RECORD OF PROCEEDINGS

                                                                                                                                                           July 9-10, 2001

The Oil and Gas Conservation Commission met on July 9th at 10:00 a.m. and July 10th at 8:30 a.m. in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado, for a hearing in Cause No. 1 (6 matters), Cause No. 139, 510, 440, 479 (1 matter), Cause No. 329 (1 matter), Cause No. 112 (1 matter), and Cause No. 512 (1 matter).

Those present were:

Stephen Sonnenberg         Chair

Brian Cree                           Vice Chair

Tom Ann Casey                  Commissioner

Bruce Johnson                    Commissioner

Michael Klish                       Commissioner

Abe Phillips                         Commissioner

Carol Harmon                      Assistant Attorney General

Richard Griebling                Director

Brian Macke                        Deputy Director

Patricia Beaver                   Hearings Manager

The Commission unanimously approved the minutes from the May-June 2001 meeting.

Executive Director’s Report: Ron Cattany, Assistant Director at the Department of Natural Resources (DNR) discussed the following: Greg Walcher, Executive Director, sent his appreciation to the Commission for changing the starting time on the first day of its hearings from 8:30 a.m. to 10 a.m. Currently the Department has acting directors at the Board of Land Commissioners (SLB) and at the Division of Parks. The State Engineer’s Office and the Water Conservation Board continue to monitor the water around the state for both flooding and drought occurrence. The Division of Wildlife is in the process of updating its strategic plan. SLB is considering changes to its enabling act to remove certain federal requirements from covering state lands. The SLB is working on rulemaking that may involve oil and gas issues and COGCC should follow up on this with Mark Davis. The Department is currently in the budget preparation process. The Division of Forestry, established last year, is in the process of performing a Health of Forest report. The Division of Minerals and Geology is expanding its Grand Junction office. Four (4) new state parks are in the process of being designated. The issue of the right to float rivers through private property is being debated. It was a successful legislative session for many divisions within the DNR. DNR greatly appreciates the volunteer time provided by its fourteen (14) Boards and Commissions.

Director’s Report: Director Griebling provided a written report and discussed the following: Statistics show that over 2500 permits to drill will be issued this year. The North Washington Water Users Association matter has finally been resolved, with water taps provided by the City of Thornton, and reimbursement of expended ERF funds being pursued. The information on the recipients of the 2000 Outstanding Oil & Gas Operator Awards has been passed out to the Commission which the Commissioners later approved. The variances that were granted by the Director were described.

AAG’s Report: Assistant Attorney General Harmon reported that HB01-1359 was approved by the legislature this past session requiring the following for any executive sessions: the statutory cite and reason for an executive session must be stated, executive sessions must be recorded the same as hearings, a signed statement from the Chair attesting to the items discussed must be included, confidential and privileged information shall not be included in the executive session record, the assistant attorney general has to attest that certain portions excluded are subject to attorney-client privilege, in general no portion of the executive session records are open for public inspection and records of executive sessions shall be retained for 90 days. A request for an executive session to discuss litigation on Allen Oil & Gas, Frederick, the La Plata County motion for clarification and the operator awards was made by the AAG. The Commission unanimously approved the motion to go into and come out of executive session.

Commissioner Comments: Vice Chair Cree stated his appreciation for the inclusion of newspaper articles in the staff report and clarified that unlike what continues to be reported, there are currently only six (6) Commissioners and two (2) of the Commissioners are employed by the oil and gas industry. Commissioner Casey further reiterated that only one (1) of the two (2) Commissioners is employed by a company with operations in Colorado.

Audience Comments: Ken Wonstolen, Colorado Oil and Gas Association ("COGA") reported on the following: The court found in the Rogers v. Westerman case that royalty owners may be able to challenge gas purchasers to see if a sale was commercially viable. COGA, Evergreen Resources and Vermejo Minerals filed a complaint seeking preemptive action against Las Animas County concerning conflicting county and federal rules governing gas production in federal units. Weld County Court granted a preliminary injunction against a developer in Firestone who built two house foundations, one seven (7) feet and one twelve (12) feet from a 1000 pound flowline. The judge was very concerned that no regulatory agency ensures that setbacks from wells and pipelines are maintained when development occurs and requested that a regulatory agency attempt to set standards for this situation. Chair Sonnenberg asked AAG Harmon to review the COGCC’s authority regarding this issue. Josh Joswick, La Plata County Commissioner stated he was in favor of "out-of-the-box" training.

