IN THE MATTER OF THE PROMULGATION AND                    )
ESTABLISHMENT OF FIELD RULES TO GOVERN                    ) CAUSE NOS. 479 and 510
OPERATIONS IN THE GRAND VALLEY                                     )
FIELD, GARFIELD COUNTY, COLORADO                                 ) ORDER NOS. 479-10 and 510-7

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 10:00 a.m. on August 19, 2002 in Suite 801, 1120 Lincoln Street, Denver, Colorado on the application of Williams Production Company RMT Company for an order to increase the number of wells which can be drilled into and produced from the Williams Fork Formation of the application lands which constitute existing drilling units (or portions thereof) to the equivalent of one Williams Fork well per 20 acres for certain lands in the Grand Valley Field.

FINDINGS

The Commission finds as follows:

1. Williams Production Company RMT Company (“WPC”), 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 May 18, 1990, the Commission issued Order No. 479-2 Corrected which established 320-acre drilling and spacing units and within each such unit and allowed one well to be drilled into and produced from the Mesaverde Formation, including the following lands:

Township 7 South, Range 96 West, 6th P.M.
Section 1: S½ SE¼ and SW¼ SW¼
Section 12: W½ W½

5. On March 15, 1995, the Commission issued Order Nos. 440-16, 479-5 and 139-28 which allowed up to eight (8) wells to be optionally drilled into and produced from the Williams Fork Formation of the Mesaverde Group within each 320-acre drilling and spacing unit, with the permitted well to be located no closer than 400 feet from the boundaries of the unit and no closer than 800 feet from any existing Williams Fork Formation well or wells and included the following lands:

Township 7 South, Range 96 West, 6th P.M.
Section 1: S½ SE¼ and SW¼ SW¼

6. On May 16, 1994, the Commission issued Order No. 510-1 which amended the Commission’s Rule 316. (now Rule 318) which provides that permitted wells should be located no closer than 400 feet from the boundaries of any lease line and no closer than 800 feet from any existing well drilled into and producing from the Williams Fork Formation of the Mesaverde Group and include the following lands:

Township 7 South, Range 96 West, 6th P.M.
Section 2: SE¼ SE¼
Section 11: NE¼ NE¼ and E½ SE¼

7. On June 28, 2002, WPC, by its attorney filed with the Commission a verified Application for an order to increase the number of wells which can be drilled into and produced from the Williams Fork Formation of the application lands which constitute existing drilling units (or portions thereof) to the equivalent of one Williams Fork well per 20 acres for the lands described below. That the permitted well location for each Williams Fork well upon the Application Lands which constitute existing drilling units should be located no closer than 200 feet from the boundaries of a drilling unit and no closer than 400 feet from any existing Williams Fork well or wells without exception being granted by the Director of the Oil and Gas Conservation Commission. In cases where the Application Lands which constitute existing drilling units constitute only a portion of an existing drilling and spacing unit, each Williams Fork well upon such Application Lands should be located no closer than 200 feet from the boundaries of the drilling unit, no closer than 200 feet from the boundary of such Application Lands and no closer than 400 feet from any existing Williams Fork well without exception being granted by the Director of the Oil and Gas Conservation Commission. That the permitted well location for each Williams Fork well upon the Application Lands which are not part of any existing drilling and spacing unit should be located no closer than 200 feet from the boundaries of any lease line and no closer than 400 feet from an existing well drilled into and producing from the Williams Fork without exception being granted by the Director of the Oil and Gas Conservation Commission. For the lands subject to these well location requirements, it is not intended by this application to locate downhole more than two Williams Fork wells per governmental quarter-quarter section.

Township 7 South, Range 96 West, 6th P.M.
Section 1: S½ SE¼, SW¼ SW¼
Section 2: SE¼ SE¼
Section 11: NE¼ NE¼, E½ SE¼
Section 12: W½ W½

8. Testimony and exhibits presented at the administrative hearing indicated that nine wells have been drilled in the application lands for production of gas from the Williams Fork Formation. Testimony also indicated that WPC plans to drill a total of thirteen wells, with ten wells drilled from existing drill pads and three wells drilled as new vertical wells. Testimony further indicated that of the thirteen wells eleven will be new 20-acre density wells and two will be new 40-acre density wells. In addition, testimony showed that surface use agreements have been reached with all the affected surface owners in the application lands.

9. Testimony and exhibits presented at the administrative hearing described the vertically stacked fluvial, meander belt point bar sand bodies in the Williams Fork Formation. Wells drilled under 20-acre density would intersect very few, if any, of the same sand bodies, and only gas from the sand bodies that are intersected by a well is produced into the well.

