BEFORE THE OIL AND GAS CONSERVATION COMMISSION

APPLICATION

EnCana Oil & Gas (USA) Inc. (“Encana”) by and through its attorneys, Welborn Sullivan Meck & Tooley, P.C., respectfully requests the Colorado Oil & Gas Conservation Commission (the "Commission") enter an order authorizing wells drilled in compliance with unit plans of development to be located less than 600 feet from the common boundary of the Hunter Mesa federal exploratory unit (“Hunter Mesa Unit”) and the Grass Mesa federal exploratory unit (“Grass Mesa Unit”).

In this Application EnCana makes two alternate requests regarding the exception locations. the two requests differ primarily in the method by which correlative rights would be protected. EnCana requests the Commission approve both alternatives. The first alternative requests the Commission approve exception locations for wells drilled in accordance with the terms of a communitization agreement approved and administered by the United States Bureau of Land Management (“BLM”). The second alternative requests the Commission reduce or eliminate all setbacks from the common boundary of the Hunter Mesa Unit and Grass Mesa Unit and allow the BLM to determine the location of wells in accordance with the unit plans of development approved by the BLM. Because federal minerals and federal oil and gas units are involved, any method is subject to approval by the BLM.

Statement of Facts.

1. A map of the boundary between the Hunter Mesa Unit and Grass Mesa Unit is included as Exhibit B in this Application. EnCana owns working interests in the Hunter Mesa Unit and Grass Mesa Unit comprising the following lands and other lands not applicable to this Application:

Township 6 South, Range 92 West, 6^th P.M.

Sections 31 through 32: All

Section 33: N2, SE

Township 6 South, Range 93 West, 6^th P.M.

Sections 33 through 36: All

Township 7 South, Range 92 West, 6^th P.M.

Sections 4 through 6: All

Section 3: W2NW

Township 7 South, Range 93 West, 6^th P.M.

Sections 1 through 4: All

2. Grass Mesa Unit and Hunter Mesa Unit share a common boundary extending from the NW corner of Section 4, T4S-R93W, to the NE corner of Section 4, T4S-R92W (the “Common Unit Boundary”). All lands north of this boundary, except the SW of Section 33, T3SR-92W are committed to the Grass Mesa Unit (the “Calpine Tract”). All lands south of this boundary are committed to the Hunter Mesa Unit.

3. Encana has drilled, completed and currently operates multiple wells in both Hunter Mesa Unit and Grass Mesa Unit. Wells in both Units produce oil, gas and associated substances from the Mesaverde formation, which is the unitized formation for both Units and is located at depths of greater than 2500 feet throughout both Units.

4. Under the terms of both unit agreements for both Units, EnCana is obligated to produce unitized substances in the most economic and efficient manner, without waste.

5. Information obtained from current and past operations in both Units indicates the most economic and efficient development of gas from the Mesaverde formation in both Units requires wells to be located less than 1200 feet from an adjacent well producing from the same formation. Wells located 1200 or more feet apart will leave significant amounts of gas in the ground, resulting in waste.

6. Commission Rule 318.d(3) provides that no well in excess of 2,500 feet in depth shall be located less than 600 feet from the exterior boundary of the unit unless authorized by the Commission after notice to owners outside the unit area.

Requests Common to Both Alternatives.

7. To more efficiently and economically produce gas from the Mesaverde formation in both Units, EnCana requests the Commission allow wells in the Grass Mesa Unit and the Hunter Mesa Unit be drilled such that surface and bottom hole locations of each well are located less than 600 feet from the common boundary between the two Units, as exceptions to Commission Rule 318.d(3), so long as surface and bottom hole locations of each well are 600 feet or more from any land not included in either Unit.

8. Further, EnCana requests the Commission allow surface and bottom hole locations of wells within either Unit and adjacent to the Common Unit Boundary to be located less than 600 feet from lands not included in either Unit, as exceptions to Commission Rule 318.d(3), provided a waiver or consent is obtained in accordance with Commission Rule 318.c only from operator of contiguous or cornering drilling unit or unspaced offset lease outside either Unit toward whom the well is proposed to be moved. If the operator of the proposed well is the same as the operator of the drilling unit or unspaced offset lease toward which the well is proposed to be moved, waivers must be obtained from the mineral interest owners under such drilling unit or unspaced offset lease; however, no waiver or consent shall be required from lease owners or mineral interest owners who own interests within either Unit.

First Alternative - Communitization Agreement

9. To protect correlative rights, EnCana proposes establishing a communitized area pursuant to 43 C.F.R. §3105.2-2 consisting of all land within both Units located within 330 feet of the Common Unit Boundary, as shown on Exhibit B included with this Application. Wells within the communitized area would be drilled only on lands included in a Unit participating area prior to the time the well is drilled. No production would be allocated from wells drilled in the communitized area until the communitization agreement is approved by the BLM.

10. Once approved by the BLM, all production from the communitized area would be allocated 50% to Hunter Mesa Unit and 50% to Grass Mesa Unit. All Unit wells would be drilled in compliance with Unit plans of development after consideration of reservoir drainage, well performance and other reservoir engineering factors. Each well would be drilled in conformity with a well spacing program approved by the BLM at a surveyed well location in accordance with 43 C.F.R. §3162.3-1.

