BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF THE PROMULGATION AND                                 )                             CAUSE NO. 477

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE HARKER RANCH MORROW                             )                             ORDER NO. 477-4

SAND UNIT, CHEYENNE COUNTY, COLORADO                                 )

REPORT OF THE COMMISSION

                        This cause came on for hearing before the Commission at 9:00 a.m. on January 9, 2006, Suite 801, in The Chancery Building, 1120 Lincoln Street, Denver, Colorado, for an order to remove certain lands from the provisions of Order Nos. 477-1 and 477-3 and to establish a unit and approve a unit operating agreement for the development and operation of the Morrow Sand Formation.

FINDINGS

                        The Commission finds as follows:

                        1. RDT Properties, Inc. ("RDT"), 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 pursuant to the Oil and Gas Conservation Act.

                        4. On May 21, 1990, the Commission issued Order No. 477-1, which established 80-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Morrow Sandstone Formation underlying certain lands in Townships 12 and 13 South, Ranges 42 and 43 West, 6th P.M., with each drilling unit consisting of the E½ and W½ or the N½ and S½ of a governmental quarter section, with the permitted well to be located in the NE¼ and SW¼, no closer than 460 feet from the boundaries of the unit tract. A Maximum Daily Production Rate was also established for producing wells within the above-described lands.

                        5. On March 18, 1996, the Commission issued Order No. 477-3 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Morrow V-3 Sandstone identified as the stratigraphic equivalent of the interval between 5,221 feet and 5,264 feet as shown on the Compensated Neutron Density log for the UPRC Harker 12-35 No. 4 Well located in the SW¼ NW¼ of Section 35, Township 12 South, Range 43 West, 6th P.M., Cheyenne County, or stratigraphically shallower Morrow sandstones underlying the below-described lands and the permitted well shall be located no closer than 1,000 feet from the boundaries of the drilling and spacing unit, and no closer than 2,640 feet to the nearest well permitted to, drilling to, completed in or producing from the Morrow V-3 Sandstone or stratigraphically shallower Morrow sandstones underlying certain lands in Townships 11, 12 and 13 South, Ranges 42 and 43 West, 6th P.M.

                        6. On October 17, 2005, RDT, by its attorney, filed with the Commission a verified application for an order to remove the below-listed lands from the provisions of Order Nos. 477-1 and 477-3 and to establish a unit and approve a unit operating agreement for the Morrow Sand Formation encountered between 5,150 and 5,274 feet, inclusive, measured below the Kelly Bushing elevation in the D.D. Durr 21-12 No. 1 Well located in the NE¼ NW¼ of Section 12, Township 13 South, Range 43 West, 6th P.M. for the below-listed lands:

Township 13 South, Range 43 West, 6th P.M.

Section 1: S½

Section 12: All

Section 13: N½

                        7. On November 21, 2005, Las Animas Minerals LTD filed with the Commission a protest to the application based on its belief that the proposed tract allocation formula may not be just and reasonable. In addition, Donald J. Finch filed with the Commission a protest to the application based on his concerns about impacts to groundwater, surface agricultural productions, restrictions of rights of way and restriction of future oil and gas exploration on his property. On November 22, 2005, the application was continued to the January hearing.

                        8. On December 23, 2005, Paul Finch filed with the Commission a protest to the application stating his concern over the potential contamination of the aquifer underlying his property. It addition, Donald J. Finch filed an identical protest on the same day. The Hearing Officer deemed these protests as addressing public health, safety, welfare and environmental issues rather than protests to the technical aspects of the proposed unit development and operations. The public health, safety, welfare and environmental impacts from the proposed operations and from the proposed injection wells will be evaluated on a well-by-well basis in accordance with the Commission’s rules and regulations.

                        9. On December 29, 2005, a prehearing conference was held with RDT and Las Animas Minerals at which time a new proposed tract allocation formula was presented. The parties agreed to meet to discuss the new formula and attempt to resolve Las Animas Minerals’ concerns.

                        10. On January 5, 2006, RDT and Las Animas Minerals advised the Hearing Officer that a tract allocation formula had been agreed to and that Las Animas Minerals would withdraw its protest provided the formula presented at the administrative hearing was the same formula agreed to by Las Animas Minerals.

