REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 21, 1990 at 2:00 p.m., in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing as required by law. On February 7, 1990, Diversified Operating Company, filed with the Commission a verified Application for Modification of Commission Order, Application for Rehearing, and Application for Stay of Commission's Decision as promulgated by Order No. 451-18 which was effective on February 2, 1990.

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. That on January 30, 1990, the Commission issued Order No. 451-18 which established 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 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. These production restrictions shall remain in effect

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until April 30, 1990

4. That the Commission further ordered that the operators and any other 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.

5. That a recommendation from some of the field operators was made to the Commission on January 30, 1990 to establish the monthly allowable rates for oil wells at 450 barrels of oil or 13,500 MCF and the monthly allowable rates for gas wells at 13,500 MCF

6. That a rehearing should be granted, and that upon rehearing the recommendation of the field operators should be accepted, that Order No. 451-18 should be amended to include the recommendations and the amended order should be effective retroactive to February 2, 1990, and that all other rules in Order No. 451-18 should be incorporated in the amended order.

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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 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:

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

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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. 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.

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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 if the SW/4 of said Section 34.

Rule 5. (a) Commencing February 2, 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 450 barrels of oil or 13,500 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 13,500 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.

(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.

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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 6,750 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.

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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 retroactive to 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 February 22, 1990.

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

1132A

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