BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF POLICIES TO THE ) CAUSE NO. 1R

RULES AND REGULATIONS OF THE COLORADO OIL )

AND GAS CONSERVATION COMMISSION ) ORDER NO. 1R-96

OF THE STATE OF COLORADO ) AMENDED

REPORT OF THE COMMISSION

Pursuant to a hearing before the Oil and Gas Conservation Commission on January 10, 2005, at 9:00 a.m., 1120 Lincoln St. Suite 801, Denver, Colorado, after giving Notice of Hearing, as required by law, the Oil and Gas Conservation Commission adopted the following policy requiring onsite inspections on lands where the surface owner did not execute a lease or is not a party to a surface use agreement. This policy shall become effective for Applications for Permits-to-Drill submitted after February 15, 2005.

At a hearing before the Oil and Gas Conservation Commission on February 14, 2005, at 9:00 a.m., 1120 Lincoln St. Suite 801, Denver, Colorado, the policy was amended to add: The following policy shall not apply to oil and gas wells drilled on lands where the United States Bureau of Land Management issues a federal Application for Permit-to-Drill and conducts an onsite inspection.

Initiation of An Onsite Inspection

The Director will conduct an onsite inspection in advance of issuing an approved Application for Permit-to-Drill, Form 2 (“APD”) at the request of the surface owner of the lands on which the well is proposed, when:

1. The surface owner did not execute a lease or is not a party to a surface use or other relevant agreement for the proposed well;

2 The surface owner contends that the impacts of the proposed well may not be adequately addressed by the rules and regulations of the COGCC; and

3. The request for the onsite inspection is made by the surface owner within ten (10) business days of the good faith consultation provided for under COGCC Rule 306.

Purpose of Onsite Inspection

The purpose of the onsite inspection shall be to determine whether technical or operational conditions of approval should be attached to the APD in order to:

Avoid potential unreasonable crop loss or land damage;

Address potential health, safety and welfare or significant adverse environmental impacts within COGCC jurisdiction regarding the proposed surface location that may not be adequately addressed by COGCC rules or orders, or

Otherwise ensure compliance with the COGCC’s rules relating to advance notice and good faith consultation with respect to timing of operations and location of facilities.

The onsite inspection shall not address matters of surface owner compensation, property value diminution, future use of the property or any private party contractual issues between the operator and the surface owner.

Notice to Surface Owner of Onsite Inspection Policy

The advance notice of drilling operations that is provided to the surface owner by the operator as required under COGCC Rule 305. shall include a copy of this COGCC Onsite Inspection Policy.

Conducting An Onsite Inspection

Prior to the surface owner requesting an onsite inspection under this policy, the surface owner shall have participated in a good faith consultation in a timely manner with the operator in accordance with Rule 306. The operator shall indicate the date on which the Rule 306. consultation occurred on the APD when it is submitted. The operator may also indicate on the APD that the surface owner executed the lease, if applicable.

If the COGCC Rule 306. good faith consultation between the operator and the surface owner does not resolve operational issues related to the proposed well, the surface owner may request the COGCC to conduct an onsite inspection. The request shall be made within ten (10) business days following the first day of the consultation provided for under COGCC Rule 306. The request shall be in writing on the attached “Onsite Inspection Request Form” to the COGCC Permit Supervisor preferably by facsimile or alternatively by first class mail. The request shall be received within ten (10) business days of the COGCC Rule 306. consultation date provided on the APD. The surface owner shall include in the request the following information:

Two (2) dates on which the surface owner is available to meet on location, such dates to be within thirty (30) days of requesting such onsite inspection; and

The surface owner’s preference for having the Local Governmental Designee invited to participate in the onsite inspection; and

A brief description of the unresolved issues related to the proposed well.

A request from a surface owner for an onsite inspection that is made prior to the submittal of an APD by an operator will be accepted by the COGCC.

The DIrector shall withhold approval of all APDs until the expiration of the ten (10) business day period provided above, except under the following circumstances:

1. That the surface owner executed the lease; or

2. That a surface use agreement has been executed; or

3. That the COGCC Rule 306. consultation has been waived by the surface owner.

When the Director conducts an onsite inspection as described herein, the Director shall invite the representatives of the surface owner and the operator to attend. If the operator or the surface owner has requested that the local governmental designee ("LGD") be invited, the Director shall also invite the LGD to the onsite inspection. The Director shall attempt to select an acceptable time for the representatives to attend the onsite inspection, which shall be, to the extent practicable, on one of the two (2) dates that the surface owner requested in his/her response to the Director.

Permit Conditions Resulting From An Onsite Inspection

Following the onsite inspection, the Director may apply appropriate site specific drilling permit conditions, if necessary, to avoid potential unreasonable crop loss or land damage, or to prevent or mitigate health, safety and welfare concerns, including potential significant adverse environmental impacts. Any such conditions of approval shall be consistent with applicable Commission spacing orders and well location rules, and shall take into account cost-effectiveness, technical feasibility, protection of correlative rights and prevention of waste. Under COGCC rules, the Director is not authorized to require an operator to use an exception location, to utilize directional drilling techniques, or otherwise compromise its reasonable geologic and petroleum engineering considerations.

Examples of the types of impacts and conditions that might be applied if determined necessary by the Director at the onsite inspection include (this list is not prescriptive or all inclusive):

1. visual or aesthetic impacts - moving the proposed surface well site location or access road to take advantage of natural features for screening; installing low profile artificial lift methods; constructing artificial features for screening.

2. surface impacts - moving or reducing the size, shape, or orientation of the surface well site location or access road to avoid disturbance of natural features or to enhance the success of interim and final reclamation activities; controlling noxious weeds and undesirable species in disturbed areas, utilizing an existing surface well site location or access road to avoid the impacts of new construction; utilizing a closed drilling fluid system instead of reserve pits to avoid impacts to sensitive areas.

3. noise impacts - installing electric motors where practicable; muffling, locating or orienting motors or compressors to reduce noise; installing insulated buildings or sound barriers to achieve compliance with COGCC rules.

4. dust impacts - watering roads as necessary to control dust during drilling and completion operations.

5. ground water impacts - collecting and analyzing water and gas samples from existing water wells or springs; installing monitoring wells, collecting samples, and reporting water, gas and pressure data.

6. safety impacts - soil gas sampling and analysis; residential crawl space gas sampling and analysis; installing security fencing around wellheads and production equipment.

7. wildlife impacts - limiting drilling and completion operations during certain seasonal time periods when specific site conditions warrant.

If the operator objects to any of the conditions of approval applied under this policy, the Director shall stay the issuance of the drilling permit and properly notice and set the matter for the next regularly scheduled Commission hearing at which time the Commission may determine conditions of drilling permit approval.

DONE AND PERFORMED by the Oil and Gas Conservation Commission of the State of

Colorado this 10^th day of January, 2005.

AMENDED by the Oil and Gas Conservation Commission of the State of Colorado this

________ day of February, 2005.

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 1, 2005