REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 20, 1990 at 8:30 A.M., in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing as required by law, on the verified application of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, for an order modifying Order No. 440-1 to include additional lands for production of gas from the Wasatch formation underlying such lands, and to establish 320-acre drilling and spacing units for the production of gas and associated hydrocarbons form the Mesaverde formation.

FINDINGS

The Commission finds as follows:

1. That the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2. That 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. That Order No. 440-1 established one hundred sixty (160) acre drilling and spacing units for the production of gas and associated hydrocarbons from the Wasatch formation underlying the following described lands, and that the permitted well shall be located no closer than 600 feet from the boundaries of the unit, with exceptions granted by the Director for topographic reasons upon adequate showing of inaccessibility:

Township 6 South, Range 95 West, 6th P.M. Sections: 25, 26, 27, 28, 31, 32, 33, 34,35 and 36 Township 7 South, Range 95 West, 6th P.M. Sections: 1 thru 6

5. That in order to prevent the waste of oil and gas, as defined by law, to protect correlative rights of all parties concerned, and to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the oil and gas resources of the State, additional lands listed in Finding 6 herein below, should be included for production of gas and associated hydrocarbons from the Wasatch formation underlying such lands with 160-acre drilling and spacing units established in part of the area and 320-acre drilling and spacing units established in the remainder of the area with the location of wells subject to the prior approval of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy for those 320-acre drilling and spacing units in which there is a Department of Energy interest.

6. Evidence presented at the hearing indicates that the Mesaverde group which includes the Mesaverde which lies above the Cameo formation and the lower portion of the Mesaverde which includes the Cameo, Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons, constitutes a supply of gas and associated hydrocarbons underlying the following described lands in a portion of the Parachute Field, Garfield County, Colorado, to-wit:

Township 6 South, Range 95 West, 6th P.M. Section 7 thru 20, 22 thru 28, and 31 thru 36

Township 7 South, Range 95 West, 6th P.M. Section 5 and 6

7. That in order to prevent the waste of oil and gas, as defined by law, to protect correlative rights of all parties concerned, to prevent the drilling of unnecessary wells, and to insure proper and efficient development and to promote conservation of the oil and gas of the State, an order should be made to establish 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the entire Mesaverde formation as described above underlying the lands herein defined; that said units should be 320-acres, more or less, and consist of the E/2 and W/2 or the N/2 and S/2 of each section according to the governmental survey thereof, with the well to be located no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation.

8. All available geological and engineering data concerning said entire Mesaverde formation indicates that one well will efficiently and economically drain an area of approximately 320-acres for the entire Mesaverde formation, and that drilling units of the size and shape hereinabove described are not smaller than the maximum area that can be efficiently and economically drained by one well producing from said formation.

9. That there are existing wells producing or producible from the Mesaverde formation that have acreage attributions that are less than that amount required by Rule 7 hereinabove and that after verification of the area approved on the Application to Drill, such drilling and spacing units of the appropriate size should be ordered with the permitted well for each unit upon which it is located.

ORDER

NOW, THEREFORE, IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled, completed, or re-completed in the Wasatch and entire Mesaverde formations underlying those portions of the Parachute Field, Garfield County, Colorado, separately described herein below, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herewith.

WASATCH FORMATION Township 6 South, Range 95 West, 6th P.M. 320-acre units 160-acre units Sections 7, 8, 9, 10, 11, Sections 25, 26, 27, 28, 31 12, 13, 14, 15, 16, 17 32, 33, 34, 35, 36 18, 19, 20, 22, 23, 24

Township 7 South, Range 95 West, 6th P.M. Section 1 thru 6: All 160-acre units

Rule 1. One hundred sixty (160) acre drilling and spacing units or three hundred twenty (320) acre drilling and spacing units as listed above are hereby established for the production of gas and associated hydrocarbons from the Wasatch formation underlying that portion of the Parachute Field hereinabove described.

Rule 2. Said 160-acre drilling units for the Wasatch formation shall consist of 160-acres, more or less, and each shall consist of a quarter section, according to the governmental survey thereof, with the permitted well located no closer than 600 feet to the boundaries of the unit and no closer than 1200 feet from another producing or producible well in the same formation.

Rule 3. Said 320-acre drilling units for the Wasatch formation shall consist of 320-acres more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation with the location of the well subject to the prior approval of the Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy for those 320-acre drilling and spacing units in which there is a Department of Energy interest. -- 2 --(440-11)

MESAVERDE FORMATION

Township 6 South, Range 95 West, 6th P.M. Section 7 thru 20, 22 thru 28, 31 thru 36

Township 7 South, Range 95 West, 6th P.M. Sections 5 and 6

Rule 4. Three hundred twenty (320)acre drilling and spacing units shall be and the same are hereby established for the production of gas and associated hydrocarbons from the Mesaverde formation as described in Rule 5 herein below underlying that portion of the Parachute Field hereinabove described.

Rule 5. The entire Mesaverde formation is described as including the Mesaverde which lies above the Cameo formation and the lower portion of the Mesaverde which includes the Cameo Rollins, Cozzette and Corcoran Sands, and the Coalbed Methane horizons.

Rule 6. Said drilling units for the Mesaverde formation shall consist of 320-acres, more or less, and shall consist of the E/2 and W/2 or the N/2 and S/2 of a section, according to the governmental survey thereof with the operator of the first well permitted in a section to designate the drilling unit with the permitted well to be located on the established unit no closer than 600 feet from the boundaries of said unit and no closer than 1200 feet from any well producing or producible from the same formation.

Rule 7. Exceptions to any of the location rules for either the Wasatch or Mesaverde formations may be granted by the Director for topographic reasons upon an adequate showing of inaccessibility without further hearing.

Rule 8. Wells presently producing or producible, or permitted within the proposed area should be designated the well for the unit upon which they are located, as listed below: TOWNSHIP 6 SOUTH, RANGE 95 WEST, 6TH P.M.

WASATCH FORMATION Section Location well Name Permit: Date Acreage:Unit Qtr/Qtr 16 NW/NW 1-1695 89-0407: 6/21/89 160:NW/4 19 NE/NE 2-1995 89-0377: 5/30/89 160:NE/4 20 NE/NW 1-20 88-1087: 10/31/88 160:NW/4 MESAVERDE 32 SW/SE GV-46-32 89-1178: 12/27/89 160:SE/4 33 NE/NE GV-4-33 90-0079: /29/90 160:NE/4 33 NW/SE GV-11-33 90-0107: 2/06/90 160:SE/4 The NW/4 and the SW/4 of Section 33 are hereby established as 160-acre drilling and spacing units.

TOWNSHIP 7 SOUTH, RANGE 95 WEST, 6TH P.M. 6 NE/NE GV-42-6 90-0061: /23/90 160: NE/4 IT IS FURTHER ORDERED, that the rule sand regulations contained herein shall become effective upon the date the written order is mailed as indicated by the entry date below.

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 9th day of March 1990, as of February 20, 1990.

THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO By Dennis R. Bicknell, Secretary

Denver, Colorado 80203 1133A -- 3 --(440-11)