REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 21, 1996, at 8:30 a.m., in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing as required by law, on why Kana Resources, Inc. (Kana) is not in violation of Rule No. 303.a., commencing drilling operations prior to permit approval; Rule No. 306, failure to submit the Form 5, Well Completion Report and a copy of all logs run; and Rule No. 317.b.( 1), a status update on the shut-in well, of the Oil and Gas Conservation Commission, and why it should not invoke the provisions of 34-60-121 C.R.S., as amended, providing for penalties for violations of the Rules and Regulations of the Commission.

FINDINGS

The Commission finds as follows:

1. Kana Resources, Inc. 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 June 1, 1994, COGCC staff conducted an inspection of the Wagon Trail No. 1-3 Well drillsite, located in the SW1/4 SE1/4 of Section 3, Township 9 South, Range 98 West, 6th P.M. because of a possible setback problem. The well had been spudded at the time of the inspection, but the Application for Permit to Drill was not approved until June 10, 1994 due to a pending safety setback issue. This was in violation of Rule No. 303.a., obtaining approval prior to commencing operations. On September 5, 1995, staff requested Kana, by October 5, 1995, to submit a completed Form 5 and copies of all logs, for the Wagon Trail No. 1-3 Well. As of November, 1995 no reply was received and a final notice request was sent with a response due by December 6, 1995. No response was received by the due date and a Notice of Alleged Violation ("NOAV") was issued on January 5, 1996 for violations of Rule No. 305, failure to file Form 4; and Rule No. 306, failure to file a Form 5. No response was received to the NOAV, although a return receipt verified that Kana had received it.

5. On March 7, 1996, the Grand Junction Bureau of Land Management ("BLM") office notified COGCC staff that the well had been completed and remains shut-in waiting pipeline hookup per a BLM sundry notice dated May 28, 1995. Since, the COGCC never received a status update, this is in violation of Rule No. 317.b.(1), failure to notify COGCC of shut-in status.

6. On March 12, 1996, an Administrative Order by Consent ("AOC") was prepared by COGCC staff and sent to Kana, certified mail, for violations of Rule No. 303.a., commencing drilling operations prior to permit approval; Rule No. 306, failure to submit the Form 5, Well Completion Report and a copy of all logs run; and Rule No. 317.b.(1), a status update on the shut-in well. The AOC also recommended a fine of One Thousand Seven Hundred Fifty Dollars ($1,7 50) be assessed. No response was received, although a return receipt verified that Kana had received it. On May 20, 1996, Kana contacted COGCC staff and a new AOC was issued and signed by the president of Kana. A fine of Three Thousand Five Hundred Dollars ($3,500) was assessed.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that Kana Resources, Inc. shall be found in violation of Rule No. 303.a., commencing drilling operations prior to permit approval; Rule No. 306, failure to submit the Form 5, Well Completion Report and a copy of all logs run; and Rule No. 317.b.(1), a status update on the shut-in well, for the Wagon Trail No. 1-3 Well, located in the SW1/4 SE1/4 of Section 3, Township 9 South, Range 98 West, 6th P.M.

IT IS FURTHER ORDERED, that Kana shall be assessed a total fine of Three Thousand Five Hundred Dollars ($3,500), payable within thirty (30) days of the date the order is entered.

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 day of , 1996, as of May 21, 1996

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 March 25, 1997 ??