IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN THE WATTENBERG GAS SPACED AREA, THE CODELL-NIOBRARA SPACED AREA, AND THE WATTENBERG FIELD, WELD COUNTY, COLORADO Cause No. 407, 232, 493 Order No. 232-112, 407-153, 493-32

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on June 20, 1994 at 8:30 a.m. in Room 318, State Centennial Building, 1313 Sherman Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the amended application of North American Resources Company for an order amending Cause Nos. 407 and 493 to allow an existing well to be recompleted at an exception location for commingled production from the Codell, Niobrara, and Sussex Form ations, to allow a well to be drilled at an exception location for production from the "J" Sand Formation, to allow a well to be recompleted at an exception location for production from the Codell and Niobrara Formations, and to approve an allocation method for a well for production from the "J" Sand, Codell, and Niobrara Formations.

FINDINGS

The Commission finds as follows:

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

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

3. 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. In Cause No. 232, the Commission established 320-acre drilling and spacing units for the production of gas from the "J" Sand in the Wattenberg Field with one well allowed for each unit to be located in the NE1/4 and SW1/4 and no closer than 990 feet to the boundaries of the quarter section. On August 21, 1979, the Commission issued Order No. 232-20 which allowed a second well to be drilled on each 320-acre unit, including Section 4, Township 2 North , Range 67 West, 6th P.M.

5. In Order No. 407-1, the Commission established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons from the Codell Formation. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 200 feet in any direction. In Order Nos. 407-10 and 407-13, the Commission amended Order No. 407-1 to include production from the Niobrara Formation for certain lands and to allow the downhole commingling of production from the Codell and Niobrara Formations, including Section 4, Township 2 North, Range 67 West, 6th P.M.

6. In Order No. 493-2, the Commission established 80-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Sussex Formation. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 200 feet in any direction and the downhole commingling of production from the Sussex, Codell and Niobrara Formations shall be allowed. Section 4, Township 2 North, Range 67 West, 6th P.M. was included in this order.

7. In Order Nos. 407-66 and 232-37, the Commission, among other things, allowed wells drilled, completed, or recompleted in the Codell and/or Niobrara Formations, where the production is commingled or dually completed with the "J" Formation, to be approved administratively, with additional rules established for well locations, unit designations and production allocation methods, for certain lands, including Section 4, Township 2 North, Range 67 West, 6t h P.M.

8. In Order Nos. 493-2 and 407-67, the Commission, among other things, allowed wells, drilled, completed, or recompleted in the Sussex Formation, where the production is commingled or dually completed with the Codell and\or Niobrara Formations, to be approved administratively, with additional rules established for well locations, unit designations and production allocation methods, for certain lands, including Section 4, Township 2 North, Range 67 West, 6th P.M.

9. A protest was filed by Norman and Mary Ann Barnes and withdrawn prior to the administrative hearing.

10. Testimony presented at the administrative hearing indicated that the existing Luhman No. 1 Well located in the SW1/4 SE1/4 of Section 4, Township 2 North, Range 67 West, 6th P.M., would be plugged in the "J" Sand Formation and recompleted for commingled production from the Codell, Niobrara, and Sussex Formations. A new well, if approved, would be drilled at an exception location for production from the "J" Sand Formation 1780 feet FEL and 2180 feet FSL in the NW1/4 SE1/4 of Section 4, and the Sheley No. 1 Well located 1390 feet FSL and 1480 feet FWL in the SW1/4 of Section 4 would be refractured for increased production from the "J" Sand Formation and possibly recompleted for production from the Codell, Niobrara, and Sussex Formations at a later date. Approval of an allocation method is necessary for the Sheley No. 1 Well for the 320-acre drilling and spacing unit consisting of the S1/2 of Section 4 for production from the "J" Sand Formation, and for the 80-acre drilling and spacing unit consisting of the N1/2 SW1/4 of Section 4 for production from the Codell, Niobrara, and Sussex Formations.

11. Having been heard by the Hearing Officers and recommended for approval based on testimony that existing wellbores should be used to obtain production from shallower zones, and that a new well is necessary to obtain existing "J" Sand Formation reserves and prevent waste, an order of the Commission should be entered. The order should allow the Luhman No. 1 Well to be recompleted at an exception location for production from the Codell, Niobrara, and S ussex Formations, a new well to be drilled at an exception location for production from the "J" Sand Formation, recompletion of the Sheley No. 1 Well at an exception location for production from the Codell, Niobrara, and Sussex Formations, and approval of an allocation method for the Sheley No. 1 Well.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that an exception is hereby granted to the spacing pattern established in Cause Nos. 407 and 493, for the Luhman No. 1 Well to be recompleted at an exception location 990 feet FSL and 1650 feet FEL in the SW1/4 SE1/4 of Section 4, Township 2 North, Range 67 West, 6th P.M., for commingled production from the Codell, Niobrara, and Sussex Formations.

IT IS FURTHER ORDERED, that an exception is hereby granted to the spacing pattern established in Cause No. 232 for a well to be drilled and completed at an exception location 2180 feet FSL and 1780 feet FEL in the NW1/4 SE1/4 of Section 4, Township 2 North, Range 67 West, 6th P.M., for production from the "J" Sand Formation, with approval for future recompletion to the Codell, Niobrara, and Sussex Formations at the permitted location, and for the downhol e commingling of production from the "J" Sand, Codell, Niobrara, and Sussex Formations.

IT IS FURTHER ORDERED, that an exception is hereby granted to the spacing pattern established in Cause Nos. 407 and 493, for the Sheley No. 1 Well to be recompleted at an exception location 1390 feet FSL and 1480 feet FWL in the NE1/4 SW1/4 of Section 4, Township 2 North, Range 67 West, 6th P.M., for production from the Codell, Niobrara, and Sussex Formations, and further the downhole commingling of production from the "J" Sand, Codell, Niobrara, and Sus sex Formations is hereby approved. In addition, the allocation method for the 320-acre drilling and spacing unit consisting of the S1/2 of Section 4 for production from the "J" Sand Formation, and for the 80-acre drilling and spacing unit consisting of the N1/2 SW1/4 of Section 4 for production from the Codell, Niobrara, and Sussex Formations is hereby approved.

IT IS FURTHER ORDERED, that should a commercial well be completed at the location set forth above, the Commission shall, upon application of any interested person, take such action as will offset any advantage which the person securing the exception may have over other procedures by reason of the drilling of the well as an exception location.

IT IS FURTHER ORDERED, that the provisions in the above order shall become effective forthwith.

Entered this day of , 1994, as of June 20, 1994.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Secretary Dated at Suite 380 1580 Logan Street Denver, Colorado 80203 July 9, 1994 ??

(232#112)