REPORT OF THE COMMISSION

TO ALL INTERESTED PERSONS AND TO WHOM IT MAY CONCERN:

This cause came on for hearing before the Commission on October 20, 1986 at 9:00 A.M., in Room 110, State Centennial Building, 1313 Sherman Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of TXO Production Corporation, for an order approving a certain Unit Agreement and Unit Operating Agreement for the Salt Lake (Morrow Formation) Unit Area, providing for involuntary unit operations of the reservoir consisting of the Morrow formation underlying certain lands in the Salt Lake Field, Kiowa County, Colorado.

FINDINGS

The Commission finds as follows:

1. TXO Production Corporation, as applicant 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 formation was encountered in the interval between the depths of 5010 feet to 5262 in Well No. 6 Frazee B, located in the C SE NW Section 9, Township 19 South, Range 50 West, 6th P.M., as so encountered, is a common source of supply and has been defined and determined by drilling, to be productive underlying the following described lands in Kiowa County, Colorado, to-wit:

Township 19 South, Range 50 West 6th P.M. Section 4: SW /4, SW SE Section 8: NE NE Section 9: W /2, W /2 E /2, SE NE containing 760 acres, more or less.

5. The terms and conditions provided by the Unit Agreement and Unit Operating Agreement meet the requirements of the statute and are just reasonable to all interests contained within said unit area. The plan for unit operations as presented by the Applicant, providing for a secondary recovery program by the injection of water into the Morrow formation reservoir underlying the Salt Lake (Morrow Formation) Unit Area, as described herein is necessary to increase the ultimate recovery of oil and gas and the value of the estimated additional recovery of oil and gas exceeds the estimated additional cost incident to conducting such operations.

6. The provisions contained in said Unit Agreement and Unit Operating Agreement are just and reasonable and include the following:

a. The description of the pool to be so operated;

b. The nature of said operation;

c. The allocation to the separately owned tracts in the Salt Lake (Morrow Formation) Unit Area of all the oil and gas that is produced from said Unit Area and is saved;

d. The provision for the credits and charges to be made in the adjustment among the owners in the Salt Lake (Morrow Formation) Unit Area for their respective investments in wells, tanks, pumps, machinery, materials, and equipment contributed to the unit operations;

e. The provision providing how the costs of unit operations, including capital investments, shall be determined and charged to the separately owned tracts, and how said costs shall be paid, including the provision providing when, how, and by whom the unit production allocated to an owner who does not pay the share of the cost of unit operations charged to such owner, or the interest of such owners, may be sold and the proceeds applied to the payment of such costs;

f. The provision for the supervision and conduct of the unit operations, in respect to which each person shall have a vote with a value corresponding to the percentage of the costs of unit operations chargeable against the interest of such person; and

g. The time when the unit operations shall commence, and the manner in which, and the circumstances under which the unit operations shall terminate. 2 " (437-3)

ORDER

NOW, THEREFORE, IT IS ORDERED:

1. The Unit Agreement and Unit Operating Agreement covering lands in the Salt Lake (Morrow Formation) Unit Area, which agreements are attached to, and made a 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.

2. The Morrow reservoir, common source of supply, underlies the following lands in Kiowa County, Colorado, to-wit:

Township 19 South, Range 50 West 6th P.M.

Section 4: SW /4, SW SE Section 8: NE NE Section 9: W /2, W /2 E /2, SE NE containing 760 acres, more or less.

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

4. The secondary recovery project by the injection of water into the Morrow reservoir of the Salt Lake (Morrow Formation) Unit Area, as presented by applicant, is hereby approved as being necessary to increase the ultimate recovery from said reservoir, and the operator is authorized to initially inject into said reservoir through Well No. 4-15 Frazee, located 1320 FNL and 2640 FWL, Section 9, Township 19 South, Range 50 West, 6th P.M., in such quantities as shall be reasonably determined by the operator to best achieve the maximum recovery of oil without waste.

5. In the event that it becomes necessary in the future to convert additional producing wells to input wells; to plug and abandon certain wells in the Unit Area, or to drill additional producing or input wells as dictated by developments in the course of the operations of the waterflood, the Unit Operator is authorized to make such changes in the operation of the project as may be required to facilitate the efficient development thereof.

6. All injection wells shall be approved by the Director in accordance with the rules and regulations of the Commission.

IT IS FURTHER ORDERED, that the plan of unit operations shall not become effective unless, or until the persons owning the required percentages of interest in the unit approve said plan.

IT IS FURTHER ORDERED, that within six (6) months from the date of this order, and upon affidavit submitted to the Director of the Commission by the unit operator, and stating that the approval of the required percentage of interest of the plan of unit operations has been obtained, the plan for unit operations shall become effective. In the event such approval has not been obtained within this period of time, or an extended period of time as provided in the statute, the approval of the Commission for the plan of unit operations shall become ineffective and this order shall be revoked.

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(437-3)

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 November 1986, as of October 20, 1986.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Frank J. Piro, Secretary