REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on June 24, 1996, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on the amended application of Sharon Resources, Inc. for an order to amend Order No. 428-1 to redesignate certain drilling and spacing units established as Unit No. 5, for production of oil, gas and associated hydrocarbons from the Cherokee Formation and for other Pennsylvanian formations in Sectio n 12, Township 33 South, Range 44 West, 6th P.M. In addition, Sharon Resources wishes to reenter a well to be designated as the permitted well for Unit No. 1-12 and requests that future wells drilled in Section 12 be located in accordance with Rule 316.

FINDINGS

The Commission finds as follows:

1. Sharon Resources, Inc., as applicant herein, is an interested party in the subject matter of the above-referenced matter.

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 March 18, 1985, the Commission issued Order No. 428-1, which established certain designated drilling and spacing units of approximately 320-acres, more or less, for the production of oil, gas and associated hydrocarbons from the Cherokee Formation underlying certain lands including Section 12, Township 33 South, Range 44 West, 6th P.M., more specifically known as Unit No. 5, which allows the permitted well to be located 1,320 feet FSL and 1,320 feet FWL of Tract 51.

5. The application as originally filed would reconfigure the drilling and spacing units in a manner that would delete previously spaced federal lands from the proposed units such that the Bureau of Land Management (BLM) was not in favor of the application.

6. The Applicant amended the application to include the federal lands in the reconfigured drilling and spacing units so that the BLM would be in agreement to the application.

7. On June 20, 1996 letters revising the proposed unit designations were sent to the five affected interested parties, including the BLM, and signatures agreeing to the revised application and waiving additional notice were obtained from all parties on June 24, 1996.

8. The amended application redesignated irregular Section 12 into Unit 1-12 consisting of approximately 320.05 acres (100% federal), Unit 2-12 consisting of approximately 289.95 acres (federal and fee), Unit 3-12 consisting of approximately 194.28 acres (100% fee), and Unit 4-12 consisting of approximately 218.2 acres (100% fee).

9. That certain lands previously included in the units designated in Section 12 were not included in the redesignation and these lands should be included in a redesignation of Section 13 should a well be drilled in Section 13 in the future.

10. At the time of the administrative hearing, testimony was presented to indicate that Strat Land No. 2-12 Federal Well located 1,150 feet FSL and 3,330 feet FEL in Section 12, drilled as a dry hole, was capable of production from the Cherokee and Keyes Formations, and that this well should be reentered and designated the permitted well for proposed unit 1-12.

11. Based on the facts stated in the amended application and having been heard by the Hearing Officer who recommends approval of the application, the Commission should enter an order to amend Order No. 428-1 to redesignate certain drilling and spacing units established as Unit No. 5, for production of oil, gas and associated hydrocarbons from the Cherokee Formation and for other Pennsylvanian formations in Section 12, Township 33 South, Range 44 West, 6t h P.M. and approve the request to reenter the Strat Land No. 2-12 Federal Well located 1,150 feet FSL and 3,330 feet FEL in Section 12, to be designated as the permitted well for Unit No. 1-12, and approve the request that future wells drilled in Section 12 be located in accordance with Rule 316.

O R D E R

NOW, THEREFORE, IT IS ORDERED that Order No. 428-1 shall be amended to redesignate the following drilling and spacing units: Unit 1-12 consisting of approximately 320.05 acres (100% federal), Unit 2-12 consisting of approximately 289.95 acres (federal and fee), Unit 3-12 consisting of approximately 194.28 acres (100% fee), and Unit 4-12 consisting of approximately 218.2 acres (100% fee), for production of oil, gas and associated hydrocarbons from the Cher okee Formation and for other Pennsylvanian formations in Section 12, Township 33 South, Range 44 West, 6th P.M.

IT IS FURTHER ORDERED, that the Strat Land No. 2-12 Federal Well located 1,150 feet FSL and 3,330 feet FEL in Section 12 is hereby designated as the permitted well for Unit No. 1-12, and that future wells drilled in Section 12 shall be located in accordance with Rule 316.

IT IS FURTHER ORDERED, that certain lands previously included in the units designated in Section 12 which were not included in the redesignation shall be included in a redesignation of Section 13 should a well be drilled in Section 13 in the future.

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 5th day of July, 1996, as of June 24, 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 July 5, 1996