11. After considering the location of existing wells in both Units approximately 600 feet from the Common Unit Boundary, EnCana believes use of a communitization agreement would provide for the most efficient and economic recovery of oil, gas and associated substances, would not be prejudicial to any party, and would most effectively prevent waste and protect the correlative rights of all parties.

Second Alternative - BLM Determination

12. To protect correlative rights, Encana proposes the Commission allow the BLM to determine the proper locations of each well adjacent to the Common Unit Boundary, either (1) by establishing the minimum distance which each well must be located from the Common Unit Boundary and allocating production from each well to the Unit in which it is located, or (2) by permitting wells on the Common Unit Boundary and allocating production from the boundary wells between the Units.

13. All Unit wells would be drilled in compliance with a Unit plan of development approved by the BLM after consideration of reservoir drainage, well performance and other reservoir engineering factors. Each well would be drilled in conformity with a well spacing program approved by the BLM at a surveyed well location in accordance with 43 C.F.R. §3162.3-1.

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14. Discussions with BLM officials indicate that setbacks of 200 to 300 feet may be acceptable to BLM. EnCana’s analysis at this time indicates that, because existing wells are located approximately 600 feet from the Common Unit Boundary, setbacks of 200 to 300 feet may not allow for an optimum well spacing pattern, may cause waste and may not allow the most efficient and economic recovery of oil, gas and associated substances. EnCana recognizes, however, that terms of August 22, 1991 Memorandum of Understanding between the BLM and the Commission require the Commission to incorporate conditions of any BLM protest in a Commission order insofar as it relates to federal lands.

Notice

15. Because EnCana is operator of both Units, Commission Rule 507.b (5) requires EnCana provide notice to mineral owners of any contiguous or cornering tract toward which the well location is proposed to be moved. Only one tract adjacent to the common boundary between the Units, the Calpine Tract, is not committed to either the Hunter Mesa Unit or the Grass Mesa Unit. Calpine Natural Gas Company is the lessee and operator of oil and gas interests in the Calpine Tract. Commission Rule 507.b(5) also requires EnCana provide notice to Calpine.

16. To the best knowledge of EnCana, Exhibit A included in this Application identifies all persons or entities who are within the participating areas for the Hunter Mesa Unit and Grass Mesa Unit or who own mineral interests in the 40-acre tracts contiguous to or cornering the common boundary between Hunter Mesa Unit and Grass Mesa Unit, as well as all operators of lands where EnCana is not the operator of the oil and gas units. Such parties are the only parties to whom EnCana is required to provide notice of this Application, because they are the only ones entitled to share in production from any well drilled at an exception location requested by this Application or whose minerals could be drained by wells drilled at an exception location requested by this Application.

17. No later than seven days after the filing of this application, EnCana will submit to the Commission a certificate of service confirming that notice has been served on all parties listed in Exhibit A.

18. If the Commission receives no timely objections to this application, EnCana requests the Director of the Commission grant a variance under Commission Rule 502.b approving the exception locations requested in this Application.

19. EnCana believes that entering an order approving the exception locations requested in this Application would (1) not be prejudicial to lessees, mineral interest owners or royalty owners; (2) maintain and protect the correlative rights of all parties; (3) prevent or assist in preventing waste; (4) not result in an owner obtaining more than its just and equitable share of production; and (5) ensure that gas and associated hydrocarbons from the Mesaverde formation are efficiently and economically developed.

WHEREFORE, EnCana respectfully requests this matter be set for hearing, that notice be given as required by law, that a hearing be held if required (limited to an informal administrative hearing in the event there are no protests to this Application) and that the Commission approve the Application requested herein. EnCana further requests that the Commission in its order grant such other provisions as the Commission may find necessary or desirable in this matter. EnCana agrees that it will be bound by any oral order of the Commission during the interim period between issuance of the order and entry of the written order.

Respectfully submitted on November 17, 2003.

WELBORN SULLIVAN MECK & TOOLEY, P.C.

By:_______________________________________

Stephen J. Sullivan

821 17th Street, Suite 500

Denver, CO 80202

Telephone: 303-830-2500

Applicant’s Address:

EnCana Gas Supply LLC

215 West Third Street, P.O. Box 2105

Roswell, New Mexico 88202-2105

Telephone: (505) 622-2704

VERIFICATION

STATE OF COLORADO )

) ss.

CITY AND COUNTY OF DENVER )

___________________, of lawful age, being first duly sworn upon oath, deposes and says that he is__________________ of EnCana Gas Supply LLC, that he has read the foregoing Application and that the matters therein contained are true to the best of his knowledge, information and belief.

ENCANA OIL & GAS (USA) INC.

By:_________________________________

Subscribed and sworn to before me on November 17, 2003.

Witness my hand and official seal.

________________________________ Notary Public

My commission expires: _________________________

CERTIFICATE OF SERVICE

I hereby certify that on November ___, 2003, a true and correct copy of APPLICATION OF ENCANA OIL & GAS (USA) INC. FOR EXCEPTION LOCATIONS IN THE HUNTER MESA AND GRASS MESA FEDERAL UNITS, GARFIELD COUNTY, COLORADO, was mailed, postage prepaid, addressed to the parties listed on Exhibit B to said Application.