BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE ) CAUSE NO. 1V

RULES AND REGULATIONS OF THE COLORADO OIL )

AND GAS CONSERVATION COMMISSION BY ) DOCKET NO. 0410-OV-32

WALLACE OIL AND GAS INC., BACA COUNTY, COLORADO )

NOTICE OF HEARING

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

The Newman #1-7 Well is located in the SW¼ NE¼ of Section 7, Township 32 South, Range 41 West, 6^th P.M. and was drilled in December 1962. The well is operated by Wallace Oil and Gas Inc. ("Wallace") and has produced a total of 19,311 MCF of gas since January 1999. The well has not produced since September 2000. A Notice of Alleged Violation ("NOAV") was issued to Wallace on January 12, 2004, citing violations of Rules 326.b., failure to perform a mechanical integrity test ("MIT") within two (2) years of being shut-in and 603.j., failure to maintain well site. The NOAV required Wallace to perform either an MIT, return the well to production, or plug and abandon the well and reclaim the wellsite. The NOAV required the corrective action to be completed by March 1, 2004. As of September 1, 2004, none of these requirements have been met.

The Watkins #1 Well is located in the SE¼ NW¼ of Section 20, Township 32 South, Range 41 West, 6^th P.M. and was drilled in January 1961. The well is operated by Wallace and has produced a total of 338 MMCF of gas. The well has not produced since before January 1999. A NOAV was issued to Wallace on January 12, 2004, citing violations of Rules 326.b., failure to perform an MIT within two (2) years of being shut-in and 603.j., failure to maintain well site. The NOAV required Wallace to perform either an MIT, return the well to production, or plug and abandon the well and reclaim the wellsite. The NOAV required the corrective action to be completed by March 1, 2004. As of September 1, 2004, none of these requirements have been met.

The Hume #17-1 Well is located in the SW¼ SE¼ of Section 17, Township 32 South, Range 41 West, 6^th P.M. and was drilled in October 1985. The well is operated by Wallace and has produced a total of 28,328 MCF of gas since January 1999. The well has not produced since September 2000. A NOAV was issued to Wallace on January 12, 2004, citing violations of Rules 326.b., failure to perform an MIT within two (2) years of being shut-in and 603.j., failure to maintain well site. The NOAV required Wallace to perform either an MIT, return the well to production, or plug and abandon the well and reclaim the wellsite. The NOAV required the corrective action to be completed by March 1, 2004. As of September 1, 2004, none of these requirements have been met.

An Administrative Order by Consent ("AOC") was sent to Wallace Oil and Gas on April 12, 2004. The letter was unclaimed.

Wallace should be found in violation of Rules 326.b. failure to perform a mechanical integrity test within two (2) years of being shut-in (three (3) violations) and 603.j., failure to maintain the well sites for the Newman #1-7 Well, the Watkins #1 Well, and the Hume #17-1 Well (three (3) violations). Wallace should be assessed a total fine of Twelve Thousand dollars ($12,000) for the violations of the above rules.

Wallace should be ordered to bring the Newman #1-7 Well, the Watkins #1 Well, and the Hume #17-1 Well into compliance with COGCC rules, and if Wallace does not bring the wells described above into compliance, COGCC staff should be authorized to make a claim on the Five Thousand dollar ($5,000) individual plugging bonds posted by Wallace Oil and Gas Inc. in order to plug, abandon, and reclaim the three (3) wells listed above.

NOTICE IS HEREBY GIVEN, that the Oil and Gas Conservation Commission of the State of Colorado, pursuant to the above, has scheduled the above-entitled matter for hearing on:

Date: Monday, October 25, 2004

1120 Lincoln Street

Denver, CO 80203

Pursuant to said hearing in the above-entitled matter at the time and place aforesaid, or at any adjourned meeting, the Commission will enter such orders as it deems appropriate to protect the health, safety and welfare of the public and to prevent the waste of oil and gas, either or both, in the operations of said field, and to carry out the purposes of the statute.

In accordance with Rule 509., any interested party desiring to protest the granting of the application or to intervene on the application should file with the Commission a written protest or intervention no later than October 8, 2004, briefly stating the basis of the protest or intervention. Such interested party shall, at the same time, serve a copy of the protest or intervention to the person filing the application. An original and nine (9) copies shall be filed with the Commission (Rule 503.f.). Anyone who files a protest or intervention must be available to participate in a prehearing conference during the week of October 11, 2004. Pursuant to Rule 503.e., if a party who has received notice under Rule 503.b. wishes to receive further pleadings in the above-referenced matter, that party must file a protest or intervention in accordance with these rules.

IN THE NAME OF THE STATE OF COLORADO

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

September 28, 2004