BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                         CAUSE NO. 191

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE MAMM CREEK FIELD,                                       )                         ORDER NO. 191-26

GARFIELD COUNTY, COLORADO                                                         )

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 10:00 a.m. on June 5, 2006, in the Council Chamber Room of the Ambulance Building, 304 West 3rd Street, Wray, Colorado, for an order to establish 320-acre drilling and spacing units in Sections 30 and 31, Township 5 South, Range 92 West, 6th P.M. and in the N˝ of Section 3, Township 6 South, Range 93 West, 6th P.M., for the production of gas from the Williams Fork Formation of the Mesaverde Group, and to allow the equivalent of one well per 10 acres to be drilled on said units, with the permitted well to be located no closer than 100 feet from the unit boundary.

FINDINGS

                        The Commission finds as follows:

                        1. Dolphin Energy Corporation ("Dolphin"), 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 pursuant to the Oil and Gas Conservation Act.

                        4. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.

                        5. On April 17, 2006, Dolphin Energy Corporation, by its attorney, filed with the Commission a verified application for an order to establish 320-acre drilling and spacing units in Sections 30 and 31, Township 5 South, Range 92 West, 6th P.M. and in the N˝ of Section 3, Township 6 South, Range 93 West, 6th P.M., for the production of gas from the Williams Fork Formation of the Mesaverde Group, and to allow the equivalent of one well per 10 acres to be drilled on said units. For all future Williams Fork Formation wells to be drilled on these lands, the well should be located downhole no closer than 100 feet from the boundaries of the unit unless such unit abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill Williams Fork Formation 10-acre density wells, in which event the wells should be drilled downhole no closer than 200 feet from the unit which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission. In addition, wells drilled on the application lands will be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Colorado Oil and Gas Conservation Commission.

                        6. On May 22, 2006, the Rifle Creek Estates Homeowners Association ("RCEHA") filed with the Commission a protest to the application. Hearing Officer Beaver spoke with the RCEHA secretary to advise her that under the Commission’s Rule 507.b.(1) "owners" should be notified when applications are filed to establish drilling and spacing units and to allow additional wells on those units.  The Commission’s statute defines owners as the person with the right to drill which generally means the mineral owner or the leasehold owner (the person/party who has leased the minerals from the mineral owner). Ms. Beaver is aware that RCEHA has members who are surface owners and not owners as defined by the Commission’s statute.  A representative from Dolphin Energy told Ms. Beaver that they were unsure as to whether some of the surface owners were also mineral owners and so they included them as parties to be noticed just to be on the safe side.  She advised the RCEHA that they may wish to file a written statement under Rule 510., which can be filed by any party with concerns about any hearing application, but that the RCEHA protest was not valid under the Oil and Gas Conservation Act.

                        7. Testimony and exhibits presented at the administrative hearing showed that Dolphin owns 25% of the leasehold in the application lands, with Exxel Energy owning 75% of the leasehold in the application lands. Additional testimony showed that the remaining mineral ownership shown on the exhibit is either unleased or leased by Antero Resources, Williams Production or Kerr-McGee and that all of the 320-acre drilling and spacing units are laydown units.

                        8. Testimony and exhibits presented at the administrative hearing showed that the application lands straddle Rifle Creek Valley on the western edge of the Grand Mesa, and that the application lands are an eastern extension of the Rulison Field.

                        9. Testimony and exhibits presented at the administrative hearing showed that the sands are surrounded by impermeable shales, that the sands are stacked and that pay will be left behind without increased well density in the application lands.

                        10. Testimony and exhibits presented at the administrative hearing showed the difficulty in predicting reservoir thickness that many sands will be missed on 40-acre density and that even with 10-acre density some gas resources may be wasted.

                        11. Testimony and exhibits presented at the administrative hearing showed the discontinuity of the Williams Fork Formation and the continuous gas section.

                        12. Testimony and exhibits presented at the administrative hearing showed that production volumes range from 0.5 BCF to 2.0 BCF from wells to the south of the application lands, and that the estimated ultimate recovery for wells drilled in the application lands is 1359 MMCFG.

                        13. Testimony and exhibits presented at the administrative hearing showed economics for wells in the application lands estimated at 1359 MMCF for each well, with payout occurring in 1.8 years for a rate of return of 48.3%.

                        14. The above-referenced testimony and exhibits show that the proposed spacing and density will allow more efficient reservoir drainage, will prevent waste, will assure a greater ultimate recovery of gas, and will not violate correlative rights.

                        15. Dolphin Energy Corporation agreed to be bound by oral order of the Commission.

                        16. Based on the facts stated in the verified application and the testimony and exhibits presented at the hearing, the Commission should enter an order to establish 320-acre drilling and spacing units in Sections 30 and 31, Township 5 South, Range 92 West, 6th P.M. and in the N˝ of Section 3, Township 6 South, Range 93 West, 6th P.M., for the production of gas from the Williams Fork Formation of the Mesaverde Group, and to allow the equivalent of one well per 10 acres to be drilled on said units, with the permitted well to be located no closer than 100 feet from the unit boundary.

ORDER

                        NOW, THEREFORE IT IS ORDERED, that 320-acre drilling and spacing units are hereby established for the below listed lands, for the production of gas from the Williams Fork Formation of the Mesaverde Group, with the equivalent of one well per 10 acres to be drilled on said units:

Township 5 South, Range 92 West, 6th P.M.

Section 30: All

Section 31: All

Township 6 South, Range 93 West, 6th P.M.

Section 3: N˝

IT IS FURTHER ORDERED, that all future Williams Fork Formation wells shall be located downhole no closer than 100 feet from the boundaries of the unit unless such unit abuts or corners lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill Williams Fork Formation 10-acre density wells, in which event the wells shall be drilled downhole no closer than 200 feet from the unit which so abuts or corners the lands in respect of which 10-acre density downhole drilling for Williams Fork Formation wells has not been ordered by the Commission.

IT IS FURTHER ORDERED, that wells drilled on the application lands shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section unless exception is granted by the Colorado Oil and Gas Conservation Commission.

                        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.

                        IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

                        IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

                        ENTERED this ___________day of June, 2006, as of June 5, 2006.

                                                        OIL AND GAS CONSERVATION COMMISSION

            OF THE STATE OF COLORADO

By 9; ___________________________________

                    Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 23, 2006