IN THE MATTER OF ALLEGED VIOLATIONS OF THE          CAUSE NO. 1
RULES AND REGULATIONS OF THE COLORADO OIL
AND GAS CONSERVATION COMMISSION BY                     ORDER NO. 1V-221
DOMAR OIL & GAS INC, BACA COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Colorado Oil and Gas Conservation Commission on March 18, 2002 at 10:00 a.m. in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado after giving notice of hearing as required by law on why Domar Oil & Gas Inc. is in violation of Rules 302, 304, 319.b. and 709 for the Arthur George No. 1 and Rules 302, 319.b. and 326.b. for the Joe Ellis No. 1-14 Well, and why the Commission should invoke the provisions of §34-60-122, C.R.S., as amended, providing for penalties for violations of the Rules and Regulations of the Commission.

FINDINGS

1. Domar Oil & Gas, Inc. (“Domar”) 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 the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On May 10, 1989, the Director of the Colorado Oil and Gas Conservation Commission (“COGCC”) approved a Certification of Clearance and/or Change of Operator, Form 10 for the Arthur George No. 1 Well located in the SE¼ NW¼ of Section 22, Township 33 South, Range 43 West, 6th P.M. The approved Form 10 designated the new operator as Domar Oil and Gas, Inc. (“Domar”). The well has not produced since September of 1987.

5. On May 4, 1999, COGCC staff by letter requested that Domar provide financial assurance for plugging and abandonment of the subject well.

6. On April 5, 2000, COGCC staff by letter again requested that Domar provide financial assurance for plugging and abandonment of the subject well.

7. On October 19, 2000, COGCC staff issued a Notice of Alleged Violation (“NOAV”) to Domar for the Arthur George No. 1 Well. The NOAV cited violations of Rule 302., failure to provide an updated address and telephone number, Rule 304., failure to provide financial assurance in accordance with the 700 Series rules prior to assuming the operations of a well, Rule 319.b., failure to obtain Director approval before shutting-in or temporarily abandoning a well, and Rule 709., failure to submit financial assurance in the amount of Five Thousand dollars ($5,000). The NOAV specified November 20, 2000 as the abatement date.

8. Domar operates the Joe Ellis No. 1-14 Well located in the NE¼ of Section 14, Township 32 South, Range 44 West, 6th P.M. This well has not produced since May of 1992.

9. Currently, the financial assurance for the Joe Ellis No. 1-14 Well is a Certificate of Deposit with the First National Bank of Liberal. State statutes require funds held by financial institutions for public entities in the state be secured from a Colorado Approved Public Depository Bank. First National Bank of Liberal is not a Colorado Approved Public Depository Bank. On December 5, 2001, COGCC staff by letter required Domar to provide a new Certificate of Deposit with an approved Colorado Approved Public Depository Bank or other acceptable financial assurance.

10. On December 6, 2001, COGCC staff issued a NOAV to Domar for the Joe Ellis No. 1-14 Well. The NOAV cited violations of Rule 326.b., failure to conduct a mechanical integrity test (“MIT”), Rule 302., failure to provide an updated address and telephone number, Rule 319.b.(1), failure to obtain Director approval before a well can be shut-in or temporarily abandoned.

11. On December 10, 2001, COGCC staff issued an Administrative Order by Consent (“AOC”) to Domar. Domar received the AOC on December 15, 2001, but did not respond to the proposed AOC.

12. Domar should be found in violation of Rules 302., 304., 319.b., and 709. for the Arthur George No. 1 Well. Domar should be found in violation of Rules 302., 319.b., and 326.b. for the Joe Ellis No. 1-14 Well.

13. A monetary penalty of Six Thousand dollars ($6,000) for these violations should be assessed against Domar in accordance with Rule 523.a.

14. Domar should provide financial assurance for the Arthur George No. 1 Well in accordance with Rules 304. and 706. Domar should either plug, abandon and reclaim, MIT, or produce the well. Domar should provide an updated Registration for Oil and Gas Operations, Form 1.

15. Domar should provide a new Certificate of Deposit with an approved Colorado Approved Public Depository Bank or other acceptable financial assurance for the Joe Ellis No. 1-14 Well. Domar should either plug, abandon and reclaim, MIT, or produce the well.

16. If Domar does not plug, abandon and reclaim, MIT, or produce the Arthur George No. 1 Well, the Commission should authorize the COGCC staff to utilize the Environmental Response Fund to plug, abandon and reclaim the well.

17. If Domar does not plug, abandon and reclaim, MIT, or produce the Joe Ellis No. 1-14 Well, the Commission should authorize the COGCC staff to claim the Five Thousand dollar ($5,000) Certificate of Deposit to plug, abandon and reclaim the well.

ORDER

NOW, THEREFORE IT IS ORDERED, that Domar Oil and Gas, Inc. shall be found in violation of Rules 302., 304., 319.b. and 709. for the Arthur George No. 1 Well located in the SE¼ NW¼ of Section 22, Township 33 South, Range 43 West, 6th P.M.

IT IS FURTHER ORDERED, that Domar Oil and Gas, Inc. shall be found in violation of Rules 302., 319.b. and 326.b. for the Joe Ellis No. 1-14 Well located in the NE¼ of Section 14, Township 32 South, Range 44 West, 6th P.M.

IT IS FURTHER ORDERED, that Domar Oil and Gas, Inc. shall be assessed a fine of Six Thousand dollars ($6,000) for the above violations, payable within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that Domar Oil and Gas, Inc. shall provide an updated Registration for Oil and Gas Operations, Form 1 within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that Domar Oil and Gas, Inc. shall provide financial assurance in accordance with Rules 304. and 706. for the Arthur George No. 1 Well within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that Domar Oil and Gas, Inc. shall provide a new Certificate of Deposit with an approved Colorado Approved Public Depository Bank or other acceptable financial assurance for the Joe Ellis No. 1-14 Well within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that Domar shall either plug, abandon and reclaim, MIT, or produce the Arthur George No. 1 Well within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that Domar shall either plug, abandon and reclaim, MIT, or produce the Joe Ellis No. 1-14 Well within thirty (30) days of the date the order is entered.

IT IS FURTHER ORDERED, that if Domar Oil and Gas, Inc. does not plug, abandon and reclaim, MIT, or produce the Joe Ellis No. 1-14 Well within thirty (30) days of the date the order is entered, COGCC staff shall claim the Five Thousand dollar ($5,000) financial assurance and plug, abandon and reclaim the well.

IT IS FURTHER ORDERED, that if Domar Oil and Gas, Inc. does not plug, abandon and reclaim, MIT, or produce the Arthur George No. 1 Well within thirty (30) days of the date the order is entered, COGCC staff shall utilize the Environmental Response Fund to plug, abandon and reclaim the well.

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

IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any/or all of the above orders.

ENTERED this 25th day of March, 2002, as of March 18, 2002.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dated at Suite 801 Patricia C. Beaver, Secretary 1120 Lincoln Street Denver, Colorado 80203 March 25, 2002.

(1V#221)