IN THE MATTER OF THE PROMULGATION AND                 )
ESTABLISHMENT OF FIELD RULES TO GOVERN                ) CAUSE NOS. 232 and 499
OPERATING IN THE WATTENBERG GAS                               )
SPACED AREA AND THE WATTENBERG FIELD,                  ) ORDER NOS. 232-235
WELD COUNTY, COLORADO                                                  )                         499-73

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on July 15, 2002 at 10 a.m. in Suite 801, 1120 Lincoln Street, Denver, Colorado for an order to amend Order No. 232-3 and Order No. 499-15 to allow the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M. to be segregated into 160-acre drilling and spacing units consisting of the NE¼ and the NW¼ of Section 9, for the production of oil, gas and associated hydrocarbons from the “J” Sand and Dakota Formations.

FINDINGS

The Commission finds as follows:

1. United States Exploration, Inc. (“USX”), as applicant herein, 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 November 17, 1970, the Commission issued Order No. 232-3 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the “J” Sand Formation in the Wattenberg Gas Spaced Area with one well allowed for each unit to be located in the NE¼ and SW¼ of each governmental section and to be located no closer than 990 feet to the boundaries of the quarter section upon which it is located. On August 21, 1979, the Commission issued Order No. 232-23 which allowed a second well to be drilled on each 320-acre unit including the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M., which has been designated as a unit. On November 6, 1992, the Commission issued Order No. 499-15 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Dakota Formation for certain lands and allowed a second well to be drilled on each 320-acre unit including the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M., which has been designated as a unit.

5. On March 11, 2002, United States Exploration, Inc. (“USX”), by its attorney, filed with the Commission a verified application for an order to amend Order No. 232-3 and Order No. 499-15 to allow the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M. to be segregated into 160-acre drilling and spacing units consisting of the NE¼ and the NW¼ of Section 9, for the production of oil, gas and associated hydrocarbons from the “J” Sand and Dakota Formations underlying said lands. No wells have been drilled and completed in the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M. for production from the “J” Sand or Dakota Formations.

6. Testimony and exhibits presented at the administrative hearing showed the proposed well in Section 9 is expected to be similar to the previously drilled “J” Sand wells near the application lands which have drainage areas ranging from 20 acres to 57 acres. Further testimony indicated that there are no Dakota wells near the application lands but a test in the Dakota Formation on a nearby well indicates drainage between 40 acres and 60 acres from the Dakota Formation.

7. Testimony and exhibits presented at the administrative hearing showed offers to purchase the mineral interests or to farmout the mineral interests from the owners in the NW¼ of Section 9 were made by USX in writing, followed up by telephone conversations. No response has been made to the offers. Further testimony showed that USX initially intended to drill its well in the NW¼ of Section 9 but has now moved the well into the NE¼ of Section 9 where USX has the opportunity to earn the lease from mineral owner RME Land Corporation. No protests to the application have been filed with the Commission or the applicant.

8. At the time of the administrative hearing, United States Exploration, Inc. agrees to be bound by an oral order of the Commission.

9. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should approve an order to amend Order No. 232-3 and Order No. 499-15 to allow the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M. to be segregated into 160-acre drilling and spacing units consisting of the NE¼ and the NW¼ of Section 9, for the production of oil, gas and associated hydrocarbons from the “J” Sand and Dakota Formations.

ORDER

NOW, THEREFORE IT IS ORDERED, that Order No. 232-3 and Order No. 499-15 are hereby amended to allow the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 4 North, Range 63 West, 6th P.M. to be segregated into 160-acre drilling and spacing units consisting of the NE¼ and the NW¼ of Section 9, for the production of oil, gas and associated hydrocarbons from the “J” Sand and Dakota Formations.

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 19th day of July, 2002, as of July 15, 2002.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

Signed By Patricia C. Beaver, Secretary, Dated at Suite 801, 1120 Lincoln Street, Denver, Colorado 80203, July 17, 2002

(#232-235) (#499-73)