BEFORE THE OIL AND GAS CONSERVATION COMMISSION

                                                               OF THE STATE OF COLORADO

IN THE MATTER OF ALLEGED VIOLATIONS OF THE RULE AND REGULATIONS OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION BY ENCANA OIL & GAS (USA) INC., GARFIELD COUNTY, COLORADO

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CAUSE NO. 1V TYPE: ENFORCEMENT ORDER NO. 1V-280

REPORT OF THE COMMISSION

This cause came on for hearing before the Colorado Oil and Gas Conservation Commission on November 29, 2004 at 9:00 a.m. in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado after giving Notice of Hearing as required by law, as to why EnCana Oil & Gas (USA) Inc. is in violation of certain rules and regulations of the Colorado Oil and Gas Conservation Commission (“COGCC”) and why the Commission should 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

                       1.  On March 3, 2002, COGCC Application for Permit-to-Drill (“APD”), Form 2, was approved for AEC Oil & Gas (USA) to drill the Shideler # 32-4C1 (H31) (“Well”) located in the SE¼ NE¼ of Section 31, Township 7 South, Range 92 West, 6th P.M.  This APD expired on March 10, 2003.

                        2.  On November 24, 2003, a Sundry Notice, Form 4, was submitted by EnCana Oil & Gas (USA) Inc (“EnCana”), successor operator to AEC Oil & Gas (USA), to change the well name to the Shideler # 31-1 (H31) and to move the well location.  The Form 4 was returned without approval and stated the name change had been made to the Well.

                        3.  On December 11, 2003 a new APD was submitted for the Well.  This APD was approved on December 23, 2003.

                        4.  On January 9, 2004, a Sundry Notice, Form 4, was submitted by EnCana stating the Well had been spudded on December 18, 2003 which was five (5) days prior to the approval of the APD.

                        5. On July 1, 2004, a Drilling Completion Report, Form 5, a Completed Interval Report, Form 5A, a Certification of Clearance, Form 10 and the Well logs were submitted to the COGCC. The Form 5 stated the Well had been spudded on December 18, 2003.

                        6. On July 20, 2004, a Notice of Alleged Violation (“NOAV”) was issued to EnCana for violation of Rule 303.a.1., not obtaining the Director’s approval before commencement of operations with heavy equipment, Rule 308A., not submitting the Drilling Completion Report, Form 5 within thirty (30) days of setting the production casing, Rule 308B., not submitting the Completed Interval Report, Form 5A within thirty (30) days of completing a formation, and Rule 312., not submitting a Certification of Clearance, Form 10 within thirty (30) days of initial sales of oil or gas.  The NOAV required EnCana to submit a letter detailing the reasons for spudding the well prior to permit approval and why the three (3) forms were delinquent.  The abatement date for the NOAV was August 3, 2004.

                        7.  On August 3, 2004, COGCC staff received from EnCana a letter in response to the NOAV. The letter explained the reasons for spudding the Well prior to APD approval and why the three (3) forms were delinquent.

8.  At the time of the hearing, Morris Bell, COGCC Operations Manager, presented testimony and exhibits in support of the COGCC staff’s recommended order. 

9.  Joel Fox, Petroleum Engineer for EnCana, testified that there were no safety violations, no correlative rights violations, no environmental impacts and no waste caused by the spudding of the Shideler # 31-1 (H31) Well prior to the issuance of the APD.  He testified that EnCana has recently modified its processes to avoid future occurrences.

                        10.  After deliberation, the Commission found EnCana in violation of Rule 303.a.1., not obtaining the Director’s approval before commencement of operations with heavy equipment, Rule 308A., not submitting the Drilling Completion Report, Form 5 within thirty (30) days of setting the production casing, Rule 308B., not submitting the Completed Interval Report, Form 5A, within thirty (30) days of completing a formation, Rule 312., not submitting a Certification of Clearance, Form 10 within thirty (30) days of after initial sales of oil or gas, and Rule 317.c., not posting the APD at the rig, for the Shideler # 31-1 (H31) Well.

11.  Mr. Bell described the recommended base fine amounts and the number of days that EnCana should be found in violation under Rule 523. which specifies a base fine of One Thousand dollars ($1,000) per day for violation of Rule 303., and Five Hundred dollars ($500) per day for violation of Rule 308.  He recommended that EnCana be found in violation of Rule 303.a.1. from December 18, 2003 until December 23, 2004 for five (5) days of violation; Rule 308A. from February 1, 2004 until July 1, 2004 for one hundred fifty-one (151) days of violation Rule 308B. from April 1, 2004 until July 1, 2004 for fifty-five (55) days of violation; Rule 312. from March 12, 2004 until July 1, 2004 for one hundred ten (110) days of violation and Rule 317.c. for five (5) days of violation.

                        12.  Mr. Bell recommended that a monetary penalty of Five Thousand dollars ($5,000) be assessed against EnCana, in accordance with Rule 523.d., for violation of Rule 303.a.; that a monetary penalty of Five Thousand dollars ($5,000) be assessed against EnCana, in accordance with Rule 523.d., for violation of Rule 308A.; that a monetary penalty of Five Thousand dollars ($5,000) be assessed against EnCana, in accordance with Rule 523.d., for violation of Rule 303B.; that a monetary penalty of Five Thousand dollars ($5,000) should be assessed against EnCana, in accordance with Rule 523.d., for violation of Rule 312.; that a monetary penalty of Five Thousand dollars ($5,000) be assessed against EnCana, in accordance with Rule 523.d., for violation of Rule 317.c.  He testified that the aggravating factors in determining the fine recommendation were that under Rule 523.d.(1) the violation was reckless and under Rule 523.d.(6) the violation involved recidivism.  Mr. Bell recommended that EnCana be fined a total of Twenty-five Thousand dollars ($25,000) for the five (5) violations.

                        13.  EnCana’s attorneys recommended that, based on the legal definitions of reckless and recidivism, the Commission remove the aggravating factors from its final order.

                        14.  After deliberation, the Commission accepted the staff’s recommended fine, with the exception of the aggravating factors, which should be removed from the final order.

ORDER

                        NOW, THEREFORE, IT IS ORDERED, that EnCana Oil & Gas (USA) Inc. shall be found in violation of Rule 303.a.1., not obtaining the Director’s approval before commencement of operations with heavy equipment; Rule 308A., not submitting the Drilling Completion Report, Form 5 within thirty (30) days of setting the production casing; Rule 308B., not submitting the Completed Interval Report, Form 5A, within thirty (30) days of completing a formation; Rule 312., not submitting a Certification of Clearance, Form 10, within thirty (30) days of after initial sales of oil or gas; and Rule 317.c., not posting the Application for Permit-to-Drill, Form 2 at the rig site.

                        IT IS FURTHER ORDERED, that EnCana Oil & Gas (USA) Inc. shall be assessed a total fine of Twenty-five Thousand dollars ($25,000) payable within thirty (30) days of the date the order is entered by the Commission for the above violations.

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 December, 2004, as of November 29, 2004.

                                                                        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

December 20, 2004