REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on January 17, 1989 at 8:30 A.M. in Room 101, State Education Building, 201 East Colfax Avenue, Denver, Colorado as a result of Order No. 451-7 & 459-3 and 451-8 & 459-4 which established a production restriction on wells located in the spaced area of the Lilli Field and further ordered that operators in the field and any interested parties were to appear at the hearing scheduled for January 1989 and present additional information including results of a field wide pressure survey conducted in December 1988, concerning production practices in the field.

FINDINGS

The Commission finds as follows:

1. The Commission has jurisdiction over the subject matter embraced in the notice of the aforesaid hearing and of the parties interested therein, as well as jurisdiction to promulgate the hereinafter prescribed order.

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. By Order No. 451-7 and 459-3, commencing August 1, 1988, the maximum daily allowable during any one month, for wells producing with a gas-oil ratio of 3000 cubic feet of gas per barrel of oil or less was 125 barrels of oil per day or 250 MCF of gas per day, whichever was produced first. Wells producing with a gas-oil ratio in excess of 3000 cubic feet of gas per barrel of oil had a maximum daily allowable, during any one month the greater of 125 barrels of oil or liquid hydrocarbons or 700 MCF of gas per day, whichever was produced first. A well was considered to be a gas well with a gas-oil ratio in excess of 3000 to 1 cubic feet per/barrel. If during the initial gas-oil ratio test, the well was determined to be an oil well in accord with the above gas-oil ratio, for production restriction purposes, the well would remain an oil well, regardless of future increases in the gas-oil ratio of the well.

4. For wells drilled and completed in the Lilli Field which are spaced for oil production but the produced gas-oil ratio is in excess of 3000 to 1. cubic feet per barrel, the allowable rate was one-half that of gas wells or 62 /2 barrels of oil and 350 MCF per/day unless the well was the only producing well within the entire quarter section, in which case the well should have the full gas well allowable.

5. Testimony presented by the Lilli Field Technical Committee at the hearing indicated the field limits remain well defined, the change in the bottom hole pressure survey are larger in the oil leg than the gas area, that the original gas-oil contact has moved very little, and that the gas to oil ratio for oil wells has increased.The testimony was supplemented by Exhibits A, B, C and E.

6. Further testimony was presented in the form of written recommendations, Exhibit D, to the Commission. The main recommendations were to establish a maximum monthly allowable of 900 barrels of oil or 7,500 MCF of gas for wells with a gas to oil ratio of 3000 cubic feet per barrel or less. For wells with a gas to oil ratio greater than 3000 cubic feet per barrel, the monthly allowable would be 21,000 MCF of gas there would be no maximum allowable for liquid production from these wells.

7. Additional recommendations were that Rule 5 of Order No. 451-7 and 459-3 be amended to make changes in the production allowable accounting system, that Rules 7 and 8 be deleted, that the Director should meet with the field operators to determine if further Static Bottom Hole Pressure Surveys are warranted, and that operators and interested parties should appear at the July 1989 hearing of the Commission to report on production activities and make recommendations as needed.

8. The Commission should include those lands described in Order No. 451-9 in any subsequent order, and should adopt the recommendations contained in Exhibit D as changed at the time of hearing and amend Order Nos. 451-8 and 459-4 as appropriate.

ORDER

NOW THEREFORE IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well drilled, completed, or recompleted in the D' Sand format/on underlying the Lilli 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:

Township 8 North, Range 58 West, 6th P.M. Section 2: All Section 9: All Section 3: All Section 10: All Section 4: All Section 11: All Section 5: All Section 14: NW/4 Section 6: All Section 15: N/2 Section 7: All Section 17: NW/4 Section 8: All Section 18: N/2

Township 8 North, Range 59 West, 6th P.M. Section 1: All Section 11: All Section 2: All Section 12: All Section 13: N/2

Township 9 North, Range 58 West, 6th P.M. Section 31: S/2 Section 34: All Section 35: All

Township 9 North, Range 59 West, 6th P.M. Section 36: S/2 and that the recommendations of the Lilli Field Technical Committee are adopted.

