REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on July 11, 2000, 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 designate the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. as a 160-acre drilling and spacing unit for production of gas from the Wasatch and the Mesa Verde Formation s. In addition, Chesapeake requests that a second well be allowed to be drilled and completed for production of gas and associated hydrocarbons from the Wasatch Formation.

FINDINGS

The Commission finds as follows:

1. Chesapeake Operating Inc. ("Chesapeake"), 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 SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. 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 fro m any other producing gas well in the spaced area. On March 16, 1992, the Commission issued Order No. 256-3 which deleted certain lands from the spaced area in the White River Field including the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M., due to the steep topography of the area, preventing wells to be located in accordance with Order No. 256-1, and thus prohibiting drilling and development.

5. On May 23, 2000, Chesapeake, by its attorney, filed with the Commission a verified application for an order to designate the SW1/4 of Section 1, Township 1 North, Range 97 West 6th P.M. as a 160-acre drilling and spacing unit for production of gas from the Wasatch and the Mesa Verde Formations. In addition, Chesapeake requested that a second well be allowed to be drilled and completed for production of gas and associated hydrocarbons from the Wasatch Formation. Chesapeake further requested that wells be located anywhere within the drilling unit provided it is located no closer than 600 feet to the outer boundaries of the drilling unit. In addition, the Director should 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 well within a 600-foot setback, but no closer t han 330 feet from the boundary of the drilling and spacing unit.

6. Testimony and exhibits presented at the administrative hearing described the geology of the Mesa Verde and Wasatch Formations, and included the location of existing and proposed wells.

7. Testimony and exhibits presented at the administrative hearing showed average reserve calculations for the Mesa Verde Formation wells to be 680 MMCF and 7.5 MBO in the application area and average gas reserves for Wasatch Formation wells in the area is 59 acres with an average ultimate gas production of 382 MMCF.

8. Testimony and exhibits presented at the administrative hearing showed it is economic to drill a Mesa Verde Formation well in the proposed drilling and spacing area and the approval of the application would prevent waste and protect correlative rights.

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

10. 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 designating the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. as a 160-acre drilling and spacing unit for production of gas and associated hydrocarbons from the Wasatch and Mesa Verde Formations. In addition, a second well should be allowed to be drilled and completed for production of gas and associated hydrocarbons from the Wasatch Formation. Further, wells should be located anywhere within the drilling unit provided it is located no closer than 600 feet to the outer boundaries of the drilling unit. In addition, the Director should 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 un reasonable to drill the well within a 600-foot setback, but no closer than 330 feet from the boundary of the drilling and spacing unit.

ORDER

NOW, THEREFORE IT IS ORDERED that a 160-acre drilling and spacing unit is hereby established for production of gas and associated hydrocarbons from the Wasatch and Mesa Verde Formations for the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M.

IT IS FURTHER ORDERED, that an additional well is hereby approved to be drilled and completed in the SW1/4 of Section 1, Township 1 North, Range 97 West, 6th P.M. for production of gas and associated hydrocarbons from the Wasatch Formation.

IT IS FURTHER ORDERED, that wells shall be located anywhere within the drilling unit provided it is located no closer than 600 feet to the outer boundaries of the drilling unit.

IT IS FURTHER ORDERED, that the Director of the Commission shall have the authority to approve, without holding a hearing, exception locations no closer than 330 feet from the boundary of the drilling and spacing unit, upon an adequate showing by the operator that topography makes it unreasonable to drill the well within a 600-foot setback.

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 26th day of July, 2000, as of July 11, 2000.

CORRECTED this day of August, 2000, as of July 11, 2000.

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 August 16, 2000 ??

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