REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on August 21, 1989 at 8:30 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 Union Pacific Resources Company for an order to establish 80-acre drilling and spacing units for production of oil and associated hydrocarbons from the Morrow Sandstone Formation underlying certain lands in Kiowa County, Colorado and further to establish a Maximum Production Rate on wells located on such lands.

FINDINGS

The Commission finds as follows:

1. Union Pacific Resources Company, as applicant herein, is an interested party in the subject matter of the above-entitled hearing.

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. Protests to the application were entered on behalf of Carr Exploration Corporation, OXY, USA, Inc., Barrett Energy Company, ABO Petroleum Corporation, Yates Petroleum Corporation, Myco Industries, Inc., Yates Drilling Company, Estate of Martin Yates III and Lilli M. Yates, Samuel Gary, Jr. & Assoc., Inc., and interventions were filed by TXO Production Corporation and Mull Drilling Company, Inc. all of whom are interested parties in the subject matter of the above-entitled hearing.

4. 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.

5. Evidence presented at the time of hearing indicates that the Morrow Sandstone Formation constitutes a common source of supply of oil and associated hydrocarbons underlying the following described lands in Kiowa County, Colorado:

Area "A"

Township 18 South, Range 41 West, 6th P.M.

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Section 5: All Section 8: All Section 17: All

Township 17 South, Range 41 West, 6th P.M. Section 32: All Section 29: All

Area "B"

Township 17 South, Range 41 West, 6th P.M. Section 30: All Section 31: All

Township 17 South, Range 42 West, 6th P.M. Section 25: All Section 26: All Section 35: All Section 36: All

Township 18 South, Range 41 West, 6th P.M. Section 6: All Section 7: All Section 18: All

Township 18 South, Range 42 West, 6th P.M. Section 1: All Section 2: All Section 11: All Section 12: All Section 13: All Section 14: All

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Area "A" consists of lands which are irregular in shape and do not contain 640 acres.

6. That in order to prevent the waste of oil and gas, as defined by law; to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the oil and gas resources of the State, an order should be made establishing 80-acre drilling and spacing units for the production of oil and associated hydrocarbons from the Morrow Sandstone Formation common source of supply underlying the lands described herein; that said units, in Area "B" should consist of the E/2 and W/2, or the N/2 and S/2 of a governmental quarter section, with the unit described by the operator of the first well drilled in the quarter section. In Area "A" the units should consist of 80-acre tracts approximately 1800 feet in width and such length as necessary to constitute an attribution of 80 contiguous acres and should be rectangular or square in shape.

7. The permitted well for each unit in Area"A" and Area "B" should be at a location no closer than 600 feet from the boundaries of the unit tract, and no closer than 1200 feet from any other producible or drilling well when drilling or producing from the Morrow Sandstone Formation.

8. In order to prevent waste, a maximum daily production rate for each well producing in Area "A" or Area "B" should be established at 200 barrels of oil per day or 50 mcf of gas per day leaving the lease, whichever is produced first, with underproduction or overproduction to be made up within sixty (60) days of the end of the month of production.

9. All available geological and engineering data concerning said Morrow Sandstone Formation indicate that one well will efficiently and economically drain an area of approximately 80 acres and that the drilling units of the size and shape herein described are not smaller than the maximum area that can be efficiently and effectively drained by one well producing from said formation.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to a well or wells drilled, completed, or recompleted in the Morrow Sandstone Formation underlying the Jace 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:

Rule 1. Eighty (80) acre drilling and spacing units shall be and the same are hereby established for the production of oil and

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associated hydrocarbons from the Morrow Sandstone formation underlying the following described lands in Kiowa County, Colorado:

Area "A"

Township 18 South, Range 41 West, 6th P.M. Section 5: All Section 8: All Section 17: All

Township 17 South, Range 41 West, 6th P.M. Section 32: All Section 29: All

Area "B"

Township 17 South, Range 41 West, 6th P.M. Section 30: All Section 31: All

Township 17 South, Range 42 West, 6th P.M. Section 25: All Section 26: All Section 35: All Section 36: All

Township 18 South, Range 41 West, 6th P.M. Section 6: All Section 7: All Section 18: All

Township 18 South, Range 42 West, 6th P.M. Section 1: All Section 2: All Section 11: All Section 12: All Section 13: All Section 14: All

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Area "A" consist of lands which are irregular in shape and do not contain 640 acres.

