REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 11, 1997, at 9:00 a.m., in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the application of Union Pacific Resources Company for an order to reconfigure the 320-acre drilling and spacing units consisting of the E1/2 and the W1/2 of Section 3, Township 17 South, Range 46 West, 6th P.M., to consist of the N1/2 and the S1/2 of said Section 3, for the production of gas and association hydrocarbons from the Morrow Formation.

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-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. 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. On November 21, 1995, the Commission issued Order No. 509-1, which established 320-acre drilling and spacing units for various lands located in Arrowhead Field in Cheyenne and Kiowa Counties, including Section 3, Township 17 South, Range 46 West, 6th P.M., for production of gas and associated hydrocarbons from the Morrow Formation, with the bottomhole location and completion interval for the authorized well to be located no closer than 1,000 feet fro m the boundaries of the 320-acre unit, and no closer than 2,640 feet from the nearest well permitted to, drilling to, completed to or producing from the Morrow Formation. The UPRC Navajo 11-3 No. 4 Well, located 1,000 feet FNL and 1,200 feet FWL was designated the permitted well for the 320-acre spacing unit consisting of the W1/2 of Section 3, Township 17 South, Range 46 West, 6th P.M.

5. On December 27, 1996, Union Pacific Resources Company, by its attorney, filed with the Commission, a verified application for an order to reconfigure the 320-acre drilling and spacing units in Section 3, Township 17 South, Range 46 West, 6th P.M., for the production of gas and associated hydrocarbons from the Morrow Formation. Further, UPRC requested that the UPRC Navajo 43-3 No. 2 Well, located 1,600 feet FSL and 1,200 feet FEL in said Section 3, b e the designated well for the S1/2 and approve said well as an exception location to the well location requirements of Order No. 509-1. In addition, the Applicant requested that the UPRC Navajo 32-3 No. 3 Well, located 1,977 feet FNL and 1,980 feet FEL, in said Section 3 to be the designated well for the N1/2 of said Section 3.

6. On January 15, 1997, a letter in support of the application and a waiver to the request for an exception location was filed by Sinclair.

7. On January 15, 1997, UPRC, by its attorney, filed with the Commission two maps that included information in support of the application, and formally requested that under COGCC Rule 511, the Commission approve the application without hearing, based on the verified application. In addition, UPRC requested the Director to approve the application based on the provision in Order No. 509-1 that allows the Director to grant exceptions to the permitted well locations.

8. On January 22, 1997, UPRC filed with the Director a Sundry Notice, Form 4, requesting administrative approval of the UPRC Navajo 43-3 No. 2 Well, located 1600 feet FSL and 1200 feet FEL in Section 3, Township 17 South, Range 46 West, 6th P.M. as an exception to the permitted well location in accordance with the provisions of Order No. 509-1. On January 27, 1997, approval by the COGCC was granted.

9. That having received no protests, that UPRC agrees to be bound by a verbal order of the Commission, and that the based on the merits of the verified application, the Oil and Gas Conservation Commission should approve the application only with respect to the reconfiguration of the drilling and spacing units.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the 320-acre drilling and spacing units consisting of the E1/2 and the W1/2 of Section 3, Township 17 South, Range 46 West, 6th P.M., are hereby reconfigured to consist of the N1/2 and the S1/2 of said Section 3, for the production of gas and association hydrocarbons from the Morrow Formation.

IT IS FURTHER ORDERED, that the rules and regulations contained herein shall become effective forthwith, as the party 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, rules and regulations.

ORDERED this day of February, 1997, as of February 10, 1997.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Secretary Dated at Suite 801 1120 Lincoln Street Denver, Colorado 80203 March 25, 1997 ??

(509#2)