10. Testimony and exhibits presented at the administrative hearing utilized findings from the Multiwell Experiment project which described the abundant natural fracture systems in the Williams Fork Formation and showed that these systems do not communicate vertically. Williams Fork Formation point bar sand bodies are naturally isolated from each other, and drainage from a well is limited to the aerial extent of the point bar sand bodies.

11. Testimony and exhibits presented at the administrative hearing concludes that there has been no significant depletion of the sand bodies in the application area by offset wells.

12. Testimony and exhibits presented at the administrative hearing showed that production from 20-acre density wells outperform or have similar performance to 40-acre density wells in the same fields.

13. Testimony and exhibits presented at the administrative hearing showed estimated gas in place in the Williams Fork Formation as 87 BCF per section in the Grand Valley Field. The estimated average ultimate recovery per well is 1.35 BCF for the Grand Valley Field. The recovery factor for 20-acre density development in the Grand Valley Field is 49% of the gas in place.

14. That the proposed density will allow more efficient drainage, will prevent waste, will not violate correlative rights and will assure a greater ultimate recovery of gas and associated hydrocarbons.

15. No protests to the application have been filed with the Commission or the Applicant.

16. WPC agrees to be bound by oral order of the Commission.

17. 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 to increase the number of wells which can be drilled into and produced from the Williams Fork Formation of the application lands which constitute existing drilling units (or portions thereof) to the equivalent of one Williams Fork well per 20 acres for the lands described below. That the permitted well location for each Williams Fork well upon the Application Lands which constitute existing drilling units should be located no closer than 200 feet from the boundaries of a drilling unit and no closer than 400 feet from any existing Williams Fork well or wells without exception being granted by the Director of the Oil and Gas Conservation Commission. In cases where the Application Lands which constitute existing drilling units constitute only a portion of an existing drilling and spacing unit, each Williams Fork well upon such Application Lands should be located no closer than 200 feet from the boundaries of the drilling unit, no closer than 200 feet from the boundary of such Application Lands and no closer than 400 feet from any existing Williams Fork well without exception being granted by the Director of the Oil and Gas Conservation Commission. That the permitted well location for each Williams Fork well upon the Application Lands which are not part of any existing drilling and spacing unit should be located no closer than 200 feet from the boundaries of any lease line and no closer than 400 feet from an existing well drilled into and producing from the Williams Fork without exception being granted by the Director of the Oil and Gas Conservation Commission. For the lands subject to these well location requirements, it is not intended by this application to locate downhole more than two Williams Fork wells per governmental quarter-quarter section.

ORDER

NOW, THEREFORE, IT IS ORDERED, that additional wells are hereby allowed to be drilled into and produced from the Williams Fork Formation of the application lands which constitute existing drilling units (or portions thereof) to the equivalent of one Williams Fork well per 20 acres for the lands described below. That the permitted well location for each Williams Fork well upon the Application Lands which constitute existing drilling units shall be located no closer than 200 feet from the boundaries of a drilling unit and no closer than 400 feet from any existing Williams Fork well or wells without exception being granted by the Director of the Oil and Gas Conservation Commission. In cases where the Application Lands which constitute existing drilling units constitute only a portion of an existing drilling and spacing unit, each Williams Fork well upon such Application Lands shall be located no closer than 200 feet from the boundaries of the drilling unit, no closer than 200 feet from the boundary of such Application Lands and no closer than 400 feet from any existing Williams Fork well without exception being granted by the Director of the Oil and Gas Conservation Commission. That the permitted well location for each Williams Fork well upon the Application Lands which are not part of any existing drilling and spacing unit shall be located no closer than 200 feet from the boundaries of any lease line and no closer than 400 feet from an existing well drilled into and producing from the Williams Fork without exception being granted by the Director of the Oil and Gas Conservation Commission. For the lands subject to these well location requirements, it is not intended by this application to locate downhole more than two Williams Fork wells per governmental quarter-quarter section.

Township 7 South, Range 96 West, 6th P.M.
Section 1: S½ SE¼, SW¼ SW¼
Section 2: SE¼ SE¼
Section 11: NE¼ NE¼, E½ SE¼
Section 12: W½ W½

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 26th day of August 2002, as of August 19, 2002.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Signed by Patricia C. Beaver, Secretary

Dated at Suite 801, 1120 Lincoln Street, Denver, Colorado 80203, August 26, 2002

(510#7)