REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on March 19, 1991, in Room 101, State Education Building, 201 East Colfax, Denver, Colorado, after giving Notice of Hearing, as required by law on the verified application of HGB Oil Company to amend Cause No. 471 to allow two wells to be drilled at exception locations in the Jace Field. The initial well is to be located 100 feet FNL and 1980 feet FEL in the NW/4 NE/4 of Section 7, Township 18 South, Range 41 West, 6th P.M., for the 80-acre drilling and spacing unit consisting of the N/2 NE/4. The offset well is to be located 100 feet FSL and 1980 feet FEL, with a tolerance of one hundred (100) feet east or west, in the SW/4 SE/4 of Section 6, Township 18 South, Range 41 West, 6th P.M, for the 80-acre drilling and spacing unit consisting of the S/2 SE/4.

FINDINGS

The Commission finds as follows:

1. HGB Oil Company, as applicant herein, is an interested party in the subject matter of the above-entitled 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 August 21, 1989, the Commission authorized Order No. 471-1 to be issued, which among other things, established 80-acre drilling and spacing units, consisting of the E/2 and W/2 or the N/2 and S/2 of a governmental quarter section with the unit to be designated by the operator of the first well drilled in the quarter section, for production from oil and associated hydrocarbons from the Morrow Sandstone for the below-listed lands in Kiowa County, Colorado.

Area "A"

Township 18 South, Range 41 West, 6th P.M. Section 5: All Section 8: All Section 17: All

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Township 17 South, Range 41 West, 6th P.M. Section 32: All Section 29: All

Area "B"

Township 17 South, Range 41 West, 6th P.M. Section 30: All Section 31: All

Township 17 South, Range 42 West, 6th P.M. Section 25: All Section 26: All Section 35: All Section 36: All

Township 18 South, Range 41 West, 6th P.M. Section 6: All Section 7: All Section 18: All

Township 18 South, Range 42 West, 6th P.M. Section 1: All Section 2: All Section 11: All Section 12: All Section 13: All Section 14: All

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5. The permitted well shall be no closer than 600 feet from the boundaries of the unit tract and no closer than 1200 feet from any other producible or drilling well when producing from or drilling into the Morrow Sandstone formation.

6. A well was drilled in the NE/4 NE/4 of said Section 7 and a well was drilled in the SW/4 SE/4 of Section 6, both to the Morrow formation, and were not productive.

7. A written statement from Mull Drilling Company, Inc. and a protest by Union Pacific Resources Company was filed with the Commission to object to potential precedent-setting for well locations drilled to the Morrow formation. Union Pacific Resources Company protested after an administrative hearing was held.

8. Based on the facts stated in the verified application and having been heard by the Hearing Officer who recommended approval of the application, the Commission should approve the request and amend Order No. 471-1 to allow two wells to be drilled at exception locations for production of oil and associated hydrocarbons from the Morrow formation. The initial well should be located 100 feet FNL and 1980 feet FEL in the NW/4 NE/4 of Section 7, Township 18 South, Range 41 West, 6th P.M., for the 80-acre drilling and spacing unit consisting of the N/2 NE/4. The offset well should be located 100 feet FSL and 1980 feet FEL, with a tolerance of one hundred (100) feet east or west, in the SW/4 SE/4 of Section 6, Township 18 South, Range 41 West, 6th P.M, for the 80-acre drilling and spacing unit consisting of the S/2 SE/4.

O R D E R

NOW, THEREFORE, IT IS ORDERED, that, exceptions to the permitted well locations as provided for Order No. 471-1 for production of oil and associated hydrocarbons from the Morrow formation, from the Jace Field, are hereby granted. The initial well shall be located 100 feet FNL and 1980 feet FEL in the NW/4 NE/4 of Section 7, Township 18 South, Range 41 West, 6th P.M., for the 80-acre drilling and spacing unit consisting of the N/2 NE/4. The offset well shall be located 100 feet FSL and 1980 feet FEL, with a tolerance of one hundred (100) feet east or west, in the SW/4 SE/4 of Section 6, Township 18 South, Range 41 West, 6th P.M, for the 80-acre drilling and spacing unit consisting of the S/2 SE/4.

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 with the verbal consent of the interested parties at the time of hearing, this order shall become effective forthwith.

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ENTERED this day of 1991 as of March 19, 1991.

OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO

By Patricia C. Beaver, Secretary

Dated at Suite 380 1580 Logan Street Denver, Colorado 80203 March 27, 1991 1088I - 4 -(471-2)