REPORT OF THE COMMISSION

This cause came on for hearing before the Oil and Gas Conservation Commission on September 19, 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 verified application of Union Pacific Resources Company for an order establishing 80-acre drilling and spacing units with production restrictions for the production of oil and associated hydrocarbons from the Morrow A' and B' Sandstone formations underlying certain lands in Cheyenne County, Colorado.

FINDINGS

The Commission finds as follows:

1. Union Pacific Resources Company as applicant herein, is an interested party 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 of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. Evidence presented to the Deputy Director as Hearing Officer, indicates that the Morrow A' and B' Sandstone formations constitutes a common source of supply of oil and associated hydrocarbons underlying the following described lands in Cheyenne County, Colorado to wit:

Township 13 South, Range 42 West, 6th P.M.

Section 26: W/2 Section 31:All Section 27: All Section 32:All Section 28: All Section 33:All Section 29: All Section 34:All Section 30: All Section 35:W/2

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

Section 2: W/2 Section 5: All Section 3: All Section 6: All Section 4: All Section 10: All

Township 13 South, Range 43 West, 6th P.M. Section 25: All Section 36: All

Township 14 South, Range 43 West, 6th P.M. Section 1: All

5. In order to prevent the waste of oil and gas as defined by law, and 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 of the State, an order should be made establishing 80-acre drilling and spacing units. The units should consist of 80-acres more or less, and consist of the E/2 and W/2 or the N/2 and S/2 of each quarter section of a governmental section with the unit designated by the operator of the first well in each quarter section. The permitted well for each 80-acre unit should be located within the NE/4 or SW/4 of a quarter section and no closer than 460 feet from the boundaries of the unit tract.

6. For purposes of conservation and to prevent waste, a maximum allowable of 100 MCF of gas per day per well should be imposed on the production of all wells at standard locations. For the above purposes and to protect correlative rights, a restriction of 300 barrels of oil and water per day per well at a standard location should be imposed, and that any well should be restricted by whichever production limit is reached first.

7. The Director, upon giving ten days notice to cornering and contiguous lease owners, after administrative hearing, should be able to permit exception locations throughout the entire Arapahoe Field, upon a showing that a well has been drilled at the designated location prescribed in the orders of this cause and the well is unproductive in the Morrow A' and S' Sandstone interval and the operator of the drilling and spacing unit submits an, Application to Drill accompanied by information indicating why the designated location was unproductive and why a well at the exception location should be productive and economically viable. Such exception location should be located at the center of the quarter-quarter section with a tolerance of 200 feet in any direction for Area I, and no closer than 460 feet to the unit boundary for Area II and the lands listed in Finding 4 herein. All such exception locations should have production restrictions equal to one-half that of wells drilled at standard locations.

8. Some of these lands are contiguous with lands spaced under Cause No. 449 for production of oil and associated hydrocarbons from the Morrow A' and B' Sandstone formation and the sands in both areas are a common reservoir and source of supply and the lands listed herein should be included in Arapahoe Field, Cause No. 449.

9. No protests to the application have been filed, and the hearing officer recommends approval of the application.

ORDER

NOW THEREFORE IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled, completed, re-completed in the Morrow A' and B' Sandstone formation underlying certain lands in the Arapahoe Field, Cheyenne County, Colorado, herein described, in addition to any other applicable rules and regulations and orders of the Commission if any, heretofor adopted and not in conflict herewith:

Rule 1. Eighty (80) acre drilling and spacing units shall be and the same are hereby established [or the production of oil and associated hydrocarbons from the Morrow A' and B' Sandstone formation underlying the following described lands in Cheyenne County, Colorado, to-wit.

Township 13 South, Range 42 West, 6th P.M.

Section 26: W/2 Section 31: All Section 27: All Section 32: All Section 28: All Section 33: All Section 29: All Section 34: All Section 30: All Section 35: W/2 -- 2 --(449-20)

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

Section 2: W/2 Section 5: All Section 3: All Section 6: All Section 4: All Section 10: All

Township 13 South, Range 43 West, 6th P.M. Section 25: All Section 36: All

Township 14 South, Range 43 West, 6th P.M. Section 1: All

Rule 2. The units shall consist of 80-acres more or less, and consist of the E/12 and W/2 or the N/2 and S/2 of each quarter section of a governmental section with the unit designated by the operator of the first well in each quarter section.

The permitted well for each 80-acre unit shall be located within the NE/4 or SW/4 of a quarter section and no closer than 460 feet from the boundaries of the unit tract.

Rule 3. For purposes of conservation and to prevent waste, a maximum allowable of 100 MCF of gas per day per well shall be imposed on the production of all wells at standard locations. For the above purposes and to protect correlative rights, a restriction of 300 barrels of oil and water per day per well at a standard location shall be imposed, and that any well shall be restricted by whichever production limit is reached first.

(a.) Gas production for the purpose of determining the restriction shall include all gas sold, flared or re-injected, less that amount used on the unit and shall be measured by an orifice and recording meter in accordance with Rule 331 of the Colorado Oil and Gas Conservation Commission. Regular production reports shall be made to the Commission in accordance with Rule 307 of the Colorado Oil and Gas Conservation Commission and copies distributed to the other Operators on the field by each Operator for its own wells.

(b.) For the determination of the monthly gas production attributable to each well when production is to a central lease battery servicing more than one well, each well shall be allocated a theoretical production volume based upon a monthly production test of the well. This shall be done by calculating a theoretical production percent for each well on the lease and multiplying that percent by the total monthly lease production to calculate the total monthly production attributable to an individual well.

(c.) Overproduction shall be made up by underproducing in the month following such overproduction and overproduction in a given month shall not exceed the previous month's allowable. Underproduction shall be made up within two (2) months following the month of underproduction.

Rule 4. The Director, upon giving ten days notice to cornering and contiguous lease owners, after administrative hearing, shall be able to permit exception locations throughout the entire Arapahoe Field, upon a showing that a well has been drilled at the designated location prescribed in the orders of this cause and the well is unproductive in the Morrow A' and B' Sandstone interval and the operator of the drilling and spacing unit submits an Application to Drill accompanied by information indicating why the designated location was unproductive and why a well at the exception location should be productive and economically viable. Such exception location shall be located at the center of the quarter--quarter section with a tolerance of 00 feet in any direction for Area I, and no closer than 460 feet to the unit boundary for Area II and the lands listed in Finding 4 herein. All

3

(449-20) such exception locations shall have production restrictions equal to one-half that of wells drilled at standard locations.

IT IS FURTHER ORDERED, that the lands listed herein above shall be included in the Arapahoe Field as ordered by the Commission in Cause No. 449.

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 rights, after notice and hearing to alter, amend or repeal any and/or all of the above orders.

Entered this 11th October day of 1988 as of September 19, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

(449-20)