REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 19, 1989 at 1:30 p.m., in Room 101, State 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 authorizing involuntary unit operations with enhanced recovery involving injection of fluids including gas in the Morrow "B" Sand 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 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 interval between the depths of 5180 feet and 5220 feet in the well #6 Knudsen 21-21 well located in the NE/4 NW/4 of Section 21, Township 14 South, Range 42 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 following described lands in Cheyenne County, Colorado:

Township 14 South, Range 42 West, 6th P.M. Section 4: S/2 SW/4 Section 8: E/2 NE/4, SE/4 Section 9: All Section 16: All

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Section 17: E/2 Section 20: Lot 1, W/2 NE/4, SE/4 NE/4, (a/d/a NE/4) Section 21: All Section 22: Lots 11-14 (a/d/a SW/4) Section 25: S/2, SE/4 NW/4 Section 26: Lots 5-12 (a/d/a S/2) Section 27: All Section 28: Lots 1, 2, 7 and 8 (a/d/a NE/4) Section 35: N/2 N/2 Section 36: N/2 NE/4

Township 14 South, Range 41 West, 6th P.M. Section 30: Lots 5-8 (a/d/a S/2) Section 31: Lots 1-8 (a/d/a All)

Township 15 South, Range 42 West, 6th P.M. Section 1: E/2 SE/4

Township 15 South Range 41 West, 6th P.M. Section 6: Lots 8, Lots 10-16 (a/d/a All)

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and the additional below listed lands, being in Wallace County, Kansas:

Township 14 South, Range 43 West, 6th P.M. Section 36: Lots 1-2, E/2 (a/d/a All)

Township 14 South, Range 43 West, 6th P.M. Section 31: Lots 3-4 (a/d/a W/2 SW/4)

Township 15 South, Range 43 West, 6th P.M. Section 1: Lots 1-4 (a/d/a All) Section 12: Lot 1 (a/d/a N/2 N/2)

Township 15 South, Range 42 West, 6th P.M. Section 6: Lots 4-7 (a/d/a W/2 W/2)

5. The following described wells as listed in Exhibit A1 should be excluded from the unit area:

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

Mull #1 Purvis Farms A SW/4 SW/4 Section 4 Webb Colvin 8-1 NE/4 NE/4 Section 8 UPRC #2 Lawrence 41-9 SE/4 NE/4 Section 9 UPRC #7 Lawrence 41-9 NE/4 NE/4 Section 9 TXO Arapahoe State 23-16 NE/4 SW/4 Section 16 UPRC #2 Leon 34-17 SW/4 SE/4 Section 17 UPRC #3 Leon 34F-17 SW/4 SE/4 Section 17 UPRC #7 Knudsen 41-21 NE/4 NE/4 Section 21 UPRC #8 Knudsen 14-21 SW/4 SW/4 Section 21 UPRC #10 Allen 13-25 SW/4 NW/4 Section 25 Medallion Funk 27-3 NE/4 NE/4 Section 27 Medallion Funk 27-9 SW/4 SW/4 Section 27 TXO #1 CPC Cook 41-35 NE/4 NE/4 Section 35

Township 14 South, Range 41 West, 6th P.M. UPRC #1 Purvis Farms 24-31 SE/4 SE/4 Section 31 TXO #2 Carhart 13-30 NW/4 SW/4 Section 30 UPRC #4 Purvis Farms 14C-31 SW/4 SW/4 Section 31 UPRC #7 Purvis Farms 13-31 NW/4 SW/4 Section 31

Township 15 South, Range 41 West, 6th P.M. TXO Steele B-5 SW/4 SW/4 Section 6

and the additional wells located in Wallace County, Kansas:

TXO #4 Purvis Farms NW/4SE/4 Sec. 36, Township 14 South, Range 43 West TXO Hibbert C-2 NW/4SW/4 Sec. 31, Township 14 South, Range 42 West TXO Akers A-2 NW/4NW/4 Sec. 12, Township 15 South, Range 43 West TXO #1 Hibbert 14-6 SW/4SW/4 Sec. 6, Township 15 South, Range 42 West

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6. The terms and conditions provided by the Unit Agreement and Unit Operating Agreement meet the requirements of the statute 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 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 Arapahoe Morrow "B" Sand Unit Area of all the oil and gas that is produced from said Unit Area and is saved;

d. The provisions for the credits and charges to be made in the adjustments among the owners in the Arapahoe Morrow "B" Sand Unit Area for their respective investments in wells, tanks, pumps, machinery, materials and equipment contributed to the unit operations;

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e. The provision providing how the cost 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 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 cost 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.

8. 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 may be used when deemed necessary.

9. The initial injection wells should be those listed on Exhibit A1 of the Application and all injection wells should be approved by the Director in accordance with the rules and regulations of the Commission prior to any injection occurring.

10. The plan for unit operations has been approved by those persons required to pay at least eighty percent of the cost of the unit operations, and by the owners of at lest eighty percent of the production proceeds.

11. The spacing provisions and restrictions on production as established by orders in Cause Nos. 449, 456 and 458 as they pertain to the Morrow "B" Sand underlying lands described in Finding 4 herein above, should be rescinded upon approval of the plan for unit operations by the Commission, and when gas injection can commence.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that:

1. The Unit Agreement and Unit Operating Agreement covering the Morrow formation of Pennsylvanian Age underlying land in the Arapahoe and Arapahoe East Fields are hereby approved as being in the public interest for conservation.

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2. Said Morrow formation reservoir is a common source of supply and underlies the lands described in finding 4 herein above, and such area shall hereafter be known as the Arapahoe "B" Unit Area.

3. 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 to prevent waste.

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.

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.

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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 provisions as established by orders in Cause Nos. 449, 456 and 458 as they pertain to the lands in the Arapahoe Unit, Morrow "B" Sand, described herein above, are hereby rescinded.

8. The wells listed and described in Finding 5 herein are excluded from the Arapahoe Unit.

9. The restrictions of production as established by Orders in Cause Nos. 449, 456 and 458 as they pertain to the wells in the Arapahoe Unit described herein above, shall be rescinded upon the initial injection of gas and notification to the Commission of the injection of gas.

IT IS IS FURTHER ORDERED, that the provisions contained in the above order shall become effective on the date of mailing.

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 ,

1989, as of September 19, 1989.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

Dated at Suite 380 1580 Logan Street Denver, Colorado 80203

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