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 to include certain lands under the spacing provisions in the White River Field by establishing 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Wasatch Formation with the permitted wells to be located in accordance with the White River Field rules. In addition, the Applicant requests that additional wells be allowed to be drilled and produced for the production of gas and associated hydrocarbons from the Wasatch Formation.

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 including the lands described below. 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, including the lands described below:

Township 2 North, Range 97 West, 6th P.M. Section 20: SW1/4 Section 33: NE1/4

5. On July 2, 1999, Chesapeake Operating Inc., by its attorney, filed with the Commission a verified application for an order to include the above-described lands under the spacing provisions in the White River Field by establishing 160-acre drilling and spacing units with the permitted wells to be located in accordance with the White River Field rules, for production of gas and associated hydrocarbons from the Wasatch Formation. In addition, the Appli cant requests the Commission issue an order providing that two (2) wells should be allowed to be drilled and produced from the SW1/4 of Section 20, Township 2 North, Range 97 West, 6th P.M. and that three (3) wells should be allowed to be drilled and produced from the NE1/4 of Section 33, Township 2 North, Range 97 West, 6th P.M. at the option of the operator, provided that the permitted location is no closer than 600 feet from the outer boundaries of the 160-acre drilling and spacing unit. Further, the applicant requests that the Director be allowed to grant an exception to the permitted well location without prior notice or hearing upon adequate showing by the operator that topography makes it unreasonable to drill the second well within a 600-feet setback, but no closer than 330 feet from the boundary of the drilling and spacing unit, and requests for any other exception location may be granted in acc ordance with Rule 318.

6. Exhibits and testimony presented at the administrative hearing indicated that the NE1/4 of Section 33 is covered by an existing communitization agreement but is not included in the White River Field.

7. Exhibits and testimony presented at the administrative hearing showed that two (2) producing Wasatch Formation wells currently exist in the NE1/4 of Section 33 and that no producing Wasatch Formation wells currently exist in the SW1/4 of Section 20.

8. Exhibits and testimony presented at the administrative hearing described the geology of the Wasatch Sand for the lands affected by the spacing application, indicating the Wasatch Sand is a continuous producing zone across the application area.

9. Exhibits and testimony presented at the administrative hearing showed the drainage acreage calculations for Sections 20 and 33. Wells offsetting the SW1/4 of Section 20 show an average drainage of 120 acres. The two (2) existing wells in the NE1/4 of Section 33 show a drainage of 134 total acres.

10. At the time of the administrative hearing, Chesapeake Operating, Inc. agreed to be bound by oral order of the Commission.

11. 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 to include the lands described in Finding 4 under the spacing provisions in the White River Field by establishing 160-acre drilling and spacing units with the permitted wells to be located in accordance with the White River Field rules, for production of gas and associated hydrocarbons from the Wasatch Formation. In addition, the Commission should issue an order providing that two (2) wells should be allowed to be drilled and produced from the SW1/4 of Section 20, Township 2 North, Range 97 West, 6th P.M. and that three (3) wells should be allowed to be drilled and produced from the NE1/4 of Section 33, Township 2 North, Range 97 West, 6th P.M. at the option of the operator, provided that the permitted location is no closer than 600 feet from the outer boundaries of the 160-acre drilling and spacing unit. Further, the Director should be allowed to grant an exception to the permitted well location without prior notice or hearing upon adequate showing by the operator that topography makes it unreasonable to drill the second well within a 600-feet setback, but no closer than 330 feet from the boundary of the drilling and spacing unit, and requests for any other ex ception location may be granted in accordance with Rule 318.

ORDER

NOW, THEREFORE IT IS ORDERED, that Order No. 256-2 is hereby amended to include the land described below under the spacing provisions in the White River Field by establishing 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Wasatch Formation with the permitted wells to be located in accordance with the White River Field rules.

Township 2 North, Range 97 West, 6th P.M. Section 20: SW1/4 Section 33: NE1/4

IT IS FURTHER ORDERED, that two (2) wells shall be allowed to be drilled and produced from the SW1/4 of Section 20, Township 2 North, Range 97 West, 6th P.M., and that three (3) wells shall be allowed to be drilled and produced from the NE1/4 of Section 33, Township 2 North, Range 97 West, 6th P.M.

IT IS FURTHER ORDERED, that the Director shall be allowed to grant an exception to the permitted well location without prior notice or hearing upon an adequate showing by the operator that topography makes it unreasonable to drill the second well within a 600-feet setback, but no closer than 330 feet from the boundary of the drilling and spacing unit, and requests for any other exception location may be granted in accordance with Rule 318.

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, Secretary

Dated at Suite 801 1120 Lincoln Street Denver, Colorado 80203 September 2, 1999 ??

(256#6)