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 D' Sand formation underlying the following described lands in the Lilli Field, Weld County, Colorado, to-wit:

Township 8 North, Range 58 West, 6th P.M. Section 4: All Section 8: All Section 5: All Section 9: All Section 6: All Section 17: NW/4 Section 7: All Section 18: N/2

Township 8 North, Range 59 West, 6th P.M. Section 1: All Section 12: All Section 2: All Section 13: N/2 Section 11:All -- 2 --

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Township 9 North, Range 58 West, 6th P.M. Section 31: S/2 Township 9 North, Range 59 West, 6th P.M. Section 36: S/2

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 permitted well for each unit shall be located in the center of the NW/4 and the SE/4 of each quarter section with a tolerance of 200 feet in any direction. Well No. 15-5 Bringleson, located in the SW/4 SE/4 of said Section 5 and well No. 7-10 Federal, located in the SW/4 NE/4 of said Section 10 shall each be considered exceptions and be the permitted well for the unit to be designated by the operator. Exceptions to the permitted well locations may be granted by the Director, provided owners of the contiguous and cornering units file a waiver or consent in writing agreeing to such exception.

Rule 3. One hundred sixty (160) acre drilling and spacing units shall be and the same are hereby established for the production of gas and associated hydrocarbons from the D' Sand underlying the following described lands in Weld County, Colorado, to-wit: Township 8 North, Range 58 West, 6th P.M. Section 2: All Section 11: All Section 3: All Section 14: NW/4 Section 10: All Section 15: N/2 Township 9 North, Range 58 West, 6th P.M. Section 34: All Section 35: All Rule 4. 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 shall be at a location no closer than 600 feet from the boundaries of the unit. Well No. 7-10 Federal, located in the SW/4 NE/4 Section 10, Township 8 North, Range 58 West, 6th P.M. shall be the permitted well for the unit consisting of the NE/4 of said Section 10. Well No. Box P, located in the SE/4 SE/4 shall be the permitted well for the unit consisting of the SE/4 of said Section 34, and Well No. Steffen N, located in the SE/4 SW/4 shall be the permitted well for the unit consisting of the SW/4 of said Section 34.

Rule 5.(a) Commencing February 1, 1989, the maximum monthly allowable for any one month, for wells completed as producing with gas to oil ratios of 3000 cubic feet of gas per barrel of oil or less, hereinafter referred to as "Oil Wells" shall be 900 barrels of oil or 7,500 MCF of gas, whichever is produced first. A well shall be considered a "Gas Well" if it has a gas to oil ratio in excess of 3000 cubic feet of gas per barrels of oil. The allowable for a gas well shall be 21,000 MCF of gas per month. There shall be no maximum allowable for liquid production for gas we]is. No adjustment in this allowable for variation of the number of days in a month shall be made.

(b) The allowable for a well will be effective the month the well was perforated. A full month allowable will be in effect for that month.

(c) If a well produces less than its allowable for a given month ("Under Production"), the allowable for that well shall be increased the following month. Production in the following month will be allocated first to the Under Production from the prior month, and then to the base allowable for that month. The base allowable not produced for the current month will be carried forward to the following month as Under Production. In no event shall a party carry forward to a following month more than one month's base allowable as a credit as Under Production. To -- 3 --(451-12) the extent any operator may have Under Production prior to February 1, 2989, such operator may carry forward to February, 1989, the lesser of: (i) the amount of such Under Production; or (ii) the new revised base monthly allowable as set forth herein. (d) Any Over Production shall be made up in the month following such Over Production.

(e) The forgoing allowable rules shall be applied on a lease bases for multiple wells with combined production facilities.

(f). The forgoing Paragraphs (b)-(e) shall be made retroactive to November 15, 1987.

Rule 6. For wells drilled and completed in the Lilli Field after the effective date of this order, in areas spaced for oil production and which are completed with an initial gas/oil ratio in excess of 3,000 cubic feet per barrel, the allowable rate shall be half of a Gas Well or 10,500 MCF per month unless the well is the only producing well within the entire quarter section, in which case the well shall have the full Gas Well allowable.

Rule 7. Preliminary monthly production data shall be submitted to the Commission and the other operators in the field on a letterhead format by the end of the month following production.

Rule 8. The Director shall meet with the operators of the field prior to June 1, 2989, to discuss the need to conduct Static Bottom Hole Pressure Tests of the entire field on or before June 30, 1989. If the Director so decides, he may order that such Bottom Hole Pressure Tests be conducted prior to June 30, 1989, and may establish the time and procedures for these tests.

IT IS FURTHER ORDERED, that the above production restrictions shall remain in effect until July 31, 1989 and that the operators and any interested party in the Lilli Field shall appear at the July, 2989 hearing with the results and additional information concerning production practices in the field for the Commission to consider any amendments or changes to this order as deemed necessary.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith on February 1, 1989.

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 25th day of January 1989, as of January 17, 1989.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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