REPORT OF THE COMMISSION

            This cause came on for hearing before the Commission on August 15 and 16, 1988 at 8:30 A.M. in Room 101, Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing, as required by law, on the Commission's own motion for operators and any interested party in the Arapahoe Field, Area I and Area II to appear with additional information concerning production practices, particularly those production restrictions ordered by Order No. 449-6 and 449-7 and possible additional production restrictions on oil and/or gas volumes per well on a field wide basis. At the Commission hearing on July 18 and 19, 1988, five exceptions to the permitted well location as provided for in Order No. 449-7 were granted with the Commission tabling requests for the establishment of additional production restrictions being imposed upon these exception wells until the August 1988 hearing.

FINDINGS

            1. Notices of Intervention were filed by Union Pacific Resources Company, TXO Production Corporation, Mull Drilling Company, Inc. et al, and Medallion Petroleum, Inc. and all are interested parties in the subject matter of the above referenced matter.

            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 the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

            4. On January 13, 1988, the Commission entered Order No. 449-3 which established the maximum allowable of gas leaving a lease for each well to be 100 MCF per day, based on a monthly average, and the restriction to be in effect until the hearing scheduled for February 12, 1988 at which time further testimony would be taken.

            5. On February 12, 1988 the Commission entered Order No. 449-5 which ordered, among other things, the continuation of the maximum allowable of 100 MCF of gas per day, based on a monthly average, per 80-acre drilling and spacing unit, and that the restrictions remain in effect for six months at which time the Commission at its August hearing would hear additional information.

            6. On March 21, 1988 the Commission entered Order NO. 449-6, which ordered the establishing of additional drilling and spacing units in Arapahoe Field, such area being called AREA II.

            7. On April 18, 1988 the Commission entered Order No. 449-7, which extended the maximum gas allowable established in Order No. 449-5 to Arapahoe Field Area II as established in Order No. 449-6.

            8. Testimony at the August hearing indicated that production restrictions should result in high primary recovery of the hydrocarbons in place in an economical and efficient manner and protect the correlative rights of all concerned.

            9. Further testimony indicated the current maximum gas allowable should be continued and a maximum liquid allowable of 300 barrels of fluid per day per 80-acre unit should be established and whichever allowable is reached first should be the limiting amount, and that the maximum allowable for a well located as an exception to the permitted well location as established by Order No. 449-7 be fifty percent that of a well completed at the permitted location effective September 1, 1988.

            10. The above restrictions and practices previously ordered should remain in effect until such time as the Commission, upon application by an interested party and proper notice being given, enters an order amending this order.

            11. An issue was raised concerning whether the Arapahoe No. 27-1 Well, located in the SE/4 NW/4 of Section 27, Township 14 South, Range 42 West, Cheyenne County, Colorado, was an exception well for purposes of application of the 50% restriction. The Commission deferred the hearing on that issue until the next regularly scheduled Commission hearing in September, 1988. The parties involved, Mull Drilling Company, Inc., Union Pacific Resources Company and Medallion Petroleum, Inc., agreed to conduct settlement discussions of the lawsuit filed against the Commission. However, if such settlement discussions do not result in the parties reaching agreement on the imposition of production restrictions on the Arapahoe No. 27-16 Well, or on the Arapahoe No. 27-1 Well, the Commission will at its September, 1988 hearing, rule on the issue of the status of the Arapahoe No. 27-1 Well. The parties agreed to abide by the Commission's decision on that issue and agreed not to appeal the Commission's decision.

ORDER

            NOW THEREFORE IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well drilled, completed, or recompleted in the Morrow formation underlying the Arapahoe 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. Eighty (80) acres, more or less, drilling and spacing units shall be and the same are hereby established for the production of oil and associated hydrocarbons from the Morrow formation underlying the following described lands in the Arapahoe Field, Cheyenne County, Colorado, to-wit:

AREA I

Township 14 South, Range 42 West, 6th P.M.

