REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on August 19, 1999, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of hearing as required by law, on the application of Chesapeake Operating, Inc. for an order pooling all interests in certain 160-acre drilling and spacing units for the development and operation of the Wasatch Formation in the White River Field, pursuant to the provisions of 34-60-116, C.R.S., 1984.

FINDINGS

The Commission finds as follows:

1. Chesapeake Operating Inc., 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 June 20, 1972, the Commission issued Order No. 256-1 which established 160-acre drilling and spacing units for certain lands in the White River Field for the production of gas and associated hydrocarbons from the Wasatch Formation. Wells shall be located not less than 600 feet from the boundary of the quarter section upon which it is located, and no closer than 2000 feet from any other producing gas well in the spaced area. On September 21, 1976, the Commission issued Order No. 256-2 which deleted certain lands from the spaced area in the White River Field to be governed by the provisions of the federal unit agreement and the general rules and regulations of the Commission. On March 16, 1992, the Commission issued Order No. 256-3 which deleted certain lands from the spaced area in the White River Field so that the White River Field consists of the following:

Township 1 North, Range 97 West, 6th P.M. Section 2: N1/2

Township 2 North, Range 97 West, 6th P.M. Section 34: All Section 35: S1/2

5. On July 2, 1999, Chesapeake Operating Inc., by its attorney, filed with the Commission a verified application for an order allowing additional wells to be drilled on each 160-acre drilling and spacing unit described below for the production of gas and associated hydrocarbons from the Wasatch Formation and concurrently filed with the Commission a verified application for an order pooling all interests in the 160-acre drilling and spacing units describ ed below for the development and operation of the Wasatch Formation, pursuant to 34-60-116 (6) and (7), C.R.S.

Township 1 North, Range 97 West, 6th P.M. Section 2: NW1/4

Township 2 North, Range 97 West, 6th P.M. Section 34: SW1/4, SE1/4 Section 35: SW1/4

6. Exhibits and testimony presented showed that in a letter submitted July 8, 1999, a reasonable offer to lease was tendered to a total of ten (10) unleased mineral owners with terms no less favorable than those prevailing in the area. These unleased mineral owners comprise 53.5% of the working interests in the NW1/4 of Section 2, 8.9% of the working interests in the SE1/4 of Section 34, and between 10% to 50% of the working interests in the SW1/4 of S ection 35. Further testimony indicated that 100% of the minerals in the SW1/4 of Section 34 are owned by Chesapeake.

7. Exhibits and testimony presented at the administrative hearing showed that in a letter submitted July 8, 1999, an Authorization for Expenditure (AFE) and an Election to Participate form was submitted to a total of nine (9) unleased mineral owners. In accordance with Rule 530., the AFE included the location and objective depths of the wells, the estimated drilling and completion costs of the wells, and the estimated spud dates for the wells. In addit ion, more than thirty (30) days had elapsed since receipt of the AFE as required in Rule 530. Further testimony showed that the mineral owners in the SE1/4 of Section 34 have elected to participate by entering into a Joint Operating Agreement with Chesapeake. Additional testimony indicated that approval of the application would prevent waste and protect correlative rights.

8. At the time of the administrative hearing, Chesapeake Operating, Inc. agreed to be bound by 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 recommends approval, the Commission should enter an order pooling all interests in the 160-acre drilling and spacing units consisting of the NW1/4 of Section 2, Township 1 North, Range 97 West, 6th P.M., the SE1/4 of Section 34, Township 2 North, Range 97 West, 6th P.M. and the SW1/4 of Section 35 Township 2 North, Range 97 West, 6th P.M. for the development and operation of the Wasatch Formation, pursuant to 34-60-116 (6) and (7), C.R.S.

ORDER

NOW, THEREFORE IT IS ORDERED that, 1. Pursuant to the provisions of 34-60-116, C.R.S., 1984, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the 160-acre drilling and spacing units consisting of the NW1/4 of Section 2, Township 1 North, Range 97 West, 6th P.M., the SE1/4 of Section 34, Township 2 North, Range 97 West, 6th P.M. and the SW1/4 of Section 35 Township 2 North, Range 97 West, 6th P.M. are hereby pooled for the d evelopment and operation of the Wasatch Formation in the White River Field.

2. The production obtained from said drilling unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his/her share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.

3. Said owner(s) are hereby deemed to have elected not to participate and shall therefore be deemed to be non-consenting as to the well(s) and be subject to the penalties as provided for by 34-60-116 (7).

4. Any non-consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his/her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non-consenting owner's proportionate 87.5% share of production, the costs specified in 34-60-116 (7)(b), C.R.S. as amended. After recovery of such costs, the non-consenting mi neral owner shall then own his/her proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his/her proportionate share of further costs incurred in connection with the well as if he/she had originally agreed to the drilling.

6. The operator of any well drilled on the above-described unit(s) shall furnish all non-consenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7. Chesapeake Operating, Inc. shall be designated as the operator for the 160-acre drilling and spacing units consisting of the NW1/4 of Section 2, Township 1 North, Range 97 West, 6th P.M., the SE1/4 of Section 34, Township 2 North, Range 97 West, 6th P.M. and the SW1/4 of Section 35 Township 2 North, Range 97 West, 6th P.M. for the development and operation of the Wasatch Formation in the White River Field.

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 day of September, as of August 19, 1999.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Hearing Officer

Dated at Suite 801 1120 Lincoln Street Denver, Colorado 80203 September 3, 1999 ??

(256#5)