BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION                                             )                     CAUSE NO. 440

AND ESTABLISHMENT OF FIELD RULES TO                                        )

GOVERN OPERATIONS IN THE PARACHUTE                                        )                     ORDER NO. 440-32

FIELD, GARFIELD, COUNTY, COLORADO                                              )

                        This cause came on for hearing before the Commission at 9:00 a.m. on April 24, 2006, Suite 801, in The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to allow the equivalent of one well per 20 acres to be drilled on the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M., and on the 640-acre drilling and spacing unit consisting of Section 22, Township 7 South, Range 95 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, with the permitted well to be located no closer than 200 feet from the unit boundary.

                        The Commission finds as follows:

                        1. Apollo Energy, LLC ("Apollo"), 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 pursuant to the Oil and Gas Conservation Act.

                        4. On May 18, 1990, the Commission issued Order No. 139-16 which, among other things, established 640-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde Formation with the permitted well to be located no closer than 990 feet from the unit boundaries for the below-listed lands:

                               Township 7 South, Range 95 West, 6^th P.M.

Sections 12 through 14: All

Sections 19 through 36: All

                        5. On May 18, 1990, the Commission issued Order No. 440-12 which, among other things, established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde Formation with the permitted well to be located no closer than 600 feet from the boundaries of the unit and no closer than 1200 feet from any other well drilling to or producing from the same formation for the below-listed lands:

                               Township 7 South, Range 95 West, 6^th P. M.

Sections 1 through 11: All

Sections 15 through 18: All

                        6. On July 30, 1997, the Commission issued Order Nos. 139-31 and 440-18 which, among other things, allowed the optional drilling of additional wells, up to sixteen (16) wells per 640-acre drilling and spacing unit and up to eight (8) wells per 320-acre drilling and spacing unit, for the below-described lands in the Rulison and Parachute Fields for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group, with the permitted well to be located no closer than 400 feet from the outer boundaries of the drilling unit and no closer than 800 feet to any well or wells producing from the same formation:

                        Township 7 South, Range 94 West, 6^th P.M.

                        Sections 16 and 17: All

                        Township 7 South, Range 95 West, 6^th P.M.

                        Section 10: W½

    Sections 15 and 16: All

    Sections 19 through 22: All

    Sections 27 through 34: All

                        Township 7 South, Range 96 West, 6^th P.M.

                        Sections 24 and 25: All

                        Section 36: All

                        7. On January 30, 2006, amended on March 22, 2006, Apollo, by its attorney, filed with the Commission a verified application for an order to allow the equivalent of one well per 10 acres to be drilled on the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M., and on the 640-acre drilling and spacing unit consisting of Section 22, Township 7 South, Range 95 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork Formation, with the permitted well to be located no closer than 100 feet from the unit boundary. Where the lands abut or corner lands for which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork Formation wells, wells shall be located downhole no closer than 200 feet from the boundary of the drilling unit abutting lands for which 10 acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission. The Applicant requested the Commission allow wells drilled on the lands to be drilled either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Commission pursuant to an application made requesting such exception.

                        8. On April 10, 2006, EnCana Oil & Gas (USA) Inc. filed with the Commission a protest to the application. On April 11, 2006, Apollo amended its application to request that the equivalent of one well per 20 acres be allowed to be drilled on the two drilling and spacing units, with the permitted wells to be located downhole anywhere in the drilling and spacing unit but no closer than 200 feet from the boundaries of the drilling and spacing unit, and no closer than 400 feet from any existing Williams Fork Formation well, without exception being granted by the Director. On April 12, 2006, EnCana withdrew its protest and an administrative hearing was held.

                        9. Testimony and exhibits presented at the administrative hearing indicated Apollo has 100% of the leasehold in Section 15, and 50% of the leasehold in Section 22, with Williams Production having the remaining 50% leased. Additional testimony indicated that David Furr is the surface owner of the application lands in Sections 15 and 22.

                        10. Testimony and exhibits presented at the administrative hearing showed the steep topography in the area necessitating the drilling from limited pads. Additional testimony indicated that Apollo has planned its access with Mr. Furr, and that a surface use agreement has been executed with him.

                        11. Testimony and exhibits presented at the administrative hearing showed that the application lands are a southern extension of the Parachute Field, that the Williams Fork Formation sands are surrounded by impermeable shales, and that increased well density in the application lands is needed to recover gas reserves from these discontinuous stacked sands.

                        12. Testimony and exhibits presented at the administrative hearing showed that wells drilled just one hundred forty-two (142) feet apart have different thicknesses of sands, resulting in difficulty in predicting reservoir thickness. Additional testimony showed that many sands will be missed on 40-acre density and that even with 10-acre density some gas resources may be wasted.

                        13. Testimony and exhibits presented at the administrative hearing showed that production volumes range from 7.0 BCF from wells to the northwest of the application lands, 0.5 BCF from wells to the north of the application lands, and 0.3 BCF from wells to the south of the application lands. Additional testimony indicated that the estimated ultimate recovery for the application lands is 725 MMCFG, which may be somewhat conservative but is similar to wells in the Parachute Field.

                        14. Testimony and exhibits presented at the administrative hearing showed economics for wells in the application lands estimated at 720 MMCF for each well, with payout occurring in 2.36 years for a rate of return of 28.3%.

                        15. The above-referenced testimony and exhibits show that the proposed density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

                        16. Apollo Energy, LLC agreed to be bound by oral order of the Commission.

                        17. Based on the facts stated in the verified application, having resolved the protest and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to allow the equivalent of one well per 20 acres to be drilled on the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M., and on the 640-acre drilling and spacing unit consisting of Section 22, Township 7 South, Range 95 West, 6^th P.M., with the permitted well to be located downhole anywhere in the drilling and spacing unit no closer than 200 feet from the boundaries of the drilling and spacing unit and no closer than 400 feet from any existing Williams Fork Formation well, without exception being granted by the Director.

                        NOW, THEREFORE, IT IS ORDERED, that the equivalent of one well per 20 acres is hereby approved to be drilled in the 320-acre drilling and spacing unit consisting of the W½ of Section 15, Township 7 South, Range 95 West, 6^th P.M. for the production of gas and associated hydrocarbons from the Williams Fork Formation.

                        IT IS FURTHER ORDERED, that the equivalent of one well per 20 acres is hereby approved to be drilled in the 640-acre drilling and spacing unit consisting of Section 22, Township 7 South, Range 95 West, 6^th P.M. for the production of gas and associated hydrocarbons from the Williams Fork Formation.

                        IT IS FURTHER ORDERED, that the permitted well shall be located downhole anywhere in the drilling and spacing unit no closer than 200 feet from the boundaries of the drilling and spacing unit and no closer than 400 feet from any existing Williams Fork Formation well, without exception being granted by the Director.

                        IT IS FURTHER ORDERED, that wells drilled on the application lands shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Colorado Oil and Gas Conservation Commission.

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

                        ENTERED this _________day of May, 2006, as of April 24, 2006.

                                                    OIL AND GAS CONSERVATION COMMISSION

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

May 10, 2006