IN THE MATTER OF THE PROMULGATION CAUSE NO

IN THE MATTER OF THE PROMULGATION CAUSE NO. 331
AND ESTABLISHMENT OF FIELD RULES TO
GOVERN OPERATIONS IN THE BUCKBOARD ORDER NO. 331-8
FIELD, YUMA COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on April 22, 2002 at 10:00 a.m. in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to allow an optional second well to be drilled on certain 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Niobrara Formation with the permitted well to be located no closer than 560 feet from the boundaries. In addition, the applicant requests that for any 160-acre drilling and spacing unit which does not currently have a well, the initial well shall also be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit.

FINDINGS

The Commission finds as follows:

1. Rosewood Resources, Inc. (“Rosewood”), as applicant herein, is an interested party in the subject matter of the above-referenced hearing.

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. The Commission has jurisdiction over the subject matter embraced in said Notice, and of the parties interested therein, and jurisdiction to promulgate the hereinafter prescribed order.

4. On November 21, 1977, the Commission issued Order No. 331-1, which established 640-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Niobrara Formation with the permitted well to be located no closer than 990 feet from the unit boundary underlying certain lands in the Buckboard Field. By Order No. 331-2, dated August 22, 1978 and upheld by Order No. 331-3 dated September 9, 1981, the size of the drilling and spacing units within the spaced area was reduced to 160-acres with the permitted well to be located no closer than 900 feet from the unit boundaries for the below-listed lands:

Township 3 North, Range 46 West, 6th P.M.
Sections 7 thru 11: All
Sections 14 thru 23: All

5. Order Nos. 331-5, 331-6 and 331-7 were subsequently issued by the Commission for an order to allow the drilling of an additional well on the 160-acre drilling and spacing units for the lands described below for the production of gas and associated hydrocarbons from the Niobrara Formation:

Township 3 North, Range 46 West, 6th P.M.
Section 7: E½
Section 8: N½
Section 9: All
Section 10: N½, SE¼
Section 14: All
Section 15: All
Section 16 All
Section 22: All
Section 23: All

6. On March 7, 2002, Rosewood Resources, Inc. by its attorney filed with the Commission a verified Application for an order to allow an optional second well to be drilled on the 160-acre drilling and spacing units described below for the production of gas and associated hydrocarbons from the Niobrara Formation with the permitted well to be located no closer than 560 feet from the boundaries. In addition, Rosewood requests that for any 160-acre drilling and spacing unit which does not currently have a well, the initial well shall also be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit.

Township 3 North, Range 46 West, 6th P.M.
Section 7: W½
Section 11: All
Section 19: SE¼
Section 20: All

7. Testimony and exhibits presented at the administrative hearing showed the location of the application lands in relation to the nearby towns of Yuma and Eckley. Exhibits also showed the application lands subject to the proposed optional second well and the ownership of those lands.

8. Testimony and exhibits presented at the administrative hearing indicated that at the Yuma County Local Governmental Designee’s request, letters were sent to the surface owners in the application lands advising them of Rosewood’s application. No protests to the application were received.

9. Testimony and exhibits presented at the administrative hearing indicated that gas production is better in areas of structural highs within the application lands.

10. Testimony and exhibits presented at the administrative hearing showed that the Niobrara Formation in the application area has an average thickness of approximately thirty (30) feet and is a very porous, low permeability blanket chalk with some local faulting present.

11. Testimony and exhibits presented at the administrative hearing showed the average initial gas in has been calculated at 2.5 BCF, with only 17% of the gas in place recovered.

12. Testimony and exhibits presented at the administrative hearing showed economic assumptions and profitability, that the drilling of additional wells will be economic with a gas price of $3.50 MCF, a 38% rate of return and a 2.6 year payout.

13. Further testimony and exhibits presented at the administrative hearing showed an optional second well will be economic and is necessary to prevent waste and recover additional reserves while protecting correlative rights of mineral owners.

14. Rosewood Resources, Inc. agreed to be bound by oral order of the Commission. Rosewood Resources, Inc. further agreed that compliance with Commission rules is sufficient to protect the environment, public health and welfare without any additional plan proposed by the applicant.

15. Based on the facts stated in the verified application, having received no protests to the application and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to allow an optional second well to be drilled on certain 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Niobrara Formation with the permitted well to be located no closer than 560 feet from the boundaries. In addition, the order should allow any initial well in a 160-acre drilling and spacing unit to be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit.

ORDER

NOW, THEREFORE IT IS ORDERED, that an order be approved allowing an optional second well to be drilled on the 160-acre drilling and spacing units described below for the production of gas from the Niobrara Formation with the permitted well to be located no closer than 560 feet from the outer boundaries of 160-acre drilling and spacing unit:

Township 3 North, Range 46 West, 6th P.M.
Section 7: W½
Section 11: All
Section 19: SE¼
Section 20: All

IT IS FURTHER ORDERED, that for any 160-acre drilling and spacing unit which does not currently have a well, the initial well shall also be located no closer than 560 feet from the outer boundaries of the 160-acre drilling and spacing unit.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith.

IT IS FURTHER ORDERED, that the Commission expressly reserves its right, after notice and hearing, to alter, amend or repeal any and/or all of the above orders.

ENTERED this 2nd day of May 2002, as of April 22, 2002.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Dated at Suite 801 Patricia C. Beaver, Secretary 1120 Lincoln Street Denver, Colorado 80203 May 2, 2001.

(331#8)