IN THE MATTER Of THE PROMULGATION AND ESTABLISHMENT Of FIELD RULES TO GOVERN OPERATIONS IN THE MCCLEAN FIELD, MONTEZUMA COUNTY, COLORADO Cause No. 435 Order No. 435-1

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on August 19, 1985 at 9:00 A.M., in Room 110, State Centennial Building, 1313 Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the verified application of Celsius Energy Company for an order establishing 160-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Desert Creek Zone of the Paradox formation underlying certain lands in Montezuma County, Colorado.

FINDINGS

The Commission finds as follows:

1. Celsius 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. Based upon the facts stated in the verified application and exhibits submitted, and receiving no objections and having been reviewed and recommended by the Director as Hearing Officer, the Commission should enter an order establishing 160-acre drilling add spacing units for the production of oil, gas and associated hydrocarbons from the Desert Creek Zone of the Paradox formation underlying the following described lands in Montezuma County Colorado:

Township 36 North, Range 18 West, N.MP.M. Section 6: N/2 Township 36 North, Range 19 West, N.MP.M. Section 1: N/2 Section 2: N/2 Township 37 North, Range 18 West, N.MP.M. Section 30: All Section 31: All Township 37 North, Range 19 West, N.MP.M. Section 2: W/2 Section 3: All (Fractional) Section 4: All (Fractional) Section 5: E/2 (Fractional) Section 9: All (Fractional) Section 10: All (Fractional) Section 11: All (Fractional) Section 15: All Section 22: E/2 Section 23: All Section 24: S/2 (Fractional) Section 25: All (Fractional) Section 26: All Section 27: E/2 Section 34: E/2 Section 35: All (Fractional) Section 36: All (Fractional) Tract 39: being a portion of Section 3

Tract 40: being a portion of Section 4 Tract 49: being a portion of Section 9 Tract 50: being a portion of Section 9 Tract 51: being a portion of Sections 3, 4, 9 and 10 Tract 52: being a portion of Sections 2, 3, 10 and 11 Tract 57: that portion situated in resurveyed Section 9 Tract 62: that portion situated in resurveyed Section 24 Tract 65: being a portion of Sections 35 and 36 Tract 66: being a portion of Section 36 Tract 67: being a portion of Sections 25 and 36 Tract 71: being a portion of Section 4 and Section 33 of Township 38 North, Range 19 West Tract 72: being a portion of Section 5 and Section 32 of Township 38 North, Range 19 West

Township 38 North, Range 19 West, N.MP.M. Section 32: E/2 (Fractional) Section 33: All (Fractional) Section 34: All Section 35: W/2 Tract 67: being a portion of Section 33 Tract 68: being a portion of Section 33 Tract 69: being a portion of Section 33 Tract 70: being a portion of Section 33

5. In order to prevent the waste of oil and gas, as defined by law, to protect 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 of the State, an order should be made establishing 160-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the 160-acres, more or less, the permitted well should be at a location no closer than 550 feet from the boundaries of the unit; however, exceptions to the permitted well location may be granted by the Director provided waivers or consents, in writing, are submitted by the offset lease owner towards whom the well is being moved. Existing producing or producible wells from said Desert Creek Zone and permitted locations should be considered the permitted wells for the units upon which they are located.

6. All available geological and engineering data concerning said Desert Creek Zone of the Paradox formation indicate that one well will efficiently and economically drain an area of approximately 160-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 formations.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled, completed, or recompleted in the Desert Creek Zone of the Paradox formation underlying certain lands in the McClean 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. One hundred sixty (160) acre drilling and spacing units shall be and the same are hereby established for the production of oil, gas and associated hydrocarbons from the Desert Creek Zone of the Paradox formation underlying the following described lands in Montezuma County, Colorado, to-wit:

- 2 -(435-1)

Township 36 North, Range"18 West, N.MP.M. Section 6: N/2

Township 36 North, Range 19 West, N.MP.M. Section 1: N/2 Section 2: N/2

Township 37 North, Range 18 West, N.MP.M. Section 30: All Section 31: All

Township 37 North, Range 19 West, N.MP.M. Section 2: W/2 Section 3: All (Fractional) Section 4: All (Fractional) Section 5: E/2 (Fractional) Section 9: All (Fractional) Section 10: All (Fractional) Section 11: All (Fractional) Section 15: All Section 22: E/2 Section 23: All Section 24: S/2 (Fractional) Section 25: All (Fractional) Section 26: All Section 27: E/2 Section 34: E/2 Section 35: All (Fractional) Section 36: All (Fractional) Tract 39: being a portion of Section 3 Tract 40: being a portion of Section 4 Tract 49: being a portion of Section 9 Tract 50: being a portion of Section 9 Tract 51: being a portion of Sections

3, 4, 9 and 10 Tract 52: being a portion of Sections

2, 3, 10 and 11 Tract 57: that portion situated in resurveyed Section 9 Tract 62: that portion situated in resurveyed Section 24 Tract 65: being a portion of Sections 35 and 36 Tract 66: being a portion of Section 36 Tract 67: being a portion of Sections 25 and 36 Tract 71: being a portion of Section 4 and Section 33 of Township 38 North, Range 19 West Tract 72: being a portion of Section 5 and Section 32 of Township 38 North, Range 19 West

Township 38 North, Range 19 West, N.MP.M. Section 32: E/2 (Fractional) Section 33: All (Fractional) Section 34: All Section 35: W/2 Tract 67: being a portion of Section 33 Tract 68: being a portion of Section 33 Tract 69: being a portion of Section 33 Tract 70: being a portion of Section 33 Rule 2. Each unit shall consist of 160-acres, more or less, and consist of a quarter section of land, according to the governmental survey. The permitted well should be at a location no closer than 550 feet from the boundaries of the unit; however, exceptions to the permitted well location may be granted by the Director provided waivers or consents, in writing, are submitted by the offset lease owner towards whom the well is being moved. Existing producing or producible wells

3 (435-1) from said Desert Creek Zone and permitted locations should be considered the permitted wells for the units upon which they are located.

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 26th day of August 1985, as of August 19, 1985.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary 4 " (435-1)