REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on August 15, 1988 at 8:30 A.M. in Room. 110, State Education Building, 201 East Colfax Avenue, Denver, Colorado on the Commission's own motion to combine the Lilli Field as established in Cause No. 451 and the West Lilli Area as established in Cause No. 459 in to the Lilli Field, to add certain areas to the Lilli spaced area for production of oil, gas, and associated hydrocarbons from the Cretaceous D' Sand as recommended by the Lilli Field Technical Committee at the July hearing of the Commission and additional recommendations by the Commission staff Diversified Operating Company filed a motion to intervene in this matter.

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. Testimony presented at the July 1988 Commission hearing indicated the Cretaceous D' Sand underlying the Lilli Field and West Lilli Area as established in Order Nos. 451-7 and 459-3 is a common source of supply, the field and area should be combined and become known as Lilli Field, and that all existing rules for the operations of the field and area should remain in effect.

4. Further recommendations were made that all. of Section and 35 of Township 9 North, Range 58 West, 6th P.M. should have 16O-acre drilling and spacing units, more or less, established for the production of gas and associated hydrocarbons and consist of a quarter section according to the governmental. survey. The permitted well should be at a location no closer than 600 feet to the boundaries of the quarter section and well Box P in the SE/4 SE/4 and well Steffen N in the SE/4 SW/4 should be considered the permitted wells for the units consisting of the SE/4 and SW/4 of Section 34 respectively.

5. Further recommendations were made that all of Section 2 and 3 of Township 8 North, Range 59 West, 6th P.M. should have 80-acre drilling and spacing units, more or less, established for the production of oil and associated hydrocarbons in accordance with Order No. 451-1, Rule 2 and Order No. 459-2, Rule 2.

6. The additional area included in Findings 4 and 5 herein above should be included in the Lilli Field. 7. These additional recommendations of the Lilli Technical Committee and the Commission staff should be accepted. -- 3 --

(451-8 & 459-4)

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 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 8: All Section 2: All Sect-ion 9: All Section 4: All Section 10: All Section 5: All Section 12: All Section 6: All Section 17: NW/4 Section 7: All Sect.ion 18: N/2

Township 8 North, Range 5, West, 6th P.M. Section 1: All Section 12: All Section 2: All Section 12: All Sect.ion 22: N/2

Township 9 North, Range 58 West, 6th P.M. Section 21: 2/2 Section 24: 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

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 f the contiguous and cornering units file a waiver or consent in writing agreeing to such exception.

(451-8 & 459-4)

Rule 3. One hundred sixty (160) acre drilling and spacing units shall be and the same are hereby established for the production of and associated hydrocarbons from the D' Sand underlying the lowing described lands in Weld County, Colorado, to-wit: Township 8 North, Range 58 West, 6th P.M. Section 2: All Section 10: All Section 3: All Section 11: All

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. 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 shall be 125 barrels of oil per/day or 250 MCF of gas per day, whichever is produced first. Wells producing with a gas-oil ratio in excess of 3000 cubic feet of gas per barrel of oil shall have 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 is produced first.A well shall be considered 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 is determined to be an oil well' in accord with the above gas-oil ratio, for production restriction purposes, tile well shall remain an oil well, regard.less of future increases in the gas-oil ratio of the well.

Rule 6. For wells drilled and completed in the Lilli Field which is spaced for oil production but the produced gas-oil ratio is in excess of 3000 to 1. cubic feet per/barrel, the allowable rate shall be one-half that of gas wells or 62 /2 barrels of oil and 350 MCF per/day 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. individual gas-oil ratio tests shall be conducted on all oil wells with a gas-oil ratio of 5000 cubic feet per/barrel, or less, between August 1, 1988 and August 15, 1988, and again between November 1, 1988 and November 15, 1908. Each well is to be individually tested with the amount of gas, oil and water accurately measured. Each well shall be produced under each operator's existing plan of operation for a period of seventy-two (72) hours with the individual well test taken during the last twenty-four (24) hours of such period. In the event of a work-over or a test failure, approval for a second test may be allowed and is to be conducted in the same manner as above. Notification of when such tests are to be run shall be delivered to the office of the Commission and all operators in the field at least twenty-four (24) hours prior to the commencement of the seventy-two (72) hour testing period. Tests may be witnessed by the staff of the Commission and any operator in the field at his own risk.

Rule 8. Results of the individual tests shall be submitted to the office .of. the Commission and to other operators in the field by August 17, 1988 and November 17, 1988 respectively. The amount of oil, gas and water produced during the last twenty-four (24) hour test period hall be the basis for computing the gas-oil ratio and shall be the basis for the daily allowables set by the Commission.

Rule 9. Preliminary monthly production data shall be submitted to the Commission and the other operators in the field on a letterhead format by the twentieth (20th) of the month following production. Under production may be made up only during the month following the month in which it occurred, and any over production, which <@shall not exceed ten (10) percent of the allowable, shall be made up in the month following such over operation.

Rule 10. The Director shall meet with the operators in the field prior to December 1, 1988 to establish a time and procedures for static bottom hole pressure tests to be conducted on the entire field before December 31, 1988.

IT IS FURTHER ORDERED, that the above production restrictions shall remain in effect-. until january 31, 1989 and that the operators and any interested party in the Lilli Field shall appear at the January 1989 hearing with the results of the bottom hole pressure survey, production data, gas-oil ratio test 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.

IT IS FURTHER ORDERED,. that the Commission expressly serves its rights, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

Entered this 25th day of August 1988, as of August 15, 1988.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

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(451-8 & 459-4)

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