REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on December 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 Commission's own motion for operators and other interested parties to appear with information concerning production practices in the field for the Commission to consider any changes to Order No. 451-15 and to report on further efforts toward unitization of Lilli Field.

FINDINGS

The Commission finds as follows:

1. 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.

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. 451-15, commencing October 1, 1989, the maximum monthly allowable for any one month, for wells completed with producing gas/oil ratios of 3,000 cubic feet of gas per barrel of oil or less, hereinafter referred to as "Oil Wells", shall be 150 barrels of oil or 1,250 MCF, whichever is produced first. There shall be no adjustment in this allowable for variation of the days in a month. A well shall be considered a "Gas Well" if it has a gas/oil ratio in excess of 3,000:1 cubic feet per barrel. The allowable for a Gas Well shall be 30,000 MCF per month. There shall be no maximum allowable for liquid production for Gas Wells. If, during the initial gas/oil ratio test, the well is determined to be an Oil Well in accordance with the above gas/oil ratio for production restriction purposes, the well shall remain an Oil Well, regardless of future increases in the gas/oil ratio of the well. These production restrictions shall remain in effect until such time as the Commission shall make a change.

4. Order No. 451-14 further ordered that the operators and any interested party in the Lilli Field shall appear at the December 1989 hearing with additional information concerning production practices for the Commission to consider any amendments or changes to Order No. 451-15

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as might be necessary, and to report on efforts toward unitization of Lilli Field.

5. That working interests in the oil area have met to consider unitization with injection of water and that an application might be before the Commission by February, 1990.

6. That Diversified Operating Company, in a separate matter, presented testimony in support of a pilot gas injection project in a portion of Lilli Field at this December, 1989 hearing.

7. That testimony and exhibits indicate that a field wide bottom hole pressure survey should by conducted as soon as possible with the data to be analyzed at least by the Commission staff, and that the Commission would consider a request by the field operators for further hearing upon review of the survey.

8. That the hearing was continued until the survey was completed and analyzed.

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9. That the Secretary reported to the Commission at its hearing on January 16, 1990 held in the La Plata County Extension Center, Durango, Colorado that the field wide bottom hole pressure survey had been conducted on January 3, 1990, that the results had been computed and plotted by the Commission staff, and an isobaric map of the BHP Survey had been furnished to all operators and interested parties; and that at a meeting on January 12, 1990 the field operators requested a further hearing on January 30, 1990. The Commission agreed to the request.

10. That at the continuation of the hearing on January 30, 1990 held in Suite 380, 1580 Logan Street, Denver, Colorado, the interested parties agreed that Commissioner Max Krey could participate in the proceedings.

11. That the field wide pressure survey shows waste as defined in the Oil and Gas Conservation Act is occurring and that correlative rights must be protected, that production allowables established in Order No. 451-15 have reduced the overall field pressures and the pressure in the gas area is approximately 100 psi greater than the oil area with higher pressures in the throat area, that reservoir pressure should be maintained in the gas area of the field, and that secondary recovery could be increased by preventing the reservoir pressure from declining to zero.

12. That effective February 1, 1990, the rules established by Order No. 451-15 remain in effect, that Rule 5 be changed to order the production allowable of a gas well defined in this cause be reduced to 3,000 MCF of gas per month.

13. That the allowable rates established should remain in effect until April 30, 1990, and that the operators and interested parties report to the Commission on production practices and efforts toward unitization at the hearing in April, 1990.

O R D E R

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 formation 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/14 Section 6: All Section 15: N/2

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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

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 part of 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: - 4 -(451-18)

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

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. Exception 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 the 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

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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 if the SW/4 of said Section 34.

Rule 5. (a) Commencing February 1, 1990, the maximum monthly allowable for any one month, for wells completed with producing gas/oil ratios of 3,000 cubic feet of gas per barrel of oil or less, hereinafter referred to as "Oil Wells", shall be 150 barrels of oil or 1,250 MCF, whichever is produced first. There shall be no adjustment in this allowable for variation of the days in a month. A well shall be considered a "Gas Well" if it has a gas/oil ratio in excess of 3,000:1 cubic feet per barrel of oil. The allowable for a Gas Well shall be 3,000 MCF per month. There shall be no maximum allowable for liquid production for Gas Wells. If, during the initial gas/oil ratio test, the well is determined to be an Oil Well in accordance with the above gas/oil ratio for production restriction purposes, the well shall remain an Oil Well, regardless of future increases in the gas/oil ratio of the well.

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

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(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 the extent any operator may have Under Production prior to February, 1990, such operator may carry forward to February, 1990, 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 foregoing allowable rules shall be applied on a lease basis for multiple wells with combined production facilities.

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 1,500 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.

IT IS FURTHER ORDERED, that the above production restrictions shall remain in effect until April 30, 1990, and that the operators and any interested party in the Lilli Field shall appear at the April 16, 1990 hearing with information concerning production practices in the field for the Commission to consider any amendments or changes to this order as deemed necessary and to report on further efforts toward unitization of Lilli Field.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith on February 2, 1990.

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 day of ,

1990, as of January 30, 1990.

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OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dated at Suite 380 Dennis R. Bicknell, Secretary 1580 Logan Street Denver, Colorado 80203

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