REPORT OF THE COMMISSION

This cause came on for hearing before the Oil and Gas Conservation Commission on February 21, 1989 in Room 101, State Education Building, 201 East Colfax, Denver, Colorado on the verified application of the United States of America, Department of interior, Bureau of Land Management for an order pooling all interests in the drilling and spacing unit consisting of the SW/4 Section 3, Township 8 North, Range 58 West, 6th P.M., Weld County, Colorado for the operation and development of the unit for the production of gas and associated hydrocarbons from the Lilli "D" Sand underlying said unit pursuant to 34-60-116, C.R.S., 1973, as amended.

FINDINGS

The Commission finds as follows:

1. The Bureau of Land Management, as applicant herein, is an interested party in the subject matter of the above referenced hearing by virtue of its present ownership of mineral interests in the subject lands.

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 SW/4 Section 3, Township 8 North, Range 58 West, 6th P.M. has been established as a drilling and spacing unit by the Commission by Order No. 451-1 and subsequent orders and there is an existing well DOC Federal Lilli #14-3 located in this unit and completed in the Lilli "D" Sand.

5. Based on the facts stated in the verified application and receiving an intervention by Diversified Operating Company, containing three suggested provisions, and having been reviewed and recommended by the Hearing Officer, the Commission should enter an order pooling all interest in the 160-acre drilling and spacing unit herein described for the operation and development of the Lilli "D" Sand underlying said unit for the production of gas and associated hydrocarbons which should include provision 7.a and 7.b and exclude provision 7.c of Diversified Operating Company's intervention of February 10, 1989

6. Production obtained from said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in each tract bears to the total number of acres within said drilling unit.

7. That the United States of America's lessee, once identified, should be considered non-consent with a]1 costs incurred by the operator of the subject well, including those incurred prior to the effective date of this order, to be recovered under the provisions of the non-consent penalty.

ORDER

NOW THEREFORE IT IS ORDERED, that:

1. Pursuant to the provisions of 34-60-116, C.R.S., e amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the SW/4, Section 3, Township 8 North, Range 58 West, 6th P.M., Weld County, Colorado, are hereby pooled for' the development of gas and associated hydrocarbons from the Lilli "D" Sand underlying said unit.

2. The United States of America's lessee, once identified shall be considered non-consent under the provisions of C.R.S. 34-60-116(7){b) with all costs incurred by the operator of subject well, including those costs incurred prier to the effective date of the pooling order, to be recovered under the provisions of the non-consent penalty from the lessee's proportionate share of production.

3. The production obtained from said drilling unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of acres within said drilling unit; the lease of the United States of America tract, once identified, of any federal oil and gas lease, shall be entitled to receive his share of the production of the well located on said drilling unit applicable to hi:= interest in said unit.

4. The designated operator of the well, DOC Federal Lilli #14-3, for the unit SW/4 Section 3, Township 8 North, Range 58 West, 6th P.M., for the purposes of this pooling order shall be Diversified Operating Corporation.

5. The United States of America's royalty interest in the SW/4 SW/4 of said Section 3 shall be paid as of the entry date of this order.

6. Any. non-consenting unleased owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owner's proportionate 87.5% share of production, the costs specified in C.R.S. 34-60-116 (7)(b), as amended. After recovery of such costs, the non-consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

7. The operator of the well DOC Federal Lilli #14-3 shall furnish the non-consenting owner with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall be effective forthwith retroactive to the date that costs were incurred in the drilling of the well.

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 3rd day of March

1989, as of February 21, 1989.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

(451-13)