BEFORE THE OIL & GAS CONSERVATION COMMISSION

THIS APPLICATION WAS WITHDRAWN ON SEPTEMBER 10, 2001. ACCORDINGLY, THE HEARING IN THIS MATTER HAS BEEN CANCELED.

OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF EXOK, INC. AND ELM RIDGE OPERATING COMPANY, INC., FOR AN ORDER TO ESTABLISH DRILLING AND SPACING UNITS ON CERTAIN UNSPACED LANDS AND TO ALLOW AN OPTIONAL SECOND WELL IN SUCH LANDS AND IN ESTABLISHED AND SPACING UNITS COVERING THE FRUITLAND COAL SEAM FORMATION, IGNACIO-BLANCO FIELD, LA PLATA COUNTY AND ARCHULETA COUNTY, COLORADO

)

CAUSE NO. 112

Docket No. __________

APPLICATION

COMES NOW Exok, Inc. and Elm Ridge Operating Company, Inc. (collectively referred to herein as “Applicants”), by and through their attorneys Clanahan, Tanner, Downing and Knowlton, P.C., make application to the Oil and Gas Conservation Commission of the State of Colorado, for an order to establish drilling and spacing units on certain unspaced lands and to permit an optional second well in such units and in established drilling and spacing units for the Fruitland Coal Seam formation. In support thereof, the Applicants state and allege as follows:

1. That the Applicants are the owners of numerous leasehold interests in La Plata and Archuleta Counties, Colorado, located within the area requested for spacing. Small portions of five (5) sections included within the Application area, which are all United States Forest Service or Bureau of Land Management (“BLM”) lands, are located in La Plata County. All of the remaining lands subject to the Application are located in Archuleta County.

2. That the Applicants are requesting that 320-acre drilling and spacing units be established for those unspaced lands listed on Exhibit A-1. The Applicants also request that two (2) wells be permitted in the newly established and existing drilling and spacing units of 320 acres for the Fruitland Coal Seam formation. Exhibit A attached hereto and incorporated by reference contains a complete description of the requested spacing units as well as the existing units for which Applicants request two Fruitland wells be permitted.

3. That insofar as this Application concerns any lands within the jurisdiction of the Southern Ute Indian Tribe, (a total of approximately 880 acres within Archuleta County) it is submitted to this Commission in accordance with the terms of the Memorandum of Understanding dated August 22, 1991 between the BLM and this Commission and separate Memorandum of Understanding dated August 22, 1991 between the Bureau of Indian Affairs, the BLM and the Southern Ute Indian Tribe.

4. In support of the requested order, Applicants assert that: (i) with respect to the unspaced areas described on Exhibit A-1, that 320 acres is not smaller than the maximum area that can be economically and efficiently drained by two wells, and (ii) that one well will not efficiently and economically drain each of the existing 320-acre drilling and spacing units described in Exhibit A, and that additional wells are necessary to prevent waste, protect correlative rights and to recover gas and associated hydrocarbons from the Fruitland coal formation all in accordance with the Colorado statutes, the rules and regulations of this Commission the rules and regulations of the United States Forest Service regarding Forest Service lands, and, with respect to Tribal lands, the rules and regulations of the BLM.

5. On June 15, 1988, the Commission issued Order No. 112-60 which established 320-acre drilling and spacing units for production of gas from the Fruitland Coal Seam formations from all lands described on Exhibit A (except for those lands described on Exhibit A-1 which are not subject to Order 112-60). The orientation of existing units is to remain as previously established. Wells whether the first well in a spacing unit or an infill well, are to be located no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line. Applicants propose that the optional second well in each 320-acre unit be drilled, completed or recompleted in the operator's discretion in any undrilled quarter section of the spacing unit, no closer than 990 feet to any outer boundary of the unit, nor closer than 130 feet to any interior quarter section line.

6. That dual completion of the Mesaverde, Dakota or Pictured Cliffs formations with the Fruitland Coal Seam formation and downhole commingling with such other productive formation be authorized in accordance with Commission Rule 322.

7. That the Director may without further notice and hearing approve exceptions to the permitted well locations due to topography or surface hazards or the recompletion of wells previously drilled at permitted locations, provided that the Director is satisfied that appropriate notice of such exception location is afforded to offset owners as required by Commission rules.