Section 21: All

Section 27: All

Section 22. All

Section 28. All

Section 23: All

Section 33: All

Section 26: All

Section 34: All

Section 35: All

AREA II

Township 14, South, Range 42 West, 6th P.M.

Section 7: All

Section 17: All

Section 8: All

Section 18: All

Section 9: All

Section 19: All

Section 15: W/2

Section 20: All

Section 16: All

Section 29: All

(449-14)

        Rule 2. Said drilling units shall consist of 80-acres, more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a governmental quarter section, with the unit designated by the operator of the first well drilled in the quarter section. The following shall be the designated units: S/2 SW/4 Section 23, N/2 NE/4 Section 27, S/2 NE/4 Section 27 and the E/2 NW/4 Section 27, Township 14 South, Range 42 West, 6th P.M.

        Rule 3. For Area I the permitted well location shall be in the center of the NE/4 and the SW/4 of each quarter section with a tolerance of 200 feet in any direction. Well No. 27-1 Arapahoe, located in SE/4 NW/4 of said Section 27 shall be considered an exception and be the permitted well for the unit consisting of the E/2 NW/4 of said Section. Well No. Funk A', located in the S/2 S/2 NE/4 of said Section 26 shall also be considered an exception and be the permitted well for the unit consisting of the S/2 NE/4 of said Section.

        Rule 4. For Area II the permitted well location shall be in the NE/4 and the SW/4 of each quarter section and shall be no closer than 460 feet from the unit tract boundaries, resulting in a rectangular location window of an approximate size of 400 feet by 860 feet.

        Rule 5. A maximum allowable of 100 MCF of gas per day leaving the unit, based on a monthly average, and 300 barrels of fluid per day, per 80-acre unit, shall be imposed on the production of all wells within the Arapahoe Field, and whichever allowable is reached first shall be the maximum allowable for that well.

        Rule 6. Such gas shall be measured by an orifice and recording meter installed on the line where such gas leaves the lease in accordance with Rule 331 of the Rules and Regulations of the Oil and Gas Conservation Commission. Reports shall be made monthly to the Commission in accordance with Rule 307 of the Rules and Regulations of the Oil and Gas Conservation Commission, and copies distributed in a timely fashion to all other operators in the field by each operator of their own wells.

        Rule 7. For the determination of the monthly production attributable to each well, and for the case when production is to a central lease battery, each well shall be allocated a theoretical production volume based on a monthly production rest of the well. This shall be done by calculating the theoretical production percent for each well in the lease and multiplying that percent by the total monthly lease production to give the total monthly individual well production.

        Rule 8. Overproduction of the allowable shall be made up during the month following overproduction. Overproduction shall not exceed one (1) month's production. Underproduction shall be made up within two (2) months following the month of underproduction or be lost.

        Rule 9. Should more than one well be produced from the same 80-acre spaced unit, cumulative gas volumes leaving the 80-acre unit shall be restricted to 100 MCF per day.

        Rule 10. One fifteen day test period during initial completion at an appropriate rate determined by the individual operator shall be allowed if requested and approved by the Director. Rule 11. The maximum allowable production for all wells drilled as exceptions to Rules 2, 3 or 4 herein above shall be fifty percent of the amount allowed in Rule 5.

        IT IS FURTHER ORDERED, that the above production restrictions shall remain in effect until such time as the Commission, upon application by an interested party, proper Notice being given, and a hearing held, enters an order amending this order.

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        IT IS FURTHER ORDERED, that the hearing on the issue of whether or not the Arapahoe No. 27-1 Well is an exception well for purposes of application of the 50% restriction set forth in Rule 11, above, is continued until the Commission's regularly scheduled hearing September, 1988.

        IT IS FURTHER ORDERED, that the provisions contained in the above order shall be effective forthwith.

        IT IS FURTHER ORDERED, that the Commission expressly reserves its rights, after notice of hearing, to alter, amend or repeal any and/or all of the order.

        ENTERED this 19th day 1988, as of August 15, 1988.

                                THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

                                By Dennis R. Bicknell, Secretary

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(449-14)