BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                             CAUSE NO. 510

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE GRAND VALLEY FIELD,                                    )                             ORDER NO. 510-15

GARFIELD COUNTY, COLORADO                                                          )                             CORRECTED

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 10:00 a.m. on July 11, 2005 in the New Indoor Arena Meeting Facility, Garfield County Fairgrounds, 1001 Railroad Avenue, Rifle Colorado for an order to increase the number of wells which can be optionally drilled into and produced from the Williams Fork Formation in certain lands, the equivalent of one Williams Fork Formation well per 10 acres.

FINDINGS

                        The Commission finds as follows:

                        1. Oxy USA WTP LP ("Oxy") 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 16, 1994, the Commission issued Order No. 510-1 which amended Rule 316 (now Rule 318) of the Rules and Regulations of the Colorado Oil and Gas Conservation Commission and established new setback rules for production of gas and associated hydrocarbons from the Williams Fork Formation.

                        5. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing. The below-listed lands are subject to this Rule:

                        6. On May 25, 2005, Oxy, by its attorney, filed with the Commission a verified application for an order to allow wells to be drilled for the production of gas and associated hydrocarbons from the Williams Fork Formation, on the lands described above, the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary of the Application Lands unless such boundary abuts or corners lands in respect of which the Commission has not at the time of the drilling permit application granted the right to drill 10 acre density wells in which event the Williams Fork Formation wells to be drilled upon the Application Lands should be drilled downhole no closer than 200 feet from that portion of the boundary which so abuts or corners the lands in respect of which 10 acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission. Wells to be drilled under this Application will 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.

                        7. Testimony and exhibits presented at the administrative hearing showed that a total of 10,400 acres are contained in the application lands.

                        8. Testimony and exhibits presented at the administrative hearing showed that Oxy owns the majority of the surface in the application lands, except for portions of four (4) sections which are owned by four (4) separate surface owners. Additional testimony and exhibits presented at the administrative hearing showed that Oxy owns 100% of the minerals except for portions of three (3) sections which Oxy has leased.

                        9. Testimony and exhibits presented at the administrative hearing showed the stacked fluvial reservoirs in the Mesaverde Group in the Cascade Creek area. Additional testimony showed that there is between 400 feet and 500 feet of net pay sand and that the lower two-thirds of the Williams Fork Formation has continuous gas saturation.

                        10. Testimony and exhibits presented at the administrative hearing utilized a cross section from the Cascade Creek area to the Grand Valley Field, approximately seven (7) miles away, to show that the stratigraphy does not vary greatly over a long distance. Additional testimony and exhibits presented at the administrative hearing showed the difficulty in correlating the sands between closely located wells.

                        11. Testimony and exhibits presented at the administrative hearing utilized a diagram of sandstone bodies with hypothetical 10-acre density wells, modified from work done on the west side of Rifle Gap by Dr. Lorenz from the Sandia National Laboratory, to show that wells drilled as close as three hundred thirty (330) feet would not penetrate the same sand bodies, even though they would appear to correlate on cross sections created from logs.

                        12. Testimony and exhibits presented at the administrative hearing utilized a photograph of the Williams Fork Formation near Coal Canyon, approximately twenty (20) miles southwest of the application lands, to show the discontinuous channel sandstone bodies in the Williams Fork Formation, similar to those sands producing in the Cascade Creek area.

                        13. Testimony and exhibits presented at the administrative hearing utilized a diagram showing the results of outcrop mapping indicating that one hundred thirty-seven (137) sand bodies were measured, and the average extent of a sand body is six hundred eighty-two (682) feet, which confirms the need for 10-acre well density in the area.

                        14. Testimony and exhibits presented at the administrative hearing utilized decline curve analyses to show the average estimated ultimate recovery is 1,087 MMCF. Additional testimony indicated that based on new hydraulic fracturing technology, the estimated ultimate recovery is expected to improve for new wells.

                        15. Testimony and exhibits presented at the administrative hearing utilized a volumetric gas in place calculation on 640-acres in the Cascade Creek area, to show that average gas in place is estimated at 109 BCF in the application lands.

                        16. Testimony and exhibits presented at the administrative hearing showed a recovery factor of 64.4% for 10-acre well density.

                        17. Testimony and exhibits presented at the administrative hearing showed the natural fracture direction recorded by image log which indicated the dominant direction is nearly east-west. Additional testimony showed the elliptical shape drainage in the Cascade Creek area.

                        18. Testimony and exhibits presented at the administrative hearing showed that new gas production increased eighty-eight percent (88%) with 10-acre well density.

                        19. The above-referenced testimony and exhibits show 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.

                        20. Oxy does not intend to drill more than four (4) Williams Fork Formation wells downhole per governmental quarter quarter section, unless exception is granted by the Commission.

                        21. Oxy USA WTP LP agreed to be bound by oral order of the Commission.

                        22. Based on the facts stated in the verified application, having received no protests and have been heard by the Hearing Officer who recommended approval, the Commission should enter an order to approve the application to increase the number of wells which can be optionally drilled into and produced from the Williams Fork Formation in certain lands, the equivalent of one Williams Fork Formation well per 10 acres.

                        NOW, THEREFORE, IT IS ORDERED, that Rule 318.a. of the Rules and Regulations of the Colorado Oil and Gas Conservation Commission is hereby amended to allow wells to be drilled for the production of gas and associated hydrocarbons from the Williams Fork Formation, on the lands described below, the equivalent of one well per 10 acres, with the permitted well to be located no closer than 100 feet from the outside boundary of the Application Lands unless such boundary abuts or corners lands in respect of which the Commission has not at the time of the drilling permit application granted the right to drill 10 acre density wells in which event the Williams Fork Formation wells to be drilled upon the Application Lands shall be drilled downhole no closer than 200 feet from that portion of the boundary which so abuts or corners the lands in respect of which 10 acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission:

                        IT IS FURTHER ORDERED, that wells to be drilled on the above-described 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.

                        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.

                        IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

                        IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

                        ENTERED this 26^th day of July, 2005, as of July 11, 2005.

                        CORRECTED this ________ day of August, 2005, as of July 11, 2005.

                                                                                OIL AND GAS CONSERVATION COMMISSION

                                                                                            ; OF THE STATE OF COLORADO

                                                                                By __________________________________

            Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

August 18, 2005