BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                             )                 CAUSE NOS. 139 and 440

ESTABLISHMENT OF FIELD RULES TO GOVERN                                         )

OPERATIONS IN THE RULISON FIELD AND                                                     )                 ORDER NOS. 139-31 and

PARACHUTE FIELD, GARFIELD COUNTY, COLORADO                                )                ; 440-18

                        This cause came on for hearing before the Commission on July 1, 1997 in Suite 801, 1120 Lincoln Street, Denver, Colorado on the application of TBI Production Company ("TBI") for an order amending Cause Nos. 139 and 440 to allow the optional drilling of additional wells, up to sixteen (16) wells per 640-acre drilling and spacing unit and up to eight (8) wells per 320-acre drilling and spacing unit, for certain lands in the Rulison and Parachute Fields for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group (the "Application"). The permitted well shall be located no closer than 400 feet from the outer boundaries of the drilling unit and no closer than 800 feet to any well or wells producing from the same formation.

                        The Commission finds as follows:

                        1. TBI Production 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. On April 20, 1990, the Commission issued Order No. 440-12, which among other things, removed the W½ of Section 10, and all of Sections 15 and 16, Township 7 South, Range 95 West, 6th P.M., from the provisions of Cause No. 139 and established 320-acre drilling and spacing units for production of gas and associated hydrocarbons from the Mesaverde Formation, with the permitted well to be located no closer than 600 feet to the outer boundaries of the drilling and spacing unit and no closer than 1,200 feet to any well or wells producing from the same formation, for the production of gas and associated hydrocarbons from the Mesaverde Formation. Subsequent orders defined the Williams Fork Formation within the Mesaverde Group and allowed additional wells, up to eight (8) per unit, to be drilled on the 320-acre units, with the permitted well to be located no closer than 400 feet from the boundaries of the unit and no closer than 800 feet from another Williams Fork Formation well.

                        5. On May 16, 1994, the Commission issued Order No. 510-1, which among other things amended Rule 316. (now Rule 318.) for certain lands, including Sections 24 and 25, Township 7 South, Range 96 West, 6th P.M., to allow permitted wells to be located no closer than 400 feet from the boundaries of the unit and no closer than 800 feet from the existing Williams Fork Formation well.

                        6. On April 7, 1997, TBI Production Company, by its attorney, filed with the Commission a verified application, for an order amending Cause Nos. 139 and 440 to allow the optional drilling of additional wells, up to sixteen (16) wells per 640-acre drilling and spacing unit and up to eight (8) wells per 320-acre drilling and spacing unit, for the below-described lands in the Rulison and Parachute Fields for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group. The permitted well shall be located no closer than 400 feet from the outer boundaries of the drilling unit and no closer than 800 feet to any well or wells producing from the same formation.

Sections 16-17: All

Section 10: W½

Sections 15-16: All

Section 19-22: All

Sections 27-34: All

Sections 24-25: All

Section 36: All

                        7. The Applicant further requested that Cause Nos. 139 and 440 be amended to allow the drilling of the first well in any undrilled section to be located in accordance with the drilling pattern identified herein to apply to wells drilling, completed or recompleted in the Williams Fork Formation for the above-described lands and allowing the Director to approve exception locations (which are exceptions to the modified setback requirements requested) because of topographical conditions, archeological conditions, irregular sections, surface use conflicts or reservoir considerations, provided the operator obtains a waiver or consent agreeing to the proposed location signed by the lease owner, if any, toward whom the well is proposed to be moved.

                        8. On May 10, 1997, Joan L. Savage, John W. Savage, Jr., Roy E. Savage, Marshall T. Savage and Daniel W. Savage filed with the Commission a written protest to the application on the grounds that environmental surface impacts should be taken into consideration on the application lands (the "Savage Protest").

                        9. On June 23, 1997, Mesa Ridge Townhome Association filed with the Commission a letter requesting intervenor status to the TBI Production Co. application. On June 24, 1997, the Colorado Oil & Gas Association filed with the Commission a motion to intervene in Cause Nos. 139 and 440 and a statement of response in the Savage protest. On June 25, 1997, the Rocky Mountain Oil & Gas Association filed with the Commission a motion to intervene in Cause Nos. 139 and 440 and a brief in response to the Savage protest.

                        10. Letters in support of the application were received by Stewart Petroleum Corporation, Barrett Resources, Genesis Oil & Gas, Yates Petroleum Corporation and Chevron Shale Oil Company.

                         11. Letters of concern were received by Ralph G. Irwin, Mike & Susan Braverman, Gary & Sheralyn Hoof, Anita & Gus Limbach, Pam & Jim Mershon, Raymond & Marie Willey, Holly Klinzman, Milt & Artha Hornbostel, Jeffrey & Sylvia Hartman, James & Elsie Burkhart, Ken & Ann Robar, John & Elaine Shepherd et. al., R.L. Bowers, Garfield County School District 16, Richard & Jeri Doran, Estate of Lena Blanche Wehr, Garfield County Commissioners and Thomas & Carol Mathias.

