Cause 311

BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF )

COASTAL OIL & GAS CORPORATION FOR AN ) CAUSE NO. 311

ORDER ALLOWING ADDITIONAL WELLS IN )

CERTAIN DRILLING AND SPACING UNITS ) DOCKET NO. ____

COVERING THE MORAPOS-CASTLEGATE )

FORMATION IN THE DOUGLAS CREEK - )

SOUTH FIELD, )

RIO BLANCO COUNTY, COLORADO )

VERIFIED APPLICATION

COMES NOW, the Applicant, Coastal Oil & Gas Corporation, by and through its attorneys, Poulson, Odell & Peterson, LLC, and makes application to the Oil and Gas Conservation Commission of the State of Colorado for an order to permit two wells to be drilled in existing drilling and spacing units established for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation in the Douglas Creek - South Field located in Rio Blanco County, Colorado. In support thereof, Coastal Oil & Gas Corporation states as follows:

Applicant is the owner of certain oil and gas leases and the operator of wells in the Morapos-Castlegate Formation in the Douglas Creek - South Field in Rio Blanco County, Colorado described as follows:

Township 4 South, Range 101 West, 6th P.M.

Section 5: All

Section 6: All

Section 7: All

Section 8: NW/4

Township 4 South, Range 102 West, 6th P.M.

Section 1: All

Section 2: SE/4

Section 11: All

Section 12: All

These lands are referred to as the Application Lands.

By Cause No. 311, Order No. 311-5 entered September 16, 1981 as of August 17, 1981, the Oil and Gas Conservation Commission determined that the Morapos-Castlegate Formation constitutes a common source of supply of gas and associated hydrocarbons in the Application Lands, and established drilling and spacing units for production of gas and associated hydrocarbons from the Morapos-Castlegate Formation. The order establishes spacing units of 160-acres consisting of a quarter-section of land according to the government survey for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation. The order provides that the permitted well for each unit should be located no closer than 900 feet from the boundaries of the quarter section on which it is located. The order also states that the existing wells should be considered the permitted wells for the units on which they are located; no existing wells are identified by name and location in the order.

III

By Cause No. 311, Order No. 311-6 entered September 28, 1993 as of September 20, 1993, the Oil and Gas Conservation Commission granted an exception to drill the SDC No. 21 Well at an exception location 677 feet from the south line and 1915 feet from the east line of Section 6, Township 4 South, Range 101 West, 6th P.M. for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation; an exception to drill the SDC No. 22 Well at an exception location 808 feet from the south line and 1303 feet from the east line of Section 1, Township 4 South, Range 102 West, 6th P.M. for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation; an exception to drill the SDC No. 23 Well at an exception location 2345 feet from the north line and 487 feet from the east line of Section 1, Township 4 South, Range 102 West, 6th P.M. for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation; and an exception to drill the SDC No. 24 Well at an exception location 963 feet from the north line and 603 feet from the west line of Section 6, Township 4 South, Range 101 West, 6th P.M. for the production of gas and associated hydrocarbons from the Morapos-Castlegate Formation.

By Cause No. 311, Order No. 311-7, the Oil and Gas Conservation Commission for the State of Colorado ordered that the permitted well locations established for in Order No. 311-5 is repealed. Instead, in Order No. 311-7, the Commission states the provisions of Rule 316 of the Oil and Gas Conservation Commission (now Rule 318) be adopted for permitted well locations in the Application Lands.

Subsequent operation of the producing wells in the Morapos-Castlegate Formation in the Application Lands has provided geological and engineering evidence to the effect that in the Application Lands one well will not efficiently and economically drain gas and associated hydrocarbons in the Morapos-Castlegate Formation in an area of 160 acres. Applicant requests that two wells be permitted to be completed and produced for gas and associated hydrocarbons in the Morapos-Castlegate Formation in each 160-acre drilling and spacing unit in the Application Lands. Applicant alleges that two wells for gas and associated hydrocarbons in each such drilling and spacing unit will efficiently and economically drain the Morapos-Castlegate Formation; that each such drilling and spacing unit is not smaller than the maximum area that can be efficiently and economically drained by two wells in the Morapos-Castlegate Formation; and that the correlative rights of all parties will be protected by allowing two wells to be completed for gas and associated hydrocarbons in the Morapos-Castlegate Formation in each such drilling and spacing unit. Applicant also alleges that the additional well in each drilling and spacing unit may be drilled in a manner consistent with the protection of public health, safety, and welfare.

Cause No. 311, Order No. 311-5, as amended by Order No. 311-7, provides that the permitted locations are to be determined in accordance with the provisions of Rule 316 of the Oil and Gas Conservation Commission; Rule 316 has been renumbered Rule 318. Applicant requests that any additional wells be located in accordance with the provisions of Rule 318 of the rules and regulations of the Oil and Gas Conservation Commission.

VII

The Application Lands include areas with substantial topographical relief. Applicant requests the Commission to authorize the Director, in his discretion, to grant administrative exceptions to well locations for topographic reasons.

VIII

To prevent waste, to protect correlative rights, to ensure the proper and efficient development of the Morapos-Castlegate Formation in the Application Lands, and to assure the greatest ultimate recovery of gas and associated hydrocarbon substances from the Morapos-Castlegate Formation in the Application Lands, Applicant requests that after notice and hearing, as provided by law, the Commission issue its order providing that, at the option of the operator, two wells be allowed to be drilled and completed on each 160 acre drilling and spacing unit in the Application Lands; that each existing well in the Application Lands be designated as one of the permitted wells in the spacing unit in which the well is located; that any additional wells be located in accordance with the provisions of Rule 318 of the rules and regulations of the Oil and Gas Conservation Commission; and that the Director be given the authority to grant, in his discretion, administrative exceptions to permitted well locations for topographical reasons.

Applicant states that to the best of its information and belief Exhibit A attached hereto is the list of the names of "owners" in the Application Lands required to be notified in accordance with Commission Rule 507.

WHEREFORE, Applicant respectfully requests that this matter be set for hearing by the Commission; that notice hereof be given as required by law; and that upon hearing this Commission issue its order granting this Application as requested. Applicant further requests that the Commission in its order grant such other provisions as the Commission may find to be necessary or desirable in the cause.

DATED this 8th day of March, 2000.

Respectfully submitted,

COASTAL OIL & GAS CORPORATION

BY:________________________________

Carleton L. Ekberg, Esq.

Poulson, Odell & Peterson, LLC

1775 Sherman Street, Suite 1400

Denver, Colorado 80203

(303) 861-4400

Applicant's Address:

Coastal Oil & Gas Corporation

Nine Greenway Plaza

Suite 1400

Houston, Texas 77046-0995

morapos.app

VERIFICATION

STATE OF )

) ss.

COUNTY OF )

_____________, ______________ of Coastal Oil & Gas Corporation, upon oath, deposes and says that he has read the foregoing Verified Application before the Oil and Gas Conservation Commission of the State of Colorado, and states that the matters contained therein are true to the best of his knowledge and belief.

_________________________

Subscribed to and sworn to before me this _____ day of March __, 2000 by ____________________, __________________ of Coastal Oil & Gas Corporation.

My Commission expires: _________________________

Notary Public

______________________ Address__________________

_________________________

EXHIBIT A

ATTACHED TO VERIFIED APPLICATION OF

COASTAL OIL & GAS CORPORATION

CAUSE NO. 311

MORAPOS-CASTLEGATE FORMATION

RIO BLANCO COUNTY, COLORADO