BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

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

AND REGULATIONS OF THE COLORADO OIL AND GAS                    )

CONSERVATION COMMISSION BY PRESCO, INC, ("PRESCO")       )                     ORDER NO. 1V-299

GARFIELD COUNTY, COLORADO                                                             )

                        1. On October 14, 2005 PRESCO, Inc. ("PRESCO") notified the COGCC staff of a release at the Battlement Mesa No. 36-23 wellsite located in the SW ¼ NE ¼ of Section 36, Township 7 South, Range 95 West, 6^th P.M. The release was an uncontrolled release of drilling mud that daylighted through and impacted a natural spring at the base of the drilling pad. The release occurred during the drilling of the borehole for surface casing. The release flowed downhill and entered Battlement Creek adjacent to the drilling site. The release involved a previously undetected shallow subsurface ground water flow zone that was located within the boulder field in which the wellsite was located. Subsequent cementing of the surface casing on October 15, 2005 at 4:30 A.M. controlled the release and stopped the discharge of drilling mud into the spring and Battlement Creek. On October 14, 2005, COGCC staff collected water samples for laboratory analysis from both the impacted spring and from Battlement Creek approximately 3.5 miles downstream of the release location.

                        2. On November 21, 2005 COGCC staff issued a Notice of Alleged Violation (NOAV) to PRESCO citing Rule 209 which requires operators to take precautions to protect water-bearing formations, Rule 317.e.,which requires operators to run sufficient surface casing to a depth protective of usable fresh waters, Rule 324A.b., which states that no operator shall perform an act or practice which shall constitute a violation of water quality standards or classifications established by the Water Quality Control Commission for waters of the state, and Rule 906.a., which states that releases of E&P waste, including produced fluids shall be controlled and contained immediately upon discovery. The NOAV abatement or corrective actions required PRESCO to describe all operational changes that PRESCO will implement on future drilling operations to mitigate uncontrolled release of E&P fluids from drill sites. The NOAV abatement date was December 29, 2005.

                        3. PRESCO responded to the NOAV on December 16, 2005 presenting both the operator’s response to the NOAV and describing corrective actions that PRESCO will implement on any future well drilling operations including continuation of the water quality monitoring on Battlement Creek which PRESCO had begun prior to the October 14, 2005 release.

                        4. COGCC staff, after review of all records regarding the October 14, 2005 release including analytical laboratory results for water samples collected at the release site and the creek confirmed PRESCO’s previous opinion that the fluid release consisted of fresh water based drilling mud. The analytical laboratory results along with visual observations indicate that the turbidity impact to the creek has dissipated. The COGCC staff has determined that there was no lasting impact of the release to Battlement Creek.

                        5. The COGCC staff finds that PRESCO was not in violation of Rules 209 and 317.e., in that PRESCO was in the process of setting sufficient surface casing to protect subsurface waters when the release happened. The COGCC finds that PRESCO is not in violation of Rule 906.a. in that PRESCO acted timely and responsively in reporting the release to the COGCC staff and in correcting the condition leading to the release.

                        6. PRESCO should be found in violation of Rule 324A.b. for violating Water Quality Control Commission’s Basic Standards for Surface Waters (31.11) in that state surface waters shall be free from substances attributable to human-caused point source or nonpoint discharge.

                        7. Rule 523. specifies a base fine of One Thousand Dollars ($1,000) for each violation of Rule 324.A.b. A monetary penalty of One thousand dollars ($1,000) for violation of Rule 324A.b. should be assessed against PRESCO in accordance with Rule 523.

ORDER

                        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/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.

                        RECOMMENDED this _________ day of March 15, 2006.

                                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                                        By ______________________________

                                                                                            Dorothy E. Baldwin, Environmental Manager

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

March 15, 2006

AGREED TO AND ACCEPTED THIS _________DAY OF ___________, 2006.

PRESCO, INC.

By ____________________________________________

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                        ENTERED this__________day of June, 2006, as of June 5, 2006.

                                                                            OIL AND GAS CONSERVATION COMMISSION

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 23, 2006