IN THE MATTER OF THE PROMULGATION AND                  CAUSE NO. 287
ESTABLISHMENT OF FIELD RULES TO GOVERN
OPERATIONS IN THE FOUNDATION CREEK FIELD,            ORDER NO. 287-5
RIO BLANCO AND GARFIELD COUNTIES, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on April 23, 2001, in Suite 801, the Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of hearing as required by law, on the application of Coastal Oil and Gas Corporation for an order allowing an additional well to be completed and produced for gas and associated hydrocarbons from the Mancos “B” Formation for each of the designated drilling and spacing units in the Foundation Creek Field.

FINDINGS

The Commission finds as follows:

1. Coastal Oil and Gas Corporation (“Coastal”), 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 October 18, 1976, the Commission entered Order No. 287-3 which established 160-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mancos “B” Formation on certain lands in Township 4 South, Range 102 West, 6th P.M., with the permitted well to be located no closer than 600 feet from the boundary of the quarter section. In addition, certain wells were designated as the permitted wells for the drilling and spacing units on which they were located. On September 21, 1977, the Commission entered Order No. 287-4 which amended Order No. 287-3 to include additional lands in Townships 4 and 5 South, Range 102 West, 6th P.M. under the provisions of the Foundation Creek Field. Certain wells were also designated as the permitted wells for the drilling and spacing units on which they are located.

5. On March 7, 2001, Coastal filed with the Commission a verified application for an order allowing an additional well to be completed and produced for gas and associated hydrocarbons from the Mancos “B” Formation for each of the designated drilling and spacing units listed below. Coastal requests that wach of the wells designated in Order Nos. 287-3 and 287-4 as permitted wells for certain units remain so designated. In addition, Coastal requests that any additional well drilled for production from the Mancos “B” Formation be located no closer than 600 feet from the boundary of the drilling and spacing unit and not less than 900 feet from the other well in the unit. Further, the Director should be given the authority to grant exception locations for topographic reasons without notice or hearing.

Township 4 South, Range 102 West, 6th P.M.
Section 25: All
Section 26: E½
Section 35: All
Section 36: E½

Township 5 South, Range 102 West, 6th P.M.
Section 2: All

6. Testimony and exhibits presented at the administrative hearing showed the mineral and surface ownership in the application area is approximately 50% federal and 50% fee, with Coastal owning 100% of the working interest.

7. Testimony and exhibits presented at the administrative hearing showed the sand in the Mancos “B” Formation is continuous in the application area, however, due to variations in porosity and permeability the wells with the most net sand pay are not necessarily the best producers.

8. Testimony and exhibits presented at the administrative hearing showed the average well has produced 260 MMCF of gas with an average estimated ultimate recovery of 350 MMCF. The average drainage area of a well is 50 acres with an average current production of 30 MCFD. Due to new technology, additional wells are expected to produce more gas and drain a larger area.

9. Testimony and exhibits presented at the administrative hearing showed drilling of an additional well per 160-acre drilling and spacing unit in the application lands will not adversely affect correlative rights, will be economic and will prevent waste.

10. No protests to the application were filed, however, Mr. David Robertson of Twin Buttes Ranch expressed concerns to COGCC staff about erosion caused by additional drilling locations on unstable soil. At the administrative hearing, Coastal responded to this concern by testifying that all drilling locations were chosen after consultation with the landowner.

11. At the time of the administrative hearing, Coastal agreed to be bound by oral order of the Commission.

12. 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 allowing an additional well to be completed and produced for gas and associated hydrocarbons from the Mancos “B” Formation for each of the designated drilling and spacing units in the Foundation Creek Field.

ORDER

NOW, THEREFORE IT IS ORDERED, that an additional well is hereby granted to be drilled and completed and produced for gas and associated hydrocarbons from the Mancos “B” Formation for each of the designated drilling and spacing units listed below.

Township 4 South, Range 102 West, 6th P.M.
Section 25: All
Section 26: E½
Section 35: All
Section 36: E½

Township 5 South, Range 102 West, 6th P.M.
Section 2: All

IT IS FURTHER ORDERED, that each of the wells designated in Order Nos. 287-3 and 287-4 as permitted wells for certain units shall remain so designated.

IT IS FURTHER ORDERED, that any additional well drilled for production from the Mancos “B” Formation shall be located no closer than 600 feet from the boundary of the drilling and spacing unit and not less than 900 feet from any other well in the unit.

IT IS FURTHER ORDERED, that the Director shall be given the authority to grant exception locations for topographic reasons without notice or hearing.

IT IS FURTHER ORDERED, that areas of unstable slopes and soils shall be avoided whenever possible when constructing drilling locations.

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 2nd day of May 2001, as of April 23, 2001.

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 May 2, 2001

(287-5)