REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on May 21, 1996, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing, a required by law on the application of North American Resources Company, for an order to amend Cause No. 407 to allow the Diane No. 1 Well, located 1,350 feet FSL and 1,650 feet FEL, in the NW1/4 SE1/4 of Section 28, Township 2 North, Range 66 West, 6th P.M., to be recompleted at an exception location for commingled production from the "J" Sand, Codell, and Niobrara Formations and to approve the proposed allocation method.

FINDINGS

The Commission finds as follows:

1. North American Resources Company, 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. In Order No. 407-1, the Commission established 80-acre drilling and spacing unit for the production of oil and/or gas and associated hydrocarbons from the Codell Formation. Wells shall be located in the center of the 40-acre tract or quarter-quarter section with a tolerance of 20 feet in any direction. In Order Nos. 407-10 and 407-13, the Commission amended Order No. 407-1 to include production from the Niobrara Formation in certain lands and to allo w the downhole commingling of production from the Codell and Niobrara Formations, including Section 28, Township 2 North, Range 66 West 6th P.M.

5. In Cause No. 232, the Commission established 320-acre drilling and spacing units with said units to consist of the N1/2 and S1/2 or the E1/2 and W1/2 of a governmental section for production from the "J" Sand Formation and with the authorized well to be located in the NE1/4 and the SW1/4 of each section no closer than 990 feet from the boundaries of the quarter section. By Order No. 232-20, the Commission authorized the drilling of a second well for e ach 320-acre drilling and spacing unit with the additional well to be located no closer than 990 feet from the boundaries of the quarter section upon which it is located, including Section 28, Township 2 North, Range 66 West 6th P.M.

6. Order Nos. 407-66 and 232-47 issued April 16, 1991, among other things, allowed the recompletion, downhole commingling and approval of allocation methods for production from the "J" Sand, Codell, and Niobrara Formations, including Section 28, Township 2 North, Range 66 West, 6 P.M.

7. This matter was heard by the Hearing Officer who recommends approval base upon the testimony presented at the administrative hearing that an exception to the permitted well location is necessary to reduce surface impact and recover additional Codell and Niobrara reserves.

8. An order of the Commission should be entered allowing the Diane No. 1 Well to be recompleted at an exception location 1,350 feet FSL and 1,650 feet FEL, in the NW1/4 SE1/4 of Section 28, Township 2 North, Range 66 West, 6th P.M., for production from the Codell and Niobrara Formations, for the 80-acre drilling and spacing unit consisting of the N1/2 SE1/4 of Section 28, and to allow the commingling of production with the "J" Sand Formation, for the 320-acre drilling and spacing unit consisting of the E1/2 of Section 28, and approve the allocation method.

ORDER

NOW, THEREFORE, IT IS ORDERED, that Order No. 407-1 is hereby amended t allow the Diane No. 1 Well to be recompleted at an exception location 1,350 feet FSL and 1,650 fee FEL, in the NW1/4 SE1/4 of Section 28, Township 2 North, Range 66 West, 6th P.M., for production from the Codell and Niobrara Formations, for the 80-acre drilling and spacing unit consisting of the N1/2 SE1/4 of Section 28, and to allow the commingling of production with the "J" Sand For mation, for the 320-acre drilling and spacing unit consisting of the E1/2 of Section 28, and approve the allocation method.

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 an and/or all of the above orders.

ENTERED this 6th day of June, 1996, as of May 21, 1996.

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 June 6, 1996