REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on January 6, 2003 at 10 a.m. in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado for an order to amend Order No. 491-1 to include Sections 5 through 8, Township 8 North, Range 91 West, 6th P.M. and Sections 1 and 12, Township 8 North, Range 92 West, 6th P.M. in the Fortification Creek Field.

FINDINGS

The Commission finds as follows:

1. Matagorda Production Company ("Matagorda"), 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 December 17, 1990, the Commission issued Order No. 491-1 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Mesaverde Formation consisting of the E1/2 and W1/2 or the N1/2 and S1/2 of each section to be determined by the operator of the first well drilled in the section, with the permitted well to be located in the NW1/4 and SE1/4 of each section and no closer than 460 feet fro m the boundaries of the unit for the following described lands:

Township 8 North, Range 91 West, 6th P.M. Sections 2 through 4: All Sections 9 through 11: All

Township 9 North, Range 91 West, 6th P.M. Sections 33 and 34: All

5. On November 19, 2002, Matagorda Production Company ("Matagorda"), by its attorney filed with the Commission a verified Application for an order to amend Order No. 491-1 to include the below-listed lands in the Fortification Creek Field:

Township 8 North, Range 91 West, 6th P.M. Section 5 through 8: All

Township 8 North, Range 92 West, 6th P.M. Section 1 and 12: All

Matagorda wishes to drill the Morgan Creek #1-43 Well at a legal location under Order No. 491-1 in the E1/2 of Section 1, Township 8 North, Range 92 West, 6th P.M. for the production of gas and associated hydrocarbons from the Mesaverde Formation.

6. Testimony and exhibits presented at the administrative hearing showed that Matagorda has under lease the majority of lands proposed to be included in the Fortification Creek Field. Further testimony showed that Matagorda has obtained waivers from all of the affected mineral interest owners to locate its Morgan Creek #1-43 Well at an exception location under Rule 318.c., however, the well is a legal location under Cause No. 491.

7. Testimony and exhibits presented at the administrative hearing showed that Matagorda's geological interpretation of the Mesaverde Formation is that it was deposited as a tidal channel underlying the Fortification Creek Field, differing from previous interpretations of a marine depositional environment. Additional testimony and exhibits showed the only productive well in the Mesaverde Formation in Fortification Creek Field, with an estimated dra inage area for this well of 304 acres.

8. Approval of the application would prevent waste and protect correlative rights.

9. At the time of the administrative hearing, Matagorda Production Company agreed to be bound by an oral order of the Commission.

10. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should approve an order to amend Order No. 491-1 to include the lands listed above in Finding No. 5 under the provisions of Order No. 491-1 for the production of oil, gas and associated hydrocarbons from the Mesaverde Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that the below-listed lands are hereby subject to the provisions of Order No. 491-1 for the production of oil, gas and associated hydrocarbons from the Mesaverde Formation in the Fortification Creek Field.

Township 8 North, Range 91 West, 6th P.M. Section 2 through 8: All Sections 9 through 11: All

Township 8 North, Range 92 West, 6th P.M. Section 1 and 12: All

Township 9 North, Range 91 West, 6th P.M. Sections 33 and 34: All

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 day of January, 2003, as of January 6, 2003.

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 January 30, 2003

(491-#2)

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