REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 21, 1990 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 third amended 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 Cheyenne County, Colorado.

FINDINGS

The Commission finds as follows:

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

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

3. That 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. That all protests to the applications have been withdrawn in writing.

5. That evidence presented at the time of administrative hearing indicates that the Morrow Sandstone formation, identified as the stratigraphic equivalent of the interval between 5150 feet and 5274 feet on the electric log of the #1 D.D. Durr 21-12 well located in the NE/4 NW/4 of Section 12, Township 13 South, Range 43 West, 6th P.M., underlying the following described lands in Cheyenne County, Colorado, to-wit:

Township 12 South, Range 42 West, 6th P.M. Section 31: Lots 1, 2, 3, 4, E/2 W/2, E/2 (All) Section 32: Lots 1 through 12, NW/4 (All)

Township 12 South, Range 43 West, 6th P.M.

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Section 34: Lots 1 through 12, SE/4 (All) Section 35: All Section 36: All

Township 13 South, Range 42 West, 6th P.M. Section 5: 1, 2, 3, 4, S/2 N/2, S/2 (All) Section 6: Lots 2 through 5, 8 through 15, SW/4 NE/4, W/2 SE/4 (All) Section 7: Lots 1, 2, 3, 4, E/2 W/2, E/2 (All) Section 8: Lots 1 through 16 (All) Section 18: Lots 5 through 20 (All) Section 19: All

Township 13 South, Range 43 West, 6th P.M. Section 1: lots 1 through 4, S/2 N/2, S/2 (All) Section 2: Lots 5 through 20 (All) Section 3: Lots 1 through 4, S/2 N/2, S/2 (All) Section 10: Lots 1 through 12, SW/4 (All) Section 11: All Section 12: Lots 1 through 16 (All) Section 13: All Section 14: Lots 1 through 8, SE/4, NW/4 (All) Section 23: All Section 24: Lots 1 through 12, NE/4 (All)

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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 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.

7. That the permitted well for each unit should be located within the NE/4 or SW/4 of the quarter section no closer than 460 feet from the boundaries of the unit tract.

8. That in order to prevent waste, a Maximum Daily Production Rate for each well should be established of 300 barrels of fluid and that the Maximum Daily Production Rate should be further limited to 100 MCF of gas per day leaving the lease, with underproduction or overproduction to be made up within sixty (60) days of the end of the month of production.

9. That the Director should have authority, upon application, to permit exception locations upon a showing that the standard location has been determined by drilling to be dry or unproductive in the Morrow Sandstone Formation.

10. That the Director, after no less than ten (10) days notice having been given to the owners's of the contiguous and cornering drilling and spacing units, should have the authority after administrative hearing to permit exception locations where the standard location has not been drilled on a showing that the standard location, if drilled, would be dry or unproductive in the Morrow Sandstone Formation.

11. That the Director should not grant any exception location closer than 460 feet to the unit boundaries, nor grant any exception location which has been protested but rather schedule such application to be heard by the Commission at the next regular hearing after the receipt of the written protest, and that all wells at exception locations granted by the Director should have a Maximum Daily Production Rate of the lesser of one-half those volumes of fluids including produced gas established by this order or subsequent orders in this cause, or the number of barrels of fluid produced over a 24 hour period as determined by a supervised test.

12. That 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

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that the drilling units of the size and shape herein described are not smaller that 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 Harker Ranch 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 associated hydrocarbons from the Morrow Sandstone Formation underlying the following described lands in Cheyenne County, Colorado:

Township 12 South, Range 42 West, 6th P.M. Section 31: Lots 1, 2, 3, 4, E/2 W/2, E/2 (All) Section 32: Lots 1 through 12, NW/4 (All) - 4 -(477-1)

Township 12 South, Range 43 West, 6th P.M. Section 34: Lots 1 through 12, SE/4 (All) Section 35: All Section 36: All

Township 13 South, Range 42 West, 6th P.M. Section 5: 1, 2, 3, 4, S/2 N/2, S/2 (All) Section 6: Lots 2 through 5, 8 through 15, SW/4 NE/4, W/2 SE/4 (All) Section 7: Lots 1, 2, 3, 4, E/2 W/2, E/2 (All) Section 8: Lots 1 through 16 (All) Section 18: Lots 5 through 20 (All) Section 19: All

Township 13 South, Range 43 West, 6th P.M. Section 1: lots 1 through 4, S/2 N/2, S/2 (All) Section 2: Lots 5 through 20 (All) Section 3: Lots 1 through 4, S/2 N/2, S/2 (All) Section 10: Lots 1 through 12, SW/4 (All) Section 11: All Section 12: Lots 1 through 16 (All) Section 13: All Section 14: Lots 1 through 8, SE/4, NW/4 (All) Section 23: All Section 24: Lots 1 through 12, NE/4 (All)

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 described by the operator of the first well drilled in the quarter section.

Rule 3. The permitted well for each unit shall be located in the NE/4 or SW/4 of the quarter section no closer than 460 feet from the boundaries of the unit tract.

Rule 4. There shall be established a Maximum Daily Production Rate for each well of 300 barrels of fluid and that the Maximum Daily Production Rate shall further be limited to 100 MCF of gas per day leaving the lease.

Rule 5. 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

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of the month in which the overproduction occurred.

Rule 6. Each operator shall report to the Director the monthly production for each well operated by it which is completed in Harker Ranch Field and mail a copy of such production information to each operator of the other leases within the field. 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 circumstance 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 from 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 7. The Director shall have the authority, upon application, to permit exception locations upon a showing that the standard location has been determined by drilling to be dry or unproductive in the Morrow Sandstone Formation.

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Rule 8. The Director, after no less than ten (10) days notice having been given to the owners of the contiguous and cornering drilling and spacing units, shall have the authority after administrative hearing to permit exception locations where the standard location has not been drilled on a showing that the standard location, if drilled, would be dry or unproductive in the Morrow Sandstone Formation.

Rule 9. The Director shall not grant any exception location closer than 460 feet to the unit tract boundaries, nor grant any exception location which has been protested but rather shall schedule such application to be heard by the Commission at the next regular hearing after the receipt of the written protest, and that all wells at exception locations granted by the Director of the Commission shall have a Maximum Daily Production Rate of the lesser of one-half those volumes of fluids including that volume of produced gas established by this order or subsequent orders in this cause or the number of barrels of fluid produced over a 24 hour period as determined by a supervised test.

Rule 10. Each well shall have an initial Maximum Daily Production Rate assigned upon the filing with the Commission of a completion report (Form 5) or the results of an initial supervised 24-hour test. Any supervised initial production test shall be undertaken within 30 days of completion of the well and shall be of at least 24 hours continuous duration following at least 48 hours of production. Each well at an exception location may be retested at any time within three months after the last test, but in any event shall be retested at least every six months from the last test, and the operator of any such well shall give at least three days notice to the other operators in the immediate area and to the Director so that a Commission representative may witness such test.

Rule 11. Within thirty (30) days of the effective date of this order, all operators of all wells drilled and completed in the Harker Ranch Field shall file with the Commission a completion report (Form 5). Each well drilled and completed on the effective date of this order shall be assigned its Maximum Daily Production Rate.

Rule 12. The well No. 4 D.D. Durr 33-12 located 2040 feet FSL and 2040 feet FEL, Section 12, Township 13 South, Range 43 West, 6th P.M. shall be considered an exception well subject to the production restrictions as set forth above.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith as all parties agreed to be bound by the oral orders of the Commission.

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.

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ENTERED this day of ,

1990, as of May 21, 1990.

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

1244A

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