REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 10:00 a.m. on June 4, 2002 in the Anasazi Room, La Plata County Courthouse, 1060 E. 2nd Avenue, Durango, Colorado on the verified application of Rocky Mountain Gas Supply, LLC for an order to pool all nonconsenting interests in a 160-acre drilling and spacing unit for the development and operation of the Dakota and Entrada Formations.

FINDINGS

The Commission finds as follows:

1. Rocky Mountain Gas Supply, LLC ("Rocky Mountain Gas"), as applicant herein, is an interested party in the subject matter of the above-referenced matter.

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 December 17, 1999, the Commission issued Order No. 520-1 which established 160-acre drilling and spacing units for the production of oil, gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations underlying the below-listed lands, with the permitted well to be located no closer than 600 feet from the outer boundaries of the drilling unit.

Township 28 South, Range 69 West, 6th P.M. Section 33: All

Township 29 South, Range 69 West, 6th P.M. Section 4: All Section 5: S1/2 Sections 8-9: All Section 16: N1/2 Section 17: NE1/4

5. On April 15, 2002, Rocky Mountain Gas Supply, LLC, ("Rocky Mountain Gas") by its attorney filed with the Commission a verified Application for an order to pool all nonconsenting owners in the 160-acre drilling and spacing unit consisting of the SE1/4 of Section 4, Township 29 South, Range 69 West, 6th P.M. for the development and operation of the Dakota and Entrada Formations. The applicant intends to drill the Caddell No. 1 Well in the SE1/4 of Section 4 for the production of gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations.

6. On May 29, 2002, prior to the administrative hearing, the Hearing Officer and the attorney for Rocky Mountain Gas discovered that five unleased mineral interest owners were not included in the list of parties to be noticed for hearing and therefore did not receive information regarding the hearing date and the date by which protests to the application should be filed. Rocky Mountain Gas did provide copies of their application to these five pa rties and none of the parties contacted Rocky Mountain Gas or the Commission regarding the hearing. Mr. Richardson testified at the administrative hearing that leases are in the process of being negotiated with these parties.

7. Testimony and exhibits presented at the administrative hearing showed the platted subdivision lots and the proposed well location. Additional testimony indicated that Rocky Mountain Gas has over 75% of the minerals leased in Section 4 and is still negotiating to lease or purchase minerals with several other owners. Further testimony indicated that all Rocky Mountain Gas leases in the area contain pooling clauses.

8. Efforts have been made to obtain the voluntary pooling of all interests. A.F.E.'s have been furnished to nonconsenting interests on April 12, 2002 and consent has not been given.

9. An order of the Commission pooling all interests in said drilling unit is necessary in order to afford each owner of interests in each said drilling unit the opportunity to recover and receive his/her just and equitable share of the oil and/or gas from the common source of supply underlying said drilling unit.

10. Production obtained from said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in each tract bears to the total number of acres within said drilling unit.

11. Rocky Mountain Gas Supply, LLC agreed to be bound by oral order of the Commission. 12. That notice of hearing will be given to the five (5) unleased mineral owners who did not receive the original notice of hearing, allowing the parties twenty (20) days in which to file a protest to the application. The Commission order should not become effective until that time period has elapsed or until notified by Rocky Mountain Gas Supply, LLC that leases have been obtained, minerals have been purchased or owners have agreed to participate in the well.

13. Based on the facts stated in the verified application, having sent notices to the five (5) unleased mineral interest owners subsequent to the administrative hearing, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to pool all non-consenting owners in the 160-acre drilling and spacing unit consisting of the SE1/4 of Section 4, Township 29 South, Range 69 West, 6th P.M. for the production of gas (including CO2) and associated hydrocarbons from the Dakota and E ntrada Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, 1. Pursuant to the provisions of 34-60-116, C.R.S. as amended, 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 SE1/4 of Section 4, Township 29 South, Range 69 West, 6th P.M. for the production of gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations.

2. The production obtained from each 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 each drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling unit.

3. Said owners are hereby deemed 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 nonconsenting 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 nonconsenting 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 nonconsenting miner al 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 units shall furnish all nonconsenting 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. Rocky Mountain Gas Supply, LLC shall be designated as the operator for the 160-acre drilling and spacing unit consisting of the SE1/4 of Section 4, Township 29 South, Range 69 West, 6th P.M. for the production of gas (including CO2) and associated hydrocarbons from the Dakota and Entrada Formations.

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 July 2002, as of June 4, 2002.

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 July 2, 2002 (520-2)

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