IN THE MATTER OF THE PROMULGATION

IN THE MATTER OF THE PROMULGATION )

AND ESTABLISHMENT OF FIELD RULES TO ) Cause No.

GOVERN OPERATIONS IN THE GREATER ) 232

WATTENBERG AREA AS DEFINED IN RULE ) Order No.

318A, WELD COUNTY, COLORADO ) ___-___

Blue Chip Oil, Inc. ("Applicant") hereby applies to the Colorado Oil and Gas Conservation Commission of the State of Colorado (the "Commission") for an order segregating the NW/4 of Section 22 T5N, R67W from the NE/4 of said Section 22 for the production of oil, natural gas and associated hydrocarbons from the J-Sand and Dakota formations and in support thereof states as follows:

1. Applicant is the buyer under a Purchase and Sale Agreement pursuant to which Applicant will become the owner of all of the oil, gas and other minerals in, on and under the NW/4 of said Section 22 above described or Applicant will be the owner of an oil and gas lease covering the oil and gas in and under the NW/4 of Section 22. The current owner of the oil, gas and other minerals in, on and under the NW/4 of Section 22 is William J. Edwards, c/o Edwards Construction Company, 506 Shoshoni Street, Cheyenne, Wyoming 82009. On information and belief, Prima Energy Corporation, 1099 18^th Street, Suite 400, Denver, Colorado 80202-3833 is the owner of oil and gas leases covering the NE/4 of Section 22 above described.

2. Section 22 above described is included in the area covered by Cause 232 that established 320-acre drilling and spacing units for the production of oil and natural gas from the J-Sand formation with one well allowed in each such drilling and spacing unit that is to be located in the NE/4 and the SW/4 or the NW/4 and the SE/4 of each section no closer than 990 feet to the boundaries of the relevant quarter section. In Order No. 232-20, the Commission allowed a second well to be drilled on each 320-acre drilling and spacing unit. Section 22 is also covered by Cause No. 499, Order No. 499-15 that established 320-acre drilling and spacing units for the production of oil and natural gas from the Dakota formation consisting of the E/2 and W/2 or the N/2 and S/2 of each section and that said units shall be identical to the 320-acre drilling and spacing units previously established for the J-Sand formation required by Cause No. 232 with the permitted well to be located in any quarter section of the 320-acre drilling and spacing unit, closer than 990 feet to the boundaries of the relevant quarter section.

3. Section 22 above described is also covered by Rule 318A of the rules of the Commission and pursuant to that rule, operators may utilize any one or more of 5 "drilling windows" within any quarter section to access any or all of the Cretaceous Age formations from the base of the Dakota formation to the surface.

4. Rule 318A. d. provides that Rule 318A. does not alter the size or configuration of drilling units in the Greater Wattenberg Area and as a result, the J-Sand and Dakota formations in and under Section 22 above described remains subject to the provisions of Cause Nos. 232 and 499 and the requirements thereof unless modified by appropriate order of the Commission.

5. Applicant drilled and completed the Andrews 13-22 Well in the NW/4SW/4 of Section 22 above described into the J-Sand formation (the "Well") and the Well has produced and is capable of producing oil, natural gas and associated hydrocarbons from the J-Sand formation.

6. The established drilling and spacing unit for the Well is the SW/4 of Section 22 above described because, pursuant to Order No. 232-48, dated May 20, 1991, the Commission entered its order segregating the SE/4 of Section 22 from the SW/4 of Section 22 and creating two, separate 160-acre drilling and spacing units consisting of those governmental quarter sections.

7. Because of the modification of the S/2 of Section 22 drilling and spacing unit by means of Commission Order No. 232-48, proceeds from J Sand formation produced from the Andrews 13-22 well have been and will be distributed on the 160-acre, more or less, tract consisting of the SW/4 of Section 22 above described.

8. Prima Energy Corporation drilled and completed the Hankins 1 well in the J-Sand formation in the NE/4 of Section 22 and designated a N/2 unit for that well. The Hankins 1 well was plugged and abandoned as of September 16, 1998. Given that fact, the N/2 unit for the Hankins 1 well is no longer in effect.

9. Applicant intends to drill one or more wells to the J-Sand and/or Dakota formations in the NW/4 of Section 22 and the segregation the NW/4 of Section 22 above described from the NE/4 of Section 22 and the creation of separate drilling and spacing units for the two quarter sections is necessary to ensure that each such Owner, as defined the rules and regulations of the Commission, has the opportunity to recover its just and equitable share of the oil, natural gas and associated hydrocarbons produced and to be produced from the J-Sand and/or Dakota formations in and under Section 22 above described.

10. Consistent with Order 232-48 and the findings in the rulemaking that resulted in the adoption of Rule 318A and in order to protect the correlative rights of the Owners in and to production from the J-Sand and Dakota formations in and under the N/2 of Section 22 above described, and to ensure that each such Owner has the opportunity to recover its just and equitable share of the oil, natural gas and associated hydrocarbons produced and to be produced from the J-Sand and/or Dakota formations, it is necessary to segregate the NW/4 of Section 22 from the NE/4 of Section 22.

WHEREFORE, Applicant requests an order from the Commission segregating and creating two 160-acre, more or less, drilling and spacing units consisting of the NW/4 of Section 22 above described and the NE/4 of Section 22 for production of oil, natural gas and associated hydrocarbons from the J-Sand and Dakota formations.

Dated this 2^nd day of August, 2004.

Respectfully Submitted,

KEITH M. CROUCH, P.C.

By: ___________________________

Keith M. Crouch, #5717

Attorney At Law

5015 Ingersoll Pl.

Boulder, CO 80303

303-929-7016

303-444-5624 fax

STATE OF COLORADO )

)ss.

COUNTY OF WELD )

Carl B. Friis, of lawful age, being first duly sworn upon oath, deposes and says that he is a consultant for Blue Chip Oil, Inc., the Applicant herein, and that he has read the foregoing application, knows the contents thereof and that the same are true to the best knowledge and belief.

______________________________

Carl B. Friis

Subscribed and sworn to before me this 2nd day of August, 2004.

Witness my hand and official seal.

My Commission expires: __________________

______________________________

Notary Public