                        11. Testimony and exhibits presented at the administrative hearing showed that revised Exhibit A for both the application and unit agreement was the new tract allocation formula agreed to by Las Animas Minerals. Additional testimony showed that Las Animas Minerals has a 23.25% royalty interest in the proposed Harker Ranch Unit under the new formula.

                        12. Testimony and exhibits presented at the administrative hearing showed that RDT has 100% of the working interest ownership in the proposed unit, and that none of the other royalty owners have been notified of the new tract allocation formula. Additional testimony showed that only Las Animas Minerals has seen the new formula and has signed off on the formula. Further testimony indicated that all other royalty owners who had approved the previous formula will soon be notified of the new formula, with the intent of obtaining at least the 80% approval required under the statute from those owners in the near future.

                        13. Testimony and exhibits presented at the administrative hearing showed that there are four (4) tracts in the proposed unit with specific tract participation as follows:

Tract 1, S½ of Section 1, Township 13 South, Range 43 West, 6th P.M. (10%)

Tract 2, N½ and SE¼ of Section 12, Township 13 South, Range 43 West, 6th P.M. (25%) Tract 3, SW¼ of Section 12, Township 13 South, Range 43 West, 6th P.M. (50%)

Tract 1, N½ of Section 13, Township 13 South, Range 43 West, 6th P.M. (15%)

Additional testimony showed that Tract 1 contains one well, Tract 2 contains four (4) wells, Tract 3 contains two (2) wells and Tract 4 contains one (1) well.

                        14. Testimony and exhibits presented at the administrative hearing showed a revised zero isopach contour map used in determining the new tract allocation formula.

                        15. Testimony and exhibits presented at the administrative hearing indicated that RDT plans to have three (3) injection wells, five (5) producing wells, and may possibly reenter an old well to use as a water supply well. The injection operations will be located in Tract 3 and another injection well could be added if needed in the future.

                        16. Testimony and exhibits presented at the administrative hearing indicated that the tract allocation formula provides fair and equitable participation for the royalty owners.

                        17. Testimony and exhibits presented at the administrative hearing showed that the Morrow V-7 Sand is found between 5150 feet and 5274 feet as shown on the log located in the NE¼ NW¼ of Section 12, Township 13 South, Range 43 West, 6th P.M. Additional testimony showed that approximately 100 feet of Morrow shale lies above the zone, with several hundred feet of tight limestone below the Morrow V7 zone, and based on these overlying and underlying formation characteristics, the Morrow Sand will be completely isolated and fluid migration is therefore not expected from the Morrow Sand.

                        18. Testimony and exhibits presented at the administrative hearing showed that the Morrow V-7 Formation is the only producing formation in the unit area, with porosity of approximately 14% and permeability of approximately 90 millidarcies.

                        19. Testimony and exhibits presented at the administrative hearing showed that underground sources of drinking water within the proposed unit area are found only in the Ogalala Formation at depths of 94 to 300 feet underlying the unit area. Additional testimony showed that surface pipe has been set through this fresh water interval and cemented to ground level in all wells in the unit area.

                        20. Testimony and exhibits presented at the administrative hearing showed wellbore sketches of the injection wells, confirming the depths that casing, tubing and packers were set in the three (3) injection wells.

                        21. Testimony and exhibits presented at the administrative hearing showed the intervals that water would be injected into the three (3) injection wells and prior to the injection of any water, a sample will be obtained for analysis and approval by Commission staff. Additional testimony showed the maximum injection rate, surface pressure, sandface pressure and fracture pressure for the proposed injection wells.

                        22. Testimony and exhibits presented at the administrative hearing showed a chemical analysis of the fluid to be injected taken from a well located approximately five (5) miles to the south of the proposed unit and that the Morrow Sand in the proposed unit is expected to have a similar chemical composition.

                        23. Testimony and exhibits presented at the administrative hearing showed a list of the working interest owners, the mineral interest owners and the surface owners within the boundaries of the proposed unit and within a ½ mile of the tracts to be unitized who were provided copies of the application and of the hearing notice. Additional testimony showed that the cost of implementing the proposed unit far exceeds the costs of establishing the unit, making it an economic venture.

