests which are free of cost, such as royalties, overriding royalties, and production payments, and the Commission has made a finding, either in the order providing for unit operations or in a supplemental order, that the plan for unit operations has been so approved. If the plan for unit operations has not been so approved at the time the order providing for unit operations is made, the Commission shall upon application and notice hold such supplemental hearings as may be required to determine if and when the plan for unit operations has been so approved. If the persons owning the required percentage of interest in the unit area do not approve the plan for unit operations within a period of six months from the date on which the order providing for unit operations is made, such order shall be ineffective and shall be revoked by the Commission unless for good cause shown the Commission extends said time.

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 of repeal any and/or all of the above orders.

Entered this 16th day of August 1988, as of July 19, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary

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