8. Applicants further state that the requested wells can be developed in a manner consistent with protection of public health, safety and welfare. In addition to compliance with existing Commission rules regarding Public Health, Safety and Environment, Exhibit C attached hereto is Applicant’s Proposed Plan to Address Protection of the Environment, Public Health, Safety and Welfare submitted in accordance with Rule 503 C. This proposed plan will only apply to those fee and State of Colorado lands (approximately 3,460 out of 36,300 total acres) that are within the jurisdiction of this Commission.

9. Exhibit B attached hereto and made part hereof is the list of the names of "Owners" required to be notified in accord with Commission Rule 508(a), included within the areas covered by this Application. To the best of Applicant's knowledge and belief, Exhibit B contains the names of all such owners.

10. To Applicants’ best knowledge, the fee surface of the land within the Application area which are subject to COGCC jurisdiction are utilized for farming, ranching and residential purposes.

WHEREFORE, Applicants respectfully request that this matter be set for hearing, that notice thereof be given as required by law and that upon such hearing this Commission enter its order:

A. Establishing 320-acre drilling and spacing units for gas and associated hydrocarbons from the Fruitland Coal Seam formation underlying the lands set forth in Exhibit A-1.

B. Establishing that two (2) Fruitland Coal wells may be completed in the 320-acre drilling and spacing units for gas and associated hydrocarbons from the Fruitland Coal Seam formation underlying the lands set forth on Exhibit A with the second well being an optional well in the discretion of the operator. The permitted wells shall be located as described in paragraph 5 above subject to the Director approving exceptions for the permitted well location as provided in paragraph 7, above.

C. That commingling of the Fruitland Coal Seam and the Mesaverde, Dakota or Pictured Cliffs formations be allowed per Commission Rule 322.

D. For such other findings and orders as the Commission may deem proper or advisable in the premises.

DATED this 6th day of August, 2001.

Respectfully submitted,

EXOK, INC. AND ELM RIDGE OPERATING COMPANY, INC.

By:

Michael J. Wozniak

Clanahan, Tanner, Downing and Knowlton, P.C.

Attorneys for Applicants

730 17^th Street, Suite 500

Denver, Colorado 80202-3580

(720) 359-9500

Applicants' Addresses:

Exok, Inc.

5410 B. North Santa Fe

Oklahoma City, OK 73116

Elm Ridge Resources Operating Company, Inc.

12225 Greenville Avenue, #950

Dallas, Texas 75423-9362

STATE OF COLORADO )

) ss.

CITY AND COUNTY OF DENVER )

Michael J. Wozniak, of lawful age, being first duly sworn upon oath, deposes and says that he is the attorney for Exok, Inc. and Elm Ridge Operating Company, Inc., and that he has read the foregoing Application and that the matters therein contained are true to the best of his knowledge, information and belief.

Subscribed and sworn to before this ____ day of August, 2001.

Witness my hand and official seal.

My commission expires:

Notary Public

EXHIBIT A

LEGAL DESCRIPTION

)

CAUSE NO. 112

Docket No. __________

LANDS FOR WHICH OPTIONAL INFILL WELLS ARE REQUESTED

Township 34 North, Range 4 West, N.M.P.M.

South of the Ute Line

Archuleta County, Colorado

Section 31: All

Section 32: All

Township 34 North, Range 5 West, N.M.P.M.

North of the Ute Line

Archuleta County, Colorado

Section 5: All

Section 6: All

Section 8: All

Section 9: All

Section 14: All

Section 15: All

Section 16: All

Section 17: All

Township 34 North, Range 5 West, N.M.P.M.

South of the Ute Line

Archuleta County, Colorado

Section 2: All

Section 3: All

Section 4: All

Section 5: All

Section 8: All

Section 9: All

Section 10: All

Section 11: All

Section 14: All

Section 15: All

Section 16: All

Section 21: All

Section 22: All

Section 23: All

Section 24: All

Section 25: All

Section 26: All

Section 27: All

Section 35: NE¼, E½ SE¼, NW¼ SE¼

Section 36: All

Township 34 North, Range 6 West, N.M.P.M.

North of the Ute Line

La Plata and Archuleta Counties, Colorado

Section 1: All

Township 35 North, Range 5 West, N.M.P.M.

Archuleta County, Colorado

Section 30: All

Section 31: All

Section 32: All

Township 35 North, Range 6 West, N.M.P.M.

La Plata and Archuleta Counties, Colorado

Section 25: All

Section 36: All

EXHIBIT A-1

)

CAUSE NO. 112

Docket No. __________

UNSPACED LANDS REQUESTED TO BE SPACED INTO 320-ACRE DRILLING UNITS

Township 34 North, Range 5 West, N.M.P.M.