                        24. Testimony and exhibits presented at the administrative hearing showed a hydrocarbon pore volume isopach of the oil column, to describe the oil within the reservoir. Additional testimony showed that the oil volume within the wells in the proposed unit were derived from discussions with Las Animas Minerals and that unit operations are necessary to increase oil recovery, and that the costs for unitization are economic.

                        25. RDT Properties, Inc. will notify the Commission upon receipt of 80% of the royalty interest owners’ approval and the unit will go into effect on the first day of the month following approval. In addition, RDT will file the required forms with the Commission upon obtaining 80% approval from the royalty interest owners for unit operations.

                        27. At the time of the administrative hearing RDT’s attorney stated his opposition to the protests filed on December 23, 2005, which were submitted after the original protest deadline. He further stated that, despite his opposition, his clients would present testimony to address the concerns expressed in the protests.

                        28. Testimony was presented at the administrative hearing indicating that no communication is possible between the shallow fresh water aquifers and the Morrow V-7 Formation. Additional testimony showed that no Morrow Sand exists in the Finch 13-18 #1 Well located in Section 18, Township 13 South, Range 43 West, 6th P.M., and therefore fluids could not escape to contaminate fresh water aquifers.

                        29. Testimony was presented at the administrative hearing indicating that a water well in the SE¼ SW¼ of Section 18, Township 13 South, Range 43 West, 6th P.M. is located on Finch property. Additional testimony indicated that although the exact depth of the water well is not known, surface pipe in nearby wells is set approximately 200 feet deeper than the water wells in the area whose depth are known, more than adequately protecting the water well.

                        30. The Hearing Officers believe that the testimony presented indicates no adverse impact is expected to fresh water aquifers in the proposed unit area. In addition, the Hearing Officers recognize that each well will be individually evaluated prior to being approved for drilling or injection operations, with regard to proximity to and protection of water wells.

                        31. RDT Properties, Inc. agreed to be bound by oral order of the Commission.

                        32. Based on the facts stated in the verified application, having received no protests on the technical merits of the application, and having been heard by the Hearing Officer who recommended approval, the Commission should enter an order to remove certain lands in Township 13 South, Range 43 West, 6th P.M., from the provisions of Order Nos. 477-1 and 477-3 and to establish a unit and approve a unit operating agreement for the Morrow Sand Formation encountered between 5,150 and 5,274 feet, inclusive, measured below the Kelly Bushing elevation in the D.D. Durr 21-12 No. 1 Well located in the NE¼ NW¼ of Section 12, Township 13 South, Range 43 West, 6th P.M.

                        33. On February 3, 2006, RDT notified the Commission that as of January 31, 2006, one hundred percent (100%) of the mineral owners have approved the unit agreement containing the new tract participation formula; accordingly the unit should become effective on February 1, 2006.

ORDER

                        NOW, THEREFORE IT IS ORDERED that :

                        1. The Unit Agreement and Unit Operating Agreement, covering the below-listed lands in the Harker Ranch Morrow Sand Unit, which agreements are attached to, and made a part of the original order of this Commission on file in the office of the Commission, are approved as being in the public interest for conservation.

Township 13 South, Range 43 West, 6th P.M.

Section 1: S½

Section 12: All

Section 13: N½

                        2. The provisions contained in said Unit Agreement and Unit Operating Agreement as they pertain to §34-60-118, C.R.S., as amended, of the Oil and Gas Conservation Act are just and reasonable, and are incorporated herein as the Commission’s plan of involuntary operations for such lands.

                        IT IS FURTHER ORDERED, that the persons owning the required percentage of interest in the unit area shall have six (6) months from the date the order is entered to approve the plan.

                        IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective on the first day of the month following the date on which those persons having 80% of non-cost-bearing interests have approved in writing the plan for unit operations. Proof of such approvals shall be submitted to the Commission.

                        IT IS FURTHER ORDERED, that the Harker Ranch Morrow Sand Unit is hereby effective as of February 1, 2006.

                        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 February, 2006 as of January 9, 2006.

                                                                    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

February 8, 2006