IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULES          CAUSE NO. 1
AND REGULATIONS OF THE COLORADO OIL AND GAS
CONSERVATION COMMISSION BY STROUD OIL                            ORDER NO. 1V-130
PROPERTIES, LAS ANIMAS COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on October 21, 1997, 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 Stroud Oil Properties, Inc. is in violation of Rule 301., failure to file proper forms notifying the Director of work plans; and Rule 303., failure to obtain a permit prior to drilling a well, for two (2) wells in Las Animas County by Stroud Oil Properties, Inc., 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. Stroud Oil Properties, 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 July 1, 1997, COGCC staff was contacted by Bob McNew with Stroud Oil Properties, Inc. ("Stroud") requesting plugging orders for the Primero #25-08 Well located 1,683 feet FNL, 1,235 feet FWL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M., and the Primero #25-08A Well located 1,658 feet FNL, 1,235 feet FEL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M. Mr. McNew indicated that in the process of drilling the surface casing hole for the Primero #25-08 Well, an obstruction was encountered in the abandoned Primero coal mine at approximately fifty-two (52) feet. Since Stroud was unable to continue drilling at this location, operations were suspended and the rig moved to a new location twenty-five (25) feet north of the permitted location. The new well (Primero #25-08A) was spudded and also encountered an obstruction at fifty-two (52) feet. Drilling operations were suspended in order to obtain Commission approval to plug and abandon the wells. Mr. McNew was informed that the Primero #25-08A Well was in violation of COGCC Rules 301. and 303. since the Commission had not received prior notice or granted prior approval for these operations. Mr. McNew was instructed to contact COGCC engineering technician Ron Schmela for permitting the Primero #25-08A Well. According to Mr. Schmela, Mr. McNew never contacted him regarding this matter. On July 14, 1997, COGCC staff contacted Mr. McNew seeking information on the sequence of events with regard to the drilling of the Primero #25-08 and Primero #25-08A Wells. During this conversation, Mr. McNew mentioned that the Primero #25-08B Well located 2,096 feet FNL and 682 feet FEL in the SE¼ NE¼ of said Section 25 had been drilled and completed as a gas well on July 10, 1997. COGCC staff informed Mr. McNew that this well was in violation of COGCC Rules 301. and 303. for being drilled without prior notification or approval of the Director. On July 15, 1997, Notice(s) of Alleged Violation (NOAVs) were sent to Stroud citing them with violation of COGCC Rules 301. and 303. The NOAVs were issued for drilling the Primero #25-08A and Primero #25-08B Wells without prior notification or Director approval. The NOAVs required Stroud to respond by August 14, 1997 with an explanation as to why the wells were drilled without prior Director approval and to submit all necessary paperwork. On August 13, 1997 Stroud responded through their attorney with an explanation and submitted the required paperwork.

5. Stroud self-reported these violations which was considered as a mitigating factor in accordance with Rule 523.d.

6. On September 5, 1997, an Administrative Order by Consent (AOC) with a proposed penalty of Four Thousand Dollars ($4,000) was presented to Stroud. On September 11, 1997, the AOC was signed by Bob McNew, superintendent for Stroud.

7. An order of the Commission should be entered finding Stroud Oil Properties, Inc., in violation of Rule 301., failure to file proper forms notifying the Director of work plans; and Rule 303., failure to obtain a permit to drill prior to drilling the Primero #25-08A Well located 1,658 feet FNL, 1,235 feet FEL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M., and the Primero #25-08B Well located 2,096 feet FNL and 682 feet FEL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M., and a fine of Four Thousand Dollars ($4,000) should be assessed payable within thirty (30) days from the date the order is issued.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that Stroud Oil Properties, Inc. shall be found in violation of Rule 301., failure to file proper forms notifying the Director of work plans, and Rule 303., failure to obtain a permit to drill prior to drilling the Primero #25-08A Well located 1,658 feet FNL, 1,235 feet FEL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M., and the Primero #25-08B Well located 2,096 feet FNL and 682 feet FEL in the SE¼ NE¼ of Section 25, Township 33 South, Range 66 West, 6th P.M.

IT IS FURTHER ORDERED, that Stroud Oil Properties, Inc. shall be assessed a fine of Four Thousand Dollars ($4,000) payable within thirty (30) days from the date the order is issued.

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 13th day of November, 1997, as of October 21, 1997.

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 November 13, 1997

(1V#130)