North of the Ute Line

Archuleta County, Colorado

Section 7: All

Section 18: All

Township 34 North, Range 6 West, N.M.P.M.

North of the Ute Line

Archuleta and La Plata Counties, Colorado

Section 12: All

Section 13: All

Township 34 North, Range 5 West, N.M.P.M.

South of the Ute Line

Archuleta County, Colorado

Section 6: All

Section 7: All

Section 17: All

Section 18: All

Section 19: All

Section 20: All

Section 28: All

Section 29: All

Section 30: All

Section 31: All

Section 32: N½, W½ SW¼, NE¼ SE¼

Section 33: All

Section 34: NW¼ NW¼

Section 35: E½ NW¼

Township 34 North, Range 6 West, N.M.P.M.

South of the Ute Line

Archuleta County, Colorado

Section 1: All

Section 2: All

Section 11: All

Section 12: All

Section 13: All

Section 14: All

Section 23: All

Section 24: All

Section 25: All

Section 26: All

Section 35: All

Section 36: All

The following shall apply to Applications for Permits-to-Drill wells where the surface well location is proposed to be sited on lands subject to COGCC jurisdiction in addition to the requirements of applicable existing COGCC rules and regulations. State of Colorado and fee lands comprise 3,460 acres out of the 36,300 acres included within the Application and are all located in Archuleta County.

1) Prior to approving any Application for Permit-to-Drill, the Director shall conduct an onsite inspection if the operator and the fee surface owner have not entered into a surface use agreement if the well location is proposed to be located in a subdivision which has been approved by Archuleta County or if the well location is within two (2) miles of the outcrop contact between the Fruitland and Pictured Cliffs Formations.

2) The purpose of the onsite inspection is to identify any potential public health, safety and welfare or significant adverse environmental impacts within COGCC jurisdiction regarding the proposed surface location that may not be adequately addressed by COGCC rules or orders. The onsite inspection shall not address matters of surface owner compensation, property value diminution, or any private party contractual issues between the operator and the surface owner.

3) When the Director conducts onsite inspections hereunder, the Director shall invite the representatives of the surface owner, the operator and local governmental designee ("LGD") to attend. The Director shall attempt to select a mutually acceptable time for the representatives to attend. The inspection shall be conducted within ten (10) days, or as soon as practicable thereafter, of either the date the LGD advises the Director in writing that the proposed surface well site location falls within an approved subdivision or the date the operator advises the Director in writing that a surface use agreement has not been reached with the surface owner. If requested by the operator, the Director may delay the onsite inspection to allow for negotiation between the operator and surface owner or other parties.

4) Following the onsite inspection, the Director shall apply appropriate site specific drilling permit conditions if necessary to prevent or mitigate public health, safety and welfare or significant adverse environmental impacts taking into consideration cost-effectiveness and technical feasibility and relevant geologic and petroleum engineering conditions as well as prevention of waste, protection of correlative rights, and promotion of development.

5) Examples of the types of impacts and conditions that might be applied if determined necessary by the Director in 4) above include (this list is not prescriptive or all inclusive):

a) visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening

b) surface impacts - moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of future reclamation activities; utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas [Note: Directional drilling from common surface locations is not a cost-effective or technically feasible option to mitigate surface impacts on 160-acre Fruitland coal seams well density because of the shallow (approximately 2000') target top depths, the long (average 2640') displacements and the resulting complications for artificial lift.]

c) noise impacts - installing electric motors where practicable; locating or orienting motors or compressors to reduce noise; installing sound barriers to achieve compliance with COGCC rules; confining cavitation completion operations (excluding flaring) to the hours of 7 a.m. to 7 p.m. and notifying all area residents within one-half (1/2) mile at least seven (7) days before cavitation is commenced

d) dust impacts - watering roads as necessary to control dust during drilling and completion operations

e) ground water impacts - collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data

f) safety impacts - soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment

g) outcrop impacts - performing outcrop gas seep surveys; performing produced water quality analysis; periodic pressure transient testing of high water/gas ratio wells; limiting water production in wells with anomalously high water rates and water/gas ratios; funding investigative reservoir modelling under the Director's supervision

h) wildlife impacts - limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant

6) If the operator objects to any of the conditions of approval applied under 5) above, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.