                        12. After testimony presented at the June 30, 1997 hearing by Savage and TBI regarding legal issues, the Commission dismissed the Savage Protest to the extent it was grounded on a claim that Commission approval of the Application would adversely affect public health, safety and welfare or have a significant adverse environmental impact. Savage agreed to allow the matter to be heard administratively, and the Commission set the application for an administrative hearing on July 1, 1997. The administrative hearing was open to the public.

                        14. At the administrative hearing TBI presented research data from the Multiwell Experiment site located in Section 34, Township 6 South, Range 94 West, approximately two and one-half (2½) miles north of the eastern applicant land block. The research data shows that the fluvial point-bar sand lenses of the Williams Fork Formation are limited to one thousand to two thousand (1,000-2,000) feet in length with widths of less than 1/20 of the length (50-100 feet). The testimony also included references to work done by Dr. Lorenz to study the nearby Rifle Gap outcrop, which also confirms the limited area extent of the sand lenses. The Multiwell Experiment data also showed that the sands are very tight, and can be modeled with a multilayer model with small drainage areas.

                        16. Additional engineering testimony showed a summary of volumetric calculations based on log analysis, which shows an average GIP per 640 acres of 83.1 BCF. The existing EUR is 356 MMCF/640 acres which is .4%. Testimony was given that the area is normally pressured in the Mesaverde Formation. For 40 acre development, the EUR for new wells with current completion technology is 1.5 BCF/well. For 16 wells per section, the calculated recovery factor is 29% of the GIP. It was shown that one well will not drain more than an average of 40 acres.

                        17. TBI testified that the Project Rulison Nuclear Explosive Emplacement Well is located 7,500 feet east of the application lands. TBI testified that the closest drilling would be at least one and one-half (1½) miles from the Rulison Project well, and that there are no known Atomic Energy Commission bans against drilling at that distance, and that effective fracture lengths from hydraulic fractures are about three hundred (300) feet in length.

                        18. TBI testified that wells spaced under the application would be economic, would recover additional reserves, would prevent waste, and would protect correlative rights.

                        19. Protestant Savage appeared at the administrative hearing and did not object to the evidence TBI offered in support of its request for increased well density.

                         20. At the administrative hearing, TBI Production Company agreed to be bound by oral order of the Commission.

                        21. Based on the facts stated in the application, having been heard by the Hearing Officer on July 1, 1997 and recommended for approval, the Commission should approve the application to allow the optional drilling of additional wells, up to sixteen (16) wells per 640-acre drilling and spacing unit and up to eight (8) wells per 320-acre drilling and spacing unit, for the below-described lands in the Rulison and Parachute Fields for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group, with the permitted well to be located no closer than 400 feet from the outer boundaries of the drilling unit and no closer than 800 feet to any well or wells producing from the same formation. Further, the Commission should amend Cause Nos. 139 and 440 to allow the drilling of the first well in any undrilled section to be located in accordance with the drilling pattern identified herein to apply to wells drilling, completed or recompleted in the Williams Fork Formation for the above-described lands and allowing the Director to approve exception locations (which are exceptions to the modified setback requirements requested) because of topographical conditions, archeological conditions, irregular sections, surface use conflicts or reservoir considerations, provided the operator obtains a waiver or consent agreeing to the proposed location signed by the lease owner, if any, toward whom the well is proposed to be moved.

                        22. Upon Commission approval of the Administrative Docket the Hearing Officer confirmed his finding that TBI’s application to allow the optional drilling of additional wells in the Williams Fork Formation of the Mesaverde Group in the application area in the Parachute and Rulison Fields is consistent with the Commission’s statutory charge to avoid waste, prevent the drilling of unnecessary wells and to protect correlative rights.

                        NOW, THEREFORE, IT IS ORDERED, that Cause Nos. 139 and 440 are hereby amended to allow the optional drilling of additional wells, up to sixteen (16) wells per 640-acre drilling and spacing unit and up to eight (8) wells per 320-acre drilling and spacing unit, for the below-described lands in the Rulison and Parachute Fields for the production of gas and associated hydrocarbons from the Williams Fork Formation of the Mesaverde Group, with the permitted well to be located no closer than 400 feet from the outer boundaries of the drilling unit and no closer than 800 feet to any well or wells producing from the same formation.

Sections 16-17: All

Section 10: W½

Sections 15-16: All

Section 19-22: All

Sections 27-34: All

Sections 24-25: All

Section 36: All

                        IT IS FURTHER ORDERED, that Cause Nos. 139 and 440 are hereby amended to allow the drilling of the first well in any undrilled section to be located in accordance with the drilling pattern identified herein to apply to wells drilling, completed or recompleted in the Williams Fork Formation for the above-described lands and allowing the Director to approve exception locations (which are exceptions to the modified setback requirements requested) because of topographical conditions, archeological conditions, irregular sections, surface use conflicts or reservoir considerations, provided the operator obtains a waiver or consent agreeing to the proposed location signed by the lease owner, if any, toward whom the well is proposed to be moved.

                        IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith, as the party agreed to accept the oral order of the Commission.

                        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 _______ day of July 1997, as of July 1, 1997.

                                                                                OIL AND GAS CONSERVATION COMMISSION

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

July 30, 1997