Rule 2. Said drilling units located in Area "B", described herein above, 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 described by the operator of the first well drilled in the quarter section. In Area "A" the unit shall consist of 80-acre tracts approximately 1800 feet in width and such length as necessary to constitute an attribution of 80 contiguous acres and should be rectangular or square in shape.

Rule 3. The permitted well for each unit in Area "A" and Area "B" shall be at a location no closer than 600 feet from the boundaries of the unit tract, and no closer than 1200 feet from any other producible or drilling well when producing from or drilling into the Morrow Sandstone Formation.

Rule 4. For each well in Area "A" and "B", there shall be established a maximum daily production rate (Maximum Daily Production Rate) which shall be calculated based on the following formula:

Attributable Acreage = Length of Unit X Width of Unit 43,560 Sq. Ft./Acres

Acreage Factor = Attributable Acreage 80 Acres

Maximum Daily allowable = 200 barrels of oil per day times acreage factor

Rule 5. The Maximum Daily Production Rate for each well shall be further limited to 50 MCF of gas per day removed from the lease multiplied by the Acreage Factor and shall have reached its Maximum Daily Production Rate even though it may not have produced its Maximum Daily Rate of oil under the above described formula.

Rule 6. The Maximum Daily Production Rate for a given well shall be cumulative and underproduction for any month shall be allowed to be made up only within sixty (60) days of the end of the month in which such underproduction occurred. No well shall be overproduced in any month in excess of the amount equal to one month's cumulative total of one month's Maximum Daily Production Rate for such well. Any overproduction of the cumulative total of one month's Maximum Daily Production Rate within such one month's tolerance shall be reduced to zero by underproducing the well during the sixty (60) day period following the end of the month in which the overproduction occurred.

Rule 7. That each operator shall report to the Director the

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monthly production for each well operated by it which is completed in Area "A" and Area "B" and mail a copy of such production information to each operator of other leases within Area "A" and Area "B". Preliminary monthly production data shall be submitted to the Commission and other operators in the field on a letterhead format by the twentieth (20th) day of the month following production. In those circumstances where more than one well is producing into a common tank battery, each well shall be allocated a production volume based upon a quarterly production test of all wells producing into the battery. Such production test is intended to reflect the percentage of oil produced into the tank battery on a daily basis from each contributing well. Each such test shall be performed by calculating the theoretical production percentage for each well contributing to the common tank battery and then multiplying that percentage by the total lease production in order to determine a Daily Well Production Rate for each well.

Rule 8. That, within thirty (30) days of the effective date of the Order granting this Application, the operators of all wells drilled and completed in Area "A" and Area "B" shall file with the Director an acreage attribution plat and the results of a supervised test for each well completed in the Morrow Sandstone Formation. Each well drilled and completed on the effective date of the Order shall be assigned its Maximum Daily Production Rate retroactive to the date of first production for such well upon the filing of the acreage attribution plat and the results of the staff supervised test with the Director.

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Rule 9. Each Application to Drill submitted shall be accompanied by a plat as required by rule 303 which shall clearly show sufficient dimensions to ensure compliance with Rule 3 herein above, and for tracts in Area "A" the complete dimensions of the partial section as well as those of the particular drilling and spacing unit, and the acreage attribution plat which may be combined with the well location plat.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective thirty (30) days from the date of entry of the above order in the records of the Commission.

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

ENTERED this day of ,

1989, as of August 21, 1989.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dennis R. Bicknell, Secretary

0867A

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