REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on September 21, 1992 at 8:30 a.m., in Room 101, State Education Building, 201 East Colfax Avenue, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Skaer Enterprises, Inc., for an order to establish 40-acre drilling and spacing units for production from the "J" Sand Formation for certain lands in Logan County, Colorado.

FINDINGS

The Commission finds as follows:

1. Skaer Enterprises, Inc., 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. That evidence presented to the Hearing Officer indicates that the "J" Sand Formation constitutes a common source of supply of gas underlying the following described lands in Logan County, Colorado to-wit:

Township 9 North, Range 53 West, 6th P.M. Section 25: SE1/4 NE1/4 and SW1/4 NE1/4

5. 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 two 40-acre drilling and spacing units for the production of "J" Sand Formation, underlying the lands defined herein; that sai d units should be 40-acres, more or less, and consisting of a governmental quarter-quarter section according to the governmental survey thereof, with the permitted well to be located in the center of the 40-acre tract, with a tolerance of 100 feet in any direction.

6. Efforts have been made to obtain the voluntary pooling of all interests. A.F.E.'s were furnished to Donald E. Bollish and Robert Bollish, non-consenting interests on or around August 4, 1992, and consent has not been given.

7. Based on the facts stated in the verified application, and having been heard by the Hearing Officer, the Commission should enter an order approving the spacing application and pooling all interests in the two 40-acre drilling and spacing units herein described in order to insure proper and efficient development of the oil and gas from the "J" Sand Formation underlying said unit.

8. An order of the Commission pooling all interests in said drilling units is necessary in order to afford each owner of interest in each said drilling unit the opportunity to recover and receive his just and equitable share of the oil and/or gas from the common source of supply underlying said drilling unit.

9. Production obtained from said drilling units should be allocated to each tract therein on the basis of the proportion that the number of acres in each tract bears to the total number of acres within said drilling unit.

10. Skaer Enterprises, Inc. proposes to drill a well in the SW1/4 NE1/4 of Section 25, Township 5 North, Range 53 West, 6th P.M. and should be the designated operator of the two 40-acre drilling and spacing units consisting of the SW1/4 NE1/4 and the SE1/4 NE1/4 of said Section 25, for production from the "J" Sand Formation.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled, and completed or recompleted in the "J" Sand Formation underlying the North Minto Field herein described, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herein.

Rule 1: Forty (40) acre drilling and spacing units shall be and the same are hereby established for production of oil, gas and associated hydrocarbons from the "J" Sand Formation underlying the following described lands in the North Minto Field, Logan County, Colorado, to-wit:

Township 5 North, Range 53 West, 6th P.M. Section 25: SE1/4 NE1/4 and SW1/4 NE1/4

Rule 2: Said drilling units shall consist of forty (40) acres, according to the governmental survey, with the permitted well for each unit located in the center of each quarter-quarter section with a tolerance of 100 feet in any direction.

Rule 3: In accordance with the provisions of 34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the two 40-acre drilling and spacing units consisting of the SE1/4 NE1/4 and SW1/4 NE1/4 of Section 25, Township 9 North, Range 53 West, 6th P.M. Logan County, Colorado, are hereby pooled for the development of gas and associated hydrocarbons from the "J" Sand Formation underlying said units.

2. The production obtained from said drilling units shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.

3. The owner of the unleased tract should be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling units.

4. Within thirty (30) days from the date of receipt of said AFE by the owner of said tract, such owner shall indicate whether he consents to the cost of the drilling of the well and agrees to participate in such costs. Such election shall be made in writing either by executing the AFE or similar document. In the event a written election to participate is not made by said owner within such time period, said owner shall be deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well and be subject to the penalties as provided for by 34-60-116 (7) C.R.S.

5. Any non-consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owner's proportionate 87.5% share of production, the costs specified in C.R.S. 34-60-116 (7)(b), as amended. After recovery of such costs, the non-consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

6. The operator of any well drilled on the above described units shall furnish all non-consenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7. Skaer Enterprises, Inc. is hereby approved as the operator for the two 40-acre drilling and spacing units consisting of the SW1/4 NE1/4 and the SE1/4 NE1/4 of Section 25, Township 9 North, Range 53 West, 6th P.M., Logan County, Colorado, for the development and operation of the "J" Sand Formation.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith as all parties present at the hearing agreed to accept the verbal order 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.

ENTERED this day of , 1992, as of September 21, 1992.

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 October 8, 1992 ??

C:\WP51\ORDERS\503-1