BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 9:00 a.m. on February 22, 2010, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to allow the equivalent of one well per 10 acres well density for the certain lands located in Sections 21, 22, 25, and 26, Township 6 South, Range 91 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

FINDINGS

The Commission finds as follows:

1.    Dejour Energy (USA) Corporation (“Dejour”), 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 Oil and Gas Conservation Commission requires that wells drilled in excess of 2,500 feet in depth be located not less than 600 feet from any lease line, and located not less than 1,200 feet from any other producible or drilling oil or gas well when drilling to the same common source of supply.  Certain lands in Township 6 South, Range 91 West, 6^th P.M. are subject to this Rule.

5.    On December 11, 2009, Dejour Energy (USA) Corporation, by its attorneys, filed with the Commission a verified application for an order to allow the equivalent of one well per 10 acres for the below-listed lands, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations:

Township 6 South, Range 91 West, 6^th P.M.

Section 13:  W½ SW¼

Section 14:  S½

Section 15:  W½ NE¼, NW¼, N½ SW¼, and SE¼

Section 21:  SE¼ SW¼, E½ NE¼, and SW¼ SE¼

Section 22:  SE¼ NW¼, E½ SW¼, and SE¼ SW¼

Section 23:  NE¼ and N½ NW¼

Section 24:  NE¼ NE¼, W½ NE¼, NW¼, and N½ SE¼

Section 25:  SW¼ SW¼ and SE¼ SE¼

Section 26:  S½

That as to all future Williams Fork and Iles Formation wells to be drilled under this application, the wells should be located downhole anywhere within the application lands but no closer than 100 feet from the boundary or boundaries of the application lands without exception being granted by the Director of the Commission.  It is provided however that in cases where the application lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork and Iles Formation wells, the well should be located downhole no closer than 200 feet from the boundary or boundaries of the application lands so abutting or cornering such lands without exception being granted by the Director of the Commission.

That, except as previously authorized by order of the Commission, wells to be drilled under this application should be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Commission pursuant to application made for such exception, and that both formations will be reached from a single wellbore.

6.    On February 8, 2010, the Board of County Commissioners of Garfield County, Colorado (“Garfield County BOCC”), by its attorney, filed a written request to intervene pursuant to Rule 509.a. alleging concerns relating to public health, safety and welfare, including the environment and wildlife resources.

7.    On February 10, 2010, the Hearing Officer convened a prehearing conference under Rule 527., wherein it was represented that the Garfield County BOCC would maintain its objection as to the impact the granting of this application would have on the surface estate relating to public health, safety and welfare, including the environment and wildlife resources until such time that the U.S. Bureau of Land Management (“BLM”) filed a protest to this application.

8.    On February 17, 2010, the BLM, by its representative, submitted a written protest to the application regarding certain application lands (Sections 13 through 15 and Sections 23 and 24 and the SE¼ SE¼ of Section 25, Township 6 South, Range 91 West, 6^th P.M.)

9.    On February 17, 2010, Dejour, by its attorney, submitted a written request to amend the verified application by removing those lands protested by the BLM in Finding No. 8.  Consequently, the remaining lands subject to consideration under this application are listed below:

Township 6 South, Range 91 West, 6^th P.M.

Section 21:  SE¼ SW¼, E½ NE¼, and SW¼ SE¼

Section 22:  SW¼ NW¼, W½ SW¼, and SE¼ SW¼

Section 25:  SW¼ SW¼

Section 26:  S½

10.  On February 17, 2010, the Garfield County BOCC, by its attorney, filed a written letter withdrawing its request to intervene in this matter.

11.  On February 17, 2009, Dejour, by its attorney, filed with the Commission a written request to approve the amended application based on the merits of the verified amended application and the supporting exhibits as is provided for by Rule 511.  Sworn written testimony and exhibits were submitted in support of the amended application.

12.  Testimony and exhibits submitted in support of the amended application showed that lands adjacent to, and in the vicinity of, the application lands have been approved for 10-acre density for the Williams Fork and Iles Formations.  Additional testimony requested that the Commission take administrative notice of Order Nos. 191-8, 191-9, 191-10, 191-57, and 513-4 and the testimony and exhibits supporting those orders on the basis of uncontested geologic and reservoir engineering expertise contained therein, and incorporate those findings made therein by reference.

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

14.  Dejour agreed to be bound by oral order of the Commission.

15.  Based on the facts stated in the verified amended application, having received one protest which was subsequently withdrawn and one protest which was reconciled by the amendment to the application lands, and based on the Hearing Officer review of the application under Rule 511., the Commission should enter an order to allow the equivalent of one well per 10 acres for the certain lands, described above located in Sections 21, 22, 25, and 26, Township 6 South, Range 91 West, 6^th P.M., for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that the equivalent of one well per 10 acres well density for the below-listed lands is hereby approved, for the production of gas and associated hydrocarbons from the Williams Fork and Iles Formations:

Township 6 South, Range 91 West, 6^th P.M.

Section 21:  SE¼ SW¼, E½ NE¼, and SW¼ SE¼

Section 22:  SW¼ NW¼, W½ SW¼, and SE¼ SW¼

Section 25:  SW¼ SW¼

Section 26:  S½

IT IS FURTHER ORDERED, that, as to all future Williams Fork and Iles Formation wells to be drilled under this application, the wells shall be located downhole anywhere within the application lands but no closer than 100 feet from the boundary or boundaries of the application lands without exception being granted by the Director of the Commission.  It is provided however that in cases where the application lands abut or corner lands in respect of which the Commission has not at the time of drilling permit application granted the right to drill 10-acre density Williams Fork and Iles Formation wells, the well shall be located downhole no closer than 200 feet from the boundary or boundaries of the application lands so abutting or cornering such lands without exception being granted by the Director of the Commission.

IT IS FURTHER ORDERED, that, except as previously authorized by order of the Commission, wells to be drilled under this application shall be drilled from the surface either vertically or directionally from no more than one pad located on a given quarter quarter section (or lots or parcels approximately equivalent thereto) unless exception is granted by the Commission pursuant to application made for such exception, and that both the Williams Fork and Iles Formations will be reached from a single wellbore.

>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 March, 2010, as of February 22, 2010.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                        OF THE STATE OF COLORADO

                                                                        By____________________________________         

                                                                                    Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

March 9, 2010