REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 18, 1989 at 8:30 a.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 of Diversified Operating Company stating that permitting equal rates of production among all wells violated the correlative rights of those parties having greater initial gas reserves underneath their leasehold and that the total allowable rates for wells located in the gas cap not be changed, but that an order should be issued amending Order No. 451-12 to define individual monthly well allowables.

FINDINGS

The Commission finds as follows:

1. Diversified Operating 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. Protests to the application were filed on behalf of Eagle Exploration Company, Aexco Petroleum, Inc., and Petroleum Energy Corporation. A statement was submitted by Berenergy Corporation. An additional statement was submitted by Eagle Exploration Company.

5. Testimony was taken in this matter at the Commission hearing on June 16, 1989. The Matter was continued to allow the performance of deliverability tests to be conducted on the gas wells in the Lilli Field. At the July 17, 1989 hearing of the Commission a further continuance was requested to the August 21, 1989 hearing to allow analysis of the deliverability tests. The Commission continued the matter until the September 18, 1989 hearing.

6. At the June 16, 1989 hearing Diversified Operating

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Company presented testimony supporting their application to use Net Acre Feet as a measure of the hydrocarbon pore volume for each drilling and spacing unit and that individual monthly well allowable be calculated in accordance with the following formula:

Monthly = Net Acre Feet X Number of X 21,000 MCF Well in Gas Well Gas Wells Month Allowable Total Net Acre Feet of All Gas Wells

Net Acre Feet shall mean: h X p X a, where

h = Thickness of the production interval of Cretaceous "D" Sandstone Formation as Shown on the logs therefor

p = Average porosity of that interval

a = Area, in acres, of the drill site spacing unit underlaid by the Cretaceous "D" Sandstone Formation based on geologic interpretation.

7. After testimony by the protestants, the Commission agreed to hear testimony concerning deliverability tests which might be of value in determining if a reallocation was necessary. The parties were to agree upon a testing procedure and present it for approval to the Commission staff. The hearing was continued to allow the tests to be conducted. - 2 -(451-16)

8. At the hearing on September 18, 1989 the parties indicated agreement on a method of individual monthly allocation for the gas wells listed below, such allocation to consist of one-half of the allocation ordered by the most current order of the Commission establishing monthly maximum allowables, and the other portion to be allocated based upon the deliverability test results given below:

Well Deliverability Percent mscf/d of Total Wagner 5-2 2830 4.93 Lindsey 10-2 634 1.10 Fed. Sheffield 14-2 1569 2.73 Fed. Lilli 6-3 2633 4.59 Albert G 5239 9.13 Fed. Lilli 14-3 5030 8.76 Miller P 4410 7.68 Fed. Sooner 8-9 2237 3.90 Fed. Lilli 9-9 3749 6.53 Ed. Lilli 3-10 2863 4.99 Federal 7-10 4728 8.24 Fed. Lilli 14-10 4026 7.01 Fed. Lilli 15-10 3568 6.22 Plains 2-11 2366 4.12 Fed. Plains 5-11 980 1.71 Kindt C 3815 6.65 Jim H 375 0.65 Steffen N 1615 2.81 Box P 4733 8.25

Total (19 Wells) 57400 100.00

The individual well monthly allocation should be calculated by adding one half the amount ordered to the quantity obtained by multiplying nineteen wells times one half the allowable time the percent of total or:

Monthly Allow. = Ordered Allow. + 19 wells X Ordered Allow. X % of Total 2 2 O R D E R

NOW, THEREFORE IT IS ORDERED, that the maximum monthly allowable production for gas wells in Lilli Field, as gas wells are defined in Cause No. 451 shall be based on two factors, those being one-half of the maximum monthly allowable as established by the most recent order in Cause No. 451 and the remainder based on results of the deliverability factor determined by the test conducted in July and August, 1989.

IT IS FURTHER ORDERED, that the provisions contained in the

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above order shall become effective July 1, 1989 and that all other effective orders of the Commission in this cause shall continue to apply to gas wells in the Lilli Field.

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 18, 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

0909A

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