BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF ALLEGED VIOLATIONS ) CAUSE NO. 1V

OF THE RULES AND REGULATIONS OF THE )

COLORADO OIL AND GAS CONSERVATION ) ORDER NO. 1V-311

COMMISSION BY PETROGULF CORPORATION, )

GARFIELD COUNTY, COLORADO )

ADMINISTRATIVE ORDER BY CONSENT

FINDINGS

1. On December 1, 2005, the Colorado Oil and Gas Conservation Commission ("COGCC") approved an Application for Permit-to-Drill (“APD") from Petrogulf Corporation (“Petrogulf”), for the Hooker #30-10 Well (the “Well") located in the NW¼ NE¼ of Section 30, Township 6 South, Range 93 West, 6^th P.M., Garfield County. The APD for the Well had an expiration date of November 30, 2006.

2. Petrogulf began drilling the Well on February 6, 2006 and completed the Well on February 28, 2006. Petrogulf reported first production from the Well was on June 13, 2006.

3. On August 28, 2006, Mr. Bobby Hooker, the surface owner, filed a complaint with the COGCC alleging that there was still fluid in the reserve pit and that the reserve pit should have been closed. Although Petrogulf had set no time period for pit closure with Mr. Hooker, Petrogulf proceeded to close the pit.

4. On November 11, 2006, Mr. Hooker complained that the reserve pit at the Well was being closed improperly. He reported the pit was being back-filled while the pit still contained large amounts of fluid.

5. COGCC staff inspected the site on November 24, 2006. The inspection report noted that the reserve pit had been breached, an unauthorized pit had been dug adjacent to the reserve pit, and reserve pit contents were being drained into the unauthorized pit.

6. COGCC staff issued a Notice of Alleged Violation ("NOAV") for the Well on November 24, 2006, for alleged violations of (a) Rule 324A.a., requiring the operator to take precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources, (b) Rule 903.a.(1), requiring permits for drilling pits, production pits, and special purpose pits, (c) Rule 907.a.(1), requiring operators to ensure that E&P waste is properly disposed of, (d) Table 910-1, specifying allowable concentrations for soil, and (e) Rule 1003.d.(2), requiring the drilling pit to be sufficiently dry prior to backfilling.

7. The NOAV required (a) removal of all contaminated material from the new, unauthorized pit and closure of it immediately, (b) removal of all free fluids from the remaining open pit area of the reserve pit, (c) excavation of the entire reserve pit area and removal of all hydrocarbon contaminated materials that exceed 10,000 ppm TPH, (d) drying of the fill materials in the pit prior to backfilling the pit, (e) obtaining third-party sampling and analysis of the soil to ensure all materials left behind are below the action levels stated in Table 910-1, (f) notifying COGCC staff and landowner 48 hours in advance of the time of sampling so they can witness it, and (g) disposing of all contaminated soil in an approved manner. The abatement date was originally set as January 1, 2007, but was later extended to March 1, 2007.

8. Laboratory analysis of soil samples taken from the pit by a third-party contractor on December 5, 2006 indicated petroleum hydrocarbons were not present above action levels, addressing a portion of the NOAV. However, Sodium Adsorption Ratios measured were above the action levels contained in Table 910-1, and the remaining requirements to excavate the pit area and dry the fill materials had not been fully completed to date.

9. Rule 523.c. specifies a base fine of One Thousand dollars ($1,000) per day for each violation of Rule 903. and Rule 1003.

10. A monetary penalty of Two Thousand dollars ($2,000.00) should be assessed against Petrogulf Corporation, in accordance with Rule 523.c., for continuing violation of Rule 903.a.(1) and Rule 1003.d.(2).

11. Petrogulf should be required to excavate the reserve pit area, dry the fill material prior to backfilling, and then close the pit to ensure stability of the reclaimed area. Petrogulf should notify the COGCC staff of excavation operations to enable COGCC staff to witness them. If contaminated soils are encountered during the operation they should be disposed of in an approved manner and in accordance with Rule 907.e.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Petrogulf Corporation shall be found in violation of Rule 903.a.(1), requiring permits for drilling pits and production pits, and Rule 1003.d.(2), requiring the drilling pit to be sufficiently dry prior to backfilling, for the Hooker #30-10 Well located in the NW¼ NE¼ of Section 30, Township 6 South, Range 93 West, 6^th P.M.

IT IS FURTHER ORDERED, that Petrogulf Corporation shall be assessed a fine of Two Thousand dollars ($2,000.00) payable within thirty (30) days of the date the order is approved by the Commission for violation of the above-described rules occurring at the Hooker #30-10 Well.

IT IS FURTHER ORDERED, that Petrogulf Corporation shall excavate the reserve pit area to the total depth of the original pit and dry the excavated material prior to closing it again to ensure stability of the reclaimed area. Petrogulf Corporation shall also notify the COGCC staff at least forty-eight (48) hours prior to excavation to give staff the opportunity to witness the excavation operations. If contaminated soils are encountered during the operation they shall be disposed of in an approved manner and in accordance with Rule 907.e.

IT IS FURTHER ORDERED, that the pit closure shall be completed within thirty (30) days of the date the order is approved by the Commission.

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

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.

Recommended this ______ day of May, 2007.

OIL AND GAS CONSERVATION COMMISSION

By: ___________________________________

Authorized COGCC Representative

______________________________________

Title

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

May __, 2007

AGREED TO AND ACCEPTED THIS _________DAY OF ________, 2007.

PETROGULF CORPORATION

By: __________________________________

Authorized Company Representative

_____________________________________

Legibly Print Full Name

_____________________________________

Title

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This cause came on for hearing before the Commission at 9:00 a.m. on August 28, 2007, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for the approval of this Administrative Order by Consent.

ENTERED this__________day of September, 2007, as of August 28, 2007.