The hearing in Cause No. 112, Docket No. 0107-UP-06, John G. Clancy’s request to pool his 5 acres into the E½ of Section 9, Township 34 North, Range 9 West, N.M.P.M. was continued to the August, 2001 hearing.

The hearing in Cause No. 1, Docket No. 0107-OV-09, request to approve an Administrative Order by Consent, finding Texaco North America Production in violation of Rules 305. and 903., failure to notify the surface owner of pending recompletion, and obtain an approved pit permit prior to construction of special use pits for the Southern Ute Wells #27 and #28, assessing a fine of Four Thousand dollars ($4000) was continued to the August, 2001 hearing to provide adequate notice to the surface owner.

A hearing was held in Cause No. 1, Docket No. 0105-RM-02, Rulemaking, continued from the May-June, 2001 hearing for Rules 333, 605 and the 500 Series.

Rule 318.b. was revisited due to the likelihood of an unfavorable Attorney General opinion. Tricia Beaver described the process taken to communicate with those parties who testified on the rule at the last hearing and presented staff’s revised language proposal. Written comments had been provided by Bill Odell, Carleton Ekberg on behalf of Samedan and Fidelity, COGA and J-W Operating. Ken Wonstolen agreed with the proposed changes. Rick Brady agreed and suggested that the staff should look at Rule 318.e. for setback distances. The Commission unanimously approved the motion to reopen Rule 318.b. and adopt staff’s revised language.

Rule 333. - Brian Macke described the modifications made based on input from WesternGeco and IAGG. The Commission was in favor of adopting the proposed chart from WesternGeco’s July 9, 2001 letter. After statements made by Joe Broussard and Louise Sandberg of WesternGeco, Rich Griebling, Josh Joswick, Vice Chair Cree and Chair Sonnenberg, the Commission unanimously approved the motion to adopt Rule 333. as modified.

Rule 605. - The Commission unanimously voted to delete this rule because the language was consolidated into Rule 333.

Rule 503.c. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Bill Keefe, Erika Enger, Ken Wonstolen, Adam Keller, Janie Hines and Commissioner Johnson and the Commission unanimously agreed to adopt the proposed language as modified by Vice Chair Cree.

Consent Agenda: The Commission unanimously approved the consent agenda, which includes the following:

Cause No. 1, Docket No. 0107-OV-10, request to approve an Administrative Order by Consent, finding Sandlin Oil Corporation in violation of Rule 907.c.(2), failure to dispose of produced water by an authorized method, assessing a fine of Two Thousand dollars ($2000).

Cause Nos. 139, 510, 440, 479, Docket No. 0107-AW-07, request for an order allowing additional wells within existing 160-acre drilling and spacing units for production of gas and associated hydrocarbons from the Williams Fork Formation.

Cause No. 329, Docket No. 0107-GA-04, request to amend Order No. 329-4 to include setback requirements for first wells drilled in 160-acre drilling and spacing units for production of gas from the Niobrara Formation.

Cause No. 512, Docket No. 0107-GA-05, Las Animas County, request to terminate Order No. 512-1, which established a nitrogen injection unit.

After responding to several questions raised by Vice Chair Cree on the following AOCs, the Commission unanimously approved the following:

Cause No. 1, Docket No. 0107-OV-07, request to approve an Administrative Order by Consent, finding Bataa Oil, Inc. in violation of Rule 317..b.(1), failure to set surface casing at a depth of 1275’, sufficient to protect the Fox Fills transition zone for the Degenhart #43-5 Well, assessing a fine of One Thousand dollars ($1000).

Cause No. 1, Docket No. 0107-OV-08, request to approve an Administrative Order by Consent, finding McElvain Oil & Gas in violation of Rule 324A.a., 324A.b., 902.a., 907.a.(2), and 907.c.(2), failure to ensure that E&P waste is properly store, handled, transported, treated, recycled or disposed, and for the unauthorized and intentional discharge of produced water into adjacent surface waters, assessing a fine of Six Thousand dollars ($6000).

Rule 508.a. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Ken Wonstolen and the Commission unanimously voted to approve the changes.

Rule 508.b. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Ken Wonstolen, Erika Enger, Janie Hines, John Joswick, Bill Keefe and John Fossel and the Commission unanimously voted to approve the changes.

Rules 508.c. and 508.d. – After an overview of the proposed changes presented by Tricia Beaver, the Commission unanimously voted to approve the changes.

Rule 508.e. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Josh Joswick and Commissioner Casey and the Commission voted unanimously to approve the changes.

Rule 508.f. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Ken Wonstolen and Bill Keefe and the Commission voted unanimously to approve the changes.

