BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE APPLICATION OF ENCANA OIL & GAS (USA) INC. FOR AN ORDER AMENDING THE SETBACK RULES FOR PRODUCTIVE FORMATIONS LYING BELOW 2,500 FEET INCLUDING WITHOUT LIMITATION, THE MESAVERDE FORMATION, FOR WELLS LOCATED ON CERTAIN UNSPACED LANDS IN TOWNSHIP 7 SOUTH, RANGE 92 WEST, 6^TH P.M. GARFIELD COUNTY, COLORADO

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Cause No. _____

Docket No. ______

APPLICATION

EnCana Oil & Gas (USA) Inc. (“Applicant”), by and through its attorneys, Dorsey & Whitney LLP, respectfully petitions the Oil and Gas Conservation Commission (the “Commission”) for an order amending the existing well setback rules set forth in Rule 318 a. insofar as they are applicable to certain lands covering productive formations lying below 2,500 feet in depth and in support of this application states and alleges as follows:

1. Applicant is a corporation duly authorized to conduct business in the State of Colorado.

2. Applicant owns 100% of the leasehold interests in and operates the existing oil and gas wells on the leasehold estate as to formations lying below 2,500 feet, including, but not limited to, the Mesaverde Formation, underlying the following described lands (hereafter the “Subject Lands”):

Township 7 South, Range 92 West, 6th P.M.

Section 8: All;

Section 17: All;

Section 20: All

Garfield County, Colorado.

3. That Applicant or its predecessors have drilled, tested, completed and produced multiple wells into the Mesaverde Formation upon the Subject Lands.

4. That the Subject Lands currently have not been spaced and are therefore subject to the Rule 318 a. “well location rules” which require that each permitted well location within the Subject Lands for wells drilled below 2,500 feet be located no closer than 600 feet from any lease line and not less than 1,200 feet from any producible or drilling well or wells unless otherwise authorized by order of the Commission upon hearing.

5. That Applicant requests that Rule 318 a. be amended insofar as it applies to the Subject Lands to authorize each permitted well drilled to formations below 2,500 feet in depth be allowed to be located no closer than 600 feet from the outer section line with exceptions being granted by the Director of the Commission. Bottomhole locations shall be determined by the Operator so as to maximize the economic and efficient production of reserves. However, Applicant requests that the 1,200 feet setback between wells not be applicable. Moreover, due to uniformity of ownership, no interior lease line setbacks shall be necessary to protect correlative rights within the Subject Lands.

6. That such permitted well locations on the Subject Lands, as described under Paragraph 5 above, nonetheless comply with the existing Rule 318 a. setback requirements so as not to encroach on lands and wells lying outside the Subject Lands which are offsetting and adjacent to the Subject Lands.

7. That such permitted well locations, described under Paragraph 5 above, shall not result in the drilling of more than one (1) multi-well surface site per forty (40) acre governmental quarter-quarter section unless the provisions of Commission Rule 508 a., et seq., and 503 c. concerning a Local Public Forum and a Proposed Plan to address protection of the environment, public health, safety, and welfare are complied with by supplemental application or by exception being granted by the Director of the Commission.

8. Applicant acknowledges that while only one multi-well surface site for wells located in each forty (40) acre governmental quarter-quarter section shall be permitted, that multiple directional wells may be drilled from each multi-well surface site. While Applicant submits that a “Proposed Plan” is not technically required under Rule 503 c., Applicant affirmatively states that the Rules of this Commission together with Applicant’s commitment to limit its operations to one (1) multi-well surface site within each 40-acre governmental quarter-quarter section are sufficient to adequately protect the environment, public health, safety and welfare in the Subject Lands.

9. That Interested Parties for purposes of this Application are as defined by the Commission Regulations and are as described on Exhibit “A” attached hereto.

10. Applicant contends that without an order amending the setback requirements for wells drilled below 2,500 feet on the Subject Lands, the oil and gas reserves of the Subject Lands will not be efficiently and economically recovered.

11. Applicant contends that the Order requested herein is proper, will limit surface disturbance, will protect correlative rights, minimize the drilling of unnecessary wells, prevent the waste of oil and gas and insure proper and efficient development and promote conservation of the oil and gas resources in the State of Colorado.

WHEREFORE, Applicant prays that this matter be set for hearing at the next Commission hearing in July of 2004, that notice of said hearing be given as required by law, and that following such hearing the Commission enter an order as follows:

A. Amending the setback requirements of Rule 318 a. insofar as they cover the Mesaverde Formation underlying the Subject Lands and for all other wells drilled deeper than 2,500 feet such that wells will be permitted to be drilled from one multi-well surface site in each governmental quarter-quarter section provided that the bottom hole locations are no closer than 600 feet from the outer section boundaries of the Subject Lands;

B. That no internal lease line or setbacks between bottomhole locations shall be required; and

C. For such other findings and orders as the Commission may deem proper or advisable.

Dated this 24th day of May, 2004.

Respectfully submitted,

ENCANA OIL & GAS (USA) INC.

By:

Michael J. Wozniak

Dorsey & Whitney LLP

Attorneys for Applicant

370 17^th Street, Suite 4700

Denver, Colorado 80202

(303) 629-3400

Applicants' Address:

950 17th Street, Suite 2600

Denver, CO 80202

VERIFICATION

STATE OF COLORADO )

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CITY & COUNTY OF DENVER )

Connie Heath, Land Negotiator of EnCana Oil & Gas (USA) Inc., upon oath deposes and says that she has read the foregoing Application and that the statements contained therein are true to the best of her knowledge, information and belief.

ENCANA OIL & GAS (USA) INC.

By:__________________________________

Connie Heath, Land Negotiator

Subscribed and sworn to before me this day of May , 2004, by: Connie Heath, Land Negotiator of EnCana Oil & Gas (USA) Inc.

Witness my hand and official seal. My commission expires:___________________

_______________________________________

Notary Public