STATE OF COLORADO OIL AND GAS CONSERVATION COMMISSION

IN THE MATTER OF THE PROMULGATION AND ) CAUSE NOS. 232 & 499

ESTABLISHMENT OF FIELD RULES TO GOVERN )

OPERATIONS IN THE WATTENBERG FIELD, ) ORDER NOS. 232-240 & 499-78

WELD COUNTY, COLORADO )

The Commission finds as follows:

1. On October 19, 1981, the Commission issued Order No. 232-23, which amended Order No. 232-20 to include additional lands and allowed an additional well to be drilled in the 320-acre drilling and spacing units for the production of gas from the "J" Sand Formation in the Wattenberg Field. Section 9, Township 5 North, Range 67 West, 6^th P.M. was included in this order.

2. On April 27, 1998, the Commission adopted Rule 318A. which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age formations from the base of the Dakota Formation to the surface. Section 9, Township 5 North, Range 67 West, 6^th P.M. was included in this Rule.

3. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing. Section 9, Township 5 North, Range 67 West, 6^th P.M. was included in this Rule.

4. On April 11, 2005 United States Exploration, Inc., by its attorney, filed with the Commission a verified application for an order to segregate the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 5 North, Range 67 West, 6^th P.M. into two 160-acre drilling and spacing units consisting of the NE¼ and NW¼ of said Section 9, for the production of gas from the "J" Sand Formation for any well located in accordance with Rule 318A. In addition, the Applicant requested that 160-acre drilling and spacing units consisting of the NE¼ and NW¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M. be established for production of oil, gas and associated hydrocarbons from the Dakota Formation for any well located in accordance with Rule 318A.

5. Testimony and exhibits presented at the administrative hearing showed that United States Exploration, Inc. owns 100% working interest in an oil and gas lease covering the W½ NE¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M. Additional testimony indicated, under the Exploration Agreement dated April 9, 1998, as amended, United States Exploration, Inc. has the right to earn an oil and gas lease covering the E½ NE¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M.

6. Testimony presented at the administrative hearing indicated that United States Exploration, Inc. desires the order because it has a duty to the mineral owners, under the terms of the Lease and Exploration Agreement, to develop the oil and gas in the NE¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M. Additional testimony indicated that the ownership of the oil and gas leasehold in the NE¼ is different from the ownership of the oil and gas leasehold in the NW¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M., and the granting of the order requested will help to facilitate that oil and gas development.

7. Testimony presented at the administrative hearing showed that the Dakota Formation is not currently spaced in the N½ of Section 9, Township 5 North, Range 67 West, 6^th P.M.

8. Testimony and exhibits presented at the administrative hearing showed that there is no Dakota Formation production in the area of Section 9, Township 5 North, Range 67 West, 6^th P.M., and that there have been no Dakota Formation tests in the area of said Section 9.

9. Testimony and exhibits presented at the administrative hearing showed that "J" Sand Formation recovery is estimated to be 10% of original gas in place for "J" Sand Formation wells in said Section 9, and that Dakota Formation recovery is estimated to be 21% of original gas in place for the 32 wells in Township 3 North, Range 67 West, 6^th P.M.

10. Testimony and exhibits presented at the administrative hearing showed that a Dakota Formation and "J" Sand Formation well will drain less than 160 acres in the N½ of Section 9, Township 5 North, Range 67 West, 6^th P.M., and therefore no violation of correlative rights will occur.

NOW, THEREFORE IT IS ORDERED, that the 320-acre drilling and spacing unit consisting of the N½ of Section 9, Township 5 North, Range 67 West, 6^th P.M. is hereby segregated into two 160-acre drilling and spacing units consisting of the NE¼ and NW¼ of said Section 9, for the production of gas from the "J" Sand Formation for any well located in accordance with Rule 318A.

IT IS FURTHER ORDERED, that 160-acre drilling and spacing units consisting of the NE¼ and NW¼ of Section 9, Township 5 North, Range 67 West, 6^th P.M. are hereby established for production of oil, gas and associated hydrocarbons from the Dakota Formation for any well located in accordance with Rule 318A.

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 June, 2005, as of June 6, 2005.

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

By &#

Patricia Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 20, 2005