REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on August 22, 2000, in the Convention Space, Ramada Inn & Suites, 124 West 6th Street, Glenwood Springs, Colorado, after giving Notice of Hearing, as required by law on the verified application of Chesapeake Operating Inc. by its attorney for an order pooling all interests in the 160-acre drilling and spacing unit consisting of the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P .M. for the development and operation of the Wasatch and Mesa Verde Formations, pursuant to the provisions of 34-60-116(7), C.R.S., 1984.

FINDINGS

The Commission finds as follows:

1. Chesapeake Operating Inc. ("Chesapeake"), 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. On July 11, 2000, the Commission issued Order No. 256-8 which established a 160-acre drilling and spacing unit consisting of the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. for the production of gas and associated hydrocarbons from the Wasatch and Mesa Verde Formations. In addition, the order allowed an additional well to be drilled for production of gas and associated hydrocarbons from the Wasatch Formation. Wells shall be locate d anywhere within the drilling unit provided they are no closer than 600 feet to the outer boundaries of the drilling unit. Further, the Director of the Commission shall have authority to approve, without holding a hearing, exception locations no closer than 330 feet from the boundary of the drilling and spacing unit, upon an adequate showing by the operator that topography makes it unreasonable to drill the well within a 600-foot setback.

5. On May 23, 2000, Chesapeake, by its attorney, filed with the Commission a verified application for an order pooling all interests in the proposed drilling and spacing unit described above for the development and operation of the Wasatch and Mesa Verde Formations pursuant to 34-60-116(6) and (7), C.R.S. Chesapeake proposed to pool this unit for the drilling of the WRD Federal 1-1 Well to be located at a legal location 786 feet FWL and 1704 feet FSL in the NW1/4 SW1/4 of said Section 1 for the production of gas and associated hydrocarbons from the Wasatch and Mesa Verde Formations.

6. Testimony and exhibits presented at the administrative hearing indicated that in June, 2000, reasonable offers to lease and to participate in the well were sent to all unleased and nonconsenting mineral owners. The offer to lease included a three (3) to five (5) year lease term, a ? overriding royalty and a forty dollar ($40) per acre lease bonus. The offer to participate included an Authorization for Expenditure form which, in accordance with Rule 5 30., included the location and objective depths of the well, the estimated drilling and completion costs of the well, and the estimated spud date.

7. Further testimony indicated that one nonconsenting mineral owner did not return any correspondence, and two nonconsenting mineral owners have requested unreasonable lease provisions of a 1/4 overriding royalty interest and one hundred dollar ($100) per acre lease bonus.

8. Additional testimony indicated that approval of the application would prevent waste and protect correlative rights.

9. At the time of the administrative hearing, Chesapeake Operating, Inc. agreed to be bound by oral order of the Commission.

10. 10. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommends approval, the Commission should enter an order pooling all interests in the 160-acre drilling and spacing unit consisting of the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. for the development and operation of the Wasatch and Mesa Verde Formations, pursuant to 34-60-116(6) and (7), C.R.S.

ORDER

NOW, THEREFORE IT IS ORDERED that, 1. Pursuant to the provisions of 34-60-116, C.R.S., 1984, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the 160-acre drilling and spacing unit consisting of the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. are hereby pooled for the development and operation of the Wasatch and Mesa Verde Formations in the White River Field.

2. The production obtained from said drilling unit 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/her share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.

3. Said owner(s) are hereby to have elected not to participate and shall therefore be deemed to be non-consenting as to the well(s) and be subject to the penalties as provided for by 34-60-116 (7).

4. 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/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 34-60-116 (7)(b), C.R.S. as amended. After recovery of such costs, the non-consenting mi neral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

5. The operator of any well drilled on the above-described unit(s) 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.

6. Chesapeake Operating, Inc. shall be designated as the operator for the 160-acre drilling and spacing units consisting of the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. for the development and operation of the Wasatch and Mesa Verde Formations in the White River Field.

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 and/or all of the above orders.

ENTERED this day of August, as of August 22, 2000.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Hearing Officer

Dated at Suite 801 1120 Lincoln Street Denver, Colorado 80203 August 31, 2000

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