STATE OF COLORADO OIL AND GAS CONSERVATION COMMISSION

IN THE MATTER OF THE PROMULGATION AND                                 )                                 CAUSE NO. 407

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE WATTENBERG FIELD,                                      )                                 ORDER NO. 407-288

WELD COUNTY, COLORADO                                                                 )

REPORT OF THE COMMISSION

                This cause came on for hearing before the Commission at 9:00 a.m. on June 6, 2005, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado on the application of Mineral Resources, Inc. ("Mineral Resources") for an order to amend Order No. 407-1 to establish 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17, both in Township 5 North, Range 65 West 6th P.M. for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations including the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations. In addition, the order should pool all interests in the 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17 for the development and operation of the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations.

FINDINGS

                The Commission finds as follows:

                1. On November 18, 1985, the Commission issued Order No. 407-1 (amended on March 29, 2000) which established 80-acre drilling and spacing units for the production of oil and/or gas and associated hydrocarbons for the Codell and Niobrara Formations underlying certain lands, including the below-listed lands, with the unit to be designated by the operator upon drilling the first well in the quarter section. The permitted well shall be located in the center of either 40-acre tract within the unit with a tolerance of 200 feet in any direction. The operator shall have the option to drill an additional well on the undrilled 40-acre tract in each 80-acre drilling and spacing unit.

Township 5 North, Range 65 West, 6th P.M.

Section 16: SW¼

Section 17: SE¼

                2. On April 27, 1998, the Commission adopted Rule 318A. which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age Formations from the base of the Dakota Formation to the surface. The above-listed lands were included in this Rule.

                3. On April 15, 2005, Mineral Resources, by its attorney, filed with the Commission a verified application for an order to amend Order No. 407-1 to establish 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17, both in Township 5 North, Range 65 West 6th P.M. for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations including the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations. In addition, the order should pool all interests in the 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17 for the development and operation of the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations. Mineral Resources intends to drill a planned eleven (11) oil and gas wells directionally from the drill site to explore for and produce oil and gas from bottom hole locations under the lands described above.

                4. Testimony presented at the administrative hearing showed that Mineral Resources proposes to drill five (5) wells directionally in each quarter section and that all mineral owners have been contacted with offers to either lease or participate. Additional testimony showed that each lot owner owns 50% of the minerals underlying the lot, and that there are approximately one hundred twenty-two(122) unleased mineral owners at this time. Testimony also showed that Mineral Resources continues to work toward obtaining leases or participation from these unleased mineral owners. Subsequent to the administrative hearing, Mineral Resources confirmed that there are one hundred fourteen (114) unleased mineral owners in the SW¼ of Section 16 and two (2) unleased mineral owners in the SE¼ of Section 17.

                5. Testimony presented at the administrative hearing showed that letters were sent on April 18, 2005 to each mineral owner offering leases at $30 per acre with a 12½% royalty interest, or offering an opportunity to participate as a working interest in the well(s). Additional testimony showed that these terms are similar to those prevailing in the area. None of the mineral owners have agreed to date to participate as working interest owners.

                6. Testimony presented at the administrative hearing showed that Mineral Resources owns the drillsites and Patina Oil and Gas has vertical wells on the drillsite. Additional testimony showed that the longest lateral leg proposed will be approximately 3200 feet and the smallest lateral leg proposed will be approximately 800 feet. Further testimony showed that the City of Greeley has approved a Special Use Permit for this proposal.

                7. Testimony presented at the administrative hearing showed that establishing 160-acre drilling and spacing units will facilitate drilling and producing multiple formations while protecting correlative rights. Additional testimony showed that waste will be prevented and production accounting will be simplified.

                8. Mineral Resources, Inc. agreed to be bound by an oral order of the Commission.

                9. Based on the facts stated in the verified application, having received no protests to the application and having been heard by the Hearing Officer who recommended approval, the Commission should approve an order amending Order No. 407-1 to establish 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17, both in Township 5 North, Range 65 West 6th P.M. for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations including the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations. In addition, the Commission should approve pooling all interests in the 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17 for the development and operation of the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations.

ORDER

                NOW, THEREFORE IT IS ORDERED, that Order No. 407-1 is hereby amended and 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17, both in Township 5 North, Range 65 West 6th P.M. are hereby established for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations including the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations.

                IT IS FURTHER ORDERED, that, 1. Pursuant to the provisions of §34-60-116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all unleased mineral interests in the 160-acre drilling and spacing units consisting of the SW¼ of Section 16 and the SE¼ of Section 17, both in Township 5 North, Range 65 West 6th P.M., are hereby pooled for the development and operation of the Dakota, "J" Sand, Codell, Niobrara and Sussex Formations.

                2. The production obtained from each 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 each drilling unit; each owner of an interest in each drilling unit shall be entitled to receive his/her share of the production of the well located on each drilling unit applicable to his interest in each drilling unit.

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

                  9; 4. Any nonconsenting 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 mineral 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.

              #9; 5.  The operator of any well drilled on the above-described unit 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.

                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.

               IT IS FURTHER ORDERED, that under the State Administrative Procedure Act the Commission considers this order to be final agency action for purposes of judicial review within thirty (30) days after the date this order is mailed by the Commission.

               IT IS FURTHER ORDERED, that an application for reconsideration by the Commission of this order is not required prior to the filing for judicial review.

                ENTERED this day __________ of June, 2005, as of June 6, 2005.

                                                                            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 20, 2005