REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 20, 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 application of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, for an order establishing 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Wasatch formation and 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde formations underlying certain lands in the Grand Valley Field, Garfield County, Colorado.

FINDINGS

The Commission finds as follows:

1. That the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2. That 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 evidence presented at the hearing indicates that the Wasatch formation and the entire Mesaverde formation which includes the Mesaverde which lies above the Cameo formation, and the lower portion of the Mesaverde which includes the Cameo, Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons each constitutes a supply of gas and associated hydrocarbons underlying the following described lands in a portion of the Grand Valley Field, Garfield County, Colorado, to-wit:

Township 6 South, Range 96 West, 6th P.M. Sections 1, 12, 23, 24, 25, 26, 27, 34, 35 and 36

Township 7 South, Range 96 West, 6th P.M. Section 1

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5. That in order to prevent the waste of oil and gas, as defined by law, to protect 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 to: (1) Establish 160-acre drilling and spacing units in part of the area and 320-acre drilling and spacing units in the remainder of the area for the production of gas and associated hydrocarbons from the Wasatch formation underlying the lands herein defined; that said 160-acre units should consist of a quarter section according to the governmental survey thereof, and that said 320-acre drilling units should consist of the E/2 and W/2 or N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well for either size unit to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation with the location of the well subject to the prior approval of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy for those 320-acre drilling and spacing units in which there is a Department of Energy interest; and (2) establish 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the entire Mesaverde formation, and that said 320-acre drilling units should consist of the E/2 and W/2 or the N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation.

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6. All available geological and engineering data concerning said Wasatch and Mesaverde formations indicates that one well will efficiently and economically drain an area of approximately 160-acres for the Wasatch formation except Sections 1, 12, 23 thru 26 which will be efficiently and economically drained by one well in a 320-acre drilling and spacing unit for certain areas with rough terrain, and approximately 320-acres for the Mesaverde formation, and that drilling units of the size and shape hereinabove described are not smaller than the maximum area that can be efficiently and economically drained by one well producing from each said formation.

7. That there are existing wells producing or producible from the Mesaverde formation that have acreage attributions that are less than that amount required by Rule 5 hereinabove and that after verification of the area approved on the Application to Drill, such drilling and spacing units of the appropriate size should be ordered with the designated well for each unit upon which it is located.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled, completed, or re-completed in the Wasatch and entire Mesaverde formations underlying those portions of the Grand Valley Field, Garfield County, Colorado, described herein below, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herewith:

Township 6 South, Range 96 West, 6th P.M. Sections 1, 12, 23, 24, 25, 26, 27, 34, 35 and 36

Township 7 South, Range 96 West, 6th P.M. Section 1

WASATCH FORMATION

Township 6 South, Range 96 West, 6th P.M. 320-acre units 160-acre units Sections 1, 12, 23, 24, Sections 27, 34, 35 and 36 25 and 26

Township 7 South, Range 96 West, 6th P.M. Section 1: All 160-acre units

Rule 1. One hundred sixty (160) acre drilling and spacing units or three hundred twenty (320) acre drilling and spacing units as listed above are hereby established for the production of gas and associated hydrocarbons from the Wasatch formation underlying that portion of the Grand Valley Field hereinabove described.

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Rule 2. Said 160-acre drilling units for the Wasatch formation shall consist of 160-acres, more or less, and each shall consist of a quarter section, according to the governmental survey thereof, with the permitted well located no closer than 600 feet to the boundaries of the unit and no closer than 1200 feet from another producing or producible well in the same formation.

Rule 3. Said 320-acre drilling units for the Wasatch formation shall consist of 320-acres more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation with the location of the well subject to the prior approval of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy for those 320-acre drilling and spacing units in which there is a Department of Energy interest.

MESAVERDE FORMATION

Township 6 South, Range 96 West, 6th P.M. Sections 1, 12, 23, 25, 24, 26, 27, 34, 35 and 36

Township 7 South, Range 96 West, 6th P.M. Section 1

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Rule 4. Three hundred twenty (320) acre drilling and spacing units shall be and the same are hereby established for the production of gas and associated hydrocarbons from the Mesaverde formation as described in Rule 5 herein below underlying that portion of the Grand Valley Field hereinabove described.

Rule 5. The entire Mesaverde formation is described as including the Mesaverde which lies above the Cameo formation and the lower portion of the Mesaverde which includes the Cameo, Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons.

Rule 6. Said drilling units for the Mesaverde formation shall consist of 320-acres, more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation.

Rule 7. Exceptions to any of the location rules for either the Wasatch or Mesaverde formations may be granted by the Director for topographic reasons upon an adequate showing of inaccessibility without further hearing.

Rule 8. Wells presently producing or producible, or permitted within the proposed area should be the permitted well for the unit upon which they are located, as listed below:

TOWNSHIP 6 SOUTH, RANGE 96 WEST, 6TH P.M.

Section Location Well Name Permit:Date Acreage:Unit Qtr/Qtr

23 NW/SW MV-10-23 88-550 : 6/13/88 320:S/2 27 NE/NE MV-23-27 87-420 : 6/29/87 320:N/2 27 NW/SE MV-29-27 88-726 : 7/13/88 320:S/2 34 NE/NW MV-33-34 88-849 : 8/26/88 320:N/2 34 NE/SE GV-23-34 90-060 : /23/90 160:SE/4 34 SW/SW GV-10-34 89-1090:12/04/89 160:SW/4 35 SE/SE GV-21-35 90-160 : 2/21/90 320:S/2 36 NW/SW GV-19-36 89-984 :11/06/89 160:SW/4 36 SW/SE GV-24-36 89-1154:12/19/89 160:SE/4 The NW/4 and the NE/4 of Section 36 are hereby established as 160-acre drilling and spacing units.

IT IS FURTHER ORDERED, that the rules and regulations contained herein shall become effective upon the date the written order is mailed as indicated by the entry date below.

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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.

ENTERED this day of ,

1990, as of February 20, 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

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