Rule 508.g. - After an overview of the proposed changes presented by Tricia Beaver, the Commission voted unanimously to approve the changes.

Rule 508.h. - After an overview of the proposed changes presented by Tricia Beaver, the Commission voted unanimously to approve the changes.

Rules 508.i. and 508.j. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Josh Joswick, Adam Keller, Ken Wonstolen and Janie Hines and the Commission voted unanimously to approve the changes.

Rules 508.k., 508.l., 509 - After an overview of the proposed changes presented by Tricia Beaver, the Commission voted unanimously to approve the changes.

Rule 527. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Janie Hines and the Commission voted unanimously to approve the changes.

Rule 528. - After an overview of the proposed changes presented by Tricia Beaver, comments were made by Ken Wonstolen and Josh Joswick and the Commission voted unanimously to approve the changes.

The meeting adjourned at 5:17 p.m. and resumed at 9:00 a.m. on Tuesday, July 10th with all Commissioners present except Commissioner Cree.

A hearing was held in Cause 1, Docket No. 0107-EX-02, Matrix Energy, LLC request for an order granting a variance pursuant to Rules 502 and 503 as to minimum setbacks from housing in a high density area. Testimony and exhibits were presented by Dan Schwartz, principal of Matrix and sworn witness. Testimony, exhibits and a video were presented by Donovan Sharpe, homeowner and sworn witness. After Commission deliberation, all Commissioners except Commissioner Phillips voted to deny the request for variance. The Commission based its decision to deny the variance request on the fact that Matrix was unable to obtain a waiver from Mr. Sharpe and thus granting the variance would violate the basic intent of the Oil and Gas Act. The Commission directed the parties to negotiate a waiver, to prepare a safety plan and continued the matter to the August, 2001 hearing.

The meeting adjourned on July 10, 2001 at 11:47 a.m.

==============================================

The Secretary was therefore authorized to issue the following orders:

Order No. 1R-90, Statewide: Approved amendments to the 100, 200, 300, 500, 600, 900, 1000 and 1100 Series of the Rules and Regulations and approved the statement of basis and purpose.

Order No. 512-2, Las Animas County: Approves the request to rescind Order No. 512-1 which established a nitrogen injection unit to improve recovery of methane from the Raton and Vermejo Coals, and places Sections 28 and 33, Township 32 South, Range 66 West, 6th P.M. under the Rules and Regulations of the Oil and Gas Conservation Commission.

Order Nos. 139-37, 510-6, 440-22, and 479-9, Rulison and Grand Valley Fields, Garfield County: Approves the request to allow additional optional wells to be drilled to bottomhole locations within each of the quarter-quarter sections for the certain lands in the Rulison and Grand Valley Fields with each well to have a bottomhole location no closer than 200 feet from the boundaries of the drilling unit and no closer than 200 feet from the boundary of the unit within existing drilling and spacing units established for the Williams Fork Formation of the Mesaverde Group.

Order No. 329-5, Schramm Field, Yuma County: Approves the request to correct the setbacks stated in Order No. 329-4, thereby allowing any first well drilled for production from the Niobrara Formation in the Schramm Field to be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit. In addition, the permitted location for any additional well shall be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit for the lands described below:

Order No. 1V-213, Adams County: Finds Bataa Oil, Inc. in violation of Rule 317.A.b. (1), failure to set surface casing at a depth (1275’) sufficient to protect the Fox Hills transition zone for the Degenhart #43-5 Well, and assesses a total fine of One Thousand dollars ($1000).

Order No. 1V-214, Washington County: Finds McElvain Oil and Gas Properties, Inc. in violation of Rules 324A.a., 324A.b., 902.a., 907.a.(1), 907.a.(2), and 907.c.(2) for failure to ensure that E&P waste is properly stored, handled, transported, treated, recycled or disposed and for the unauthorized and intentional discharge of produced water into adjacent surface waters at the Anderson #1 tank battery located in the NE¼ SW¼ of Section 20, Township 3 South, Range 52 West, 6th P.M., and assesses a total fine of Six Thousand dollars ($6,000.00).

Order No. 1V-215, Adams County: Finds Sandlin Oil Corporation in violation of Rule 907.c.(2), failure to dispose of produced water by an authorized method at the UPRR-Meyer #2 lease located in the SW¼ SW¼, Section 9, Township 2 South, Range 63 West, 6th P.M., and assesses a total fine of Two Thousand dollars ($2000).

Signed:

Patricia C. Beaver, Secretary

Approved:

Stephen Sonnenberg, Chair