REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on June 14, 1991 at 8:30 a.m., in Room 101, State Education Building, 201 East Colfax Avenue, Denver, Colorado, after giving Notice of Hearing as required by law, on the verified application of Fuel Resources Development Company, for an order to establish the Cameo Coal seams as a source of supply found at a depth of 5,300 feet to 5,728 feet in the Resource Enterprises Well No. 1 Deep Seam 32-2 located in the SE1/4 NW1/4 of Section 32, Township 9 South, Range 94 West, 6th P.M., and further to establish 320-acre drilling and spacing units for the production of methane gas from the Cameo Coal seams in Plateau Creek Field, Mesa County, Colorado.

FINDINGS

The Commission finds as follows:

1. Fuel Resources Development 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. That evidence presented to the Hearing Officer indicated that the Cameo Coal seams constitute a common source of supply of methane gas underlying the following described lands in Mesa County, Colorado to-wit:

Township 10 South, Range 94 West, 6th P.M. Sections 10, 15 and 22: All

5. That in order to prevent the waste of oil and gas, as defined by law, to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the oil and gas resources of the State, an order should be made establishing 320-acre drilling and spacing units for the production of methane gas from the Cameo Coal seams, underlying the lands defined herein; that said units should be 320-acres, more or less, and consisting of a half section according to the governmental survey thereof, with a tolerance of ten percent (10%) allowed to accommodate the establishment of two (2) drilling units in each governmental section, divided to the extent feasible, along lease and survey lines. The operator of the first well in the section should designate the unit and the permitted well for each such drilling unit should be located no closer than 600 feet from any unit line and no closer than 1,200 feet from any other well producing or producible from the same source of supply.

6. That the Director, without additional notice or hearing, should be empowered to grant exceptions to well locations provided the owners of contiguous and cornering units toward which the proposed location would be moved file a waiver or consent in writing, agreeing to said exception.

7. That all available geologic and engineering data concerning said Cameo Coal seams indicates that one well will economically and efficiently drain an area of approximately 320-acres, and that drilling units the size and shape hereinabove described are not smaller than the maximum area that can be efficiently drained by one well producing from said Cameo Coal seams.

8. That additional rules be established for the protection of ground waters, the cementing of production casing, production tests, reporting of production data, and procedures to process confidentiality requests.

9. Mesa County filed an intervention to the application with a proposal for additional field rules to be established for the Plateau creek Field, At the time of administrative hearing, both the intervenor and the applicant agreed to continue the matter of the proposed additional field rules to the August 20, 1991 hearing.

10. That no protests to the spacing application were received and the Hearing Officer recommends that the application be approved.

O R D E R

NOW, THEREFORE IT IS ORDERED, that the following rules and regulations shall apply hereafter to wells drilled and completed or recompleted in the Cameo Coal seams underlying the Plateau Creek Field herein described, in addition to other applicable rules and regulations and orders of the Commission, if any, heretofore adopted and not in conflict herein.

Rule 1: Three Hundred Twenty (320) acre drilling and spacing units shall be and the same are hereby established for the production of methane gas and associated hydrocarbons from the Cameo Coal seams underlying the following described lands in the Plateau Creek Field, Mesa County, Colorado, to-wit:

Township 10 South, Range 94 West, 6th P.M. Sections 10, 15 and 22: All

Rule 2: Said drilling units shall consist of three hundred twenty (320) acres, and each such drilling unit shall consist of a governmental half section with a tolerance of ten percent (10%) allowed to accommodate the establishment of two (2) drilling units in each governmental section, divided to the extent feasible, along lease and survey lines. The operator of the first well in the section shall designate the unit and the permitted well for each suc h drilling unit shall be located no closer than 600 feet from any unit line and no closer than 1,200 feet from any other well producing or producible from the Cameo Coal seams.

Rule 3: All wells drilled shall have a minimum of three hundred (300) feet of surface casing installed and cemented from setting depth to the surface by circulation methods. Blow-out preventors and kill line or lines shall be installed prior to drilling out from the surface pipe and be in good working order.

Rule 4: All production casing strings shall be cemented from the casing shoe or total depth, whichever is shallower, to at least seven hundred (700) feet above the uppermost gas-productive coal seam in the Cameo Coal section. Operators shall promptly notify the Commission if they are unable to successfully place cement across the required formations and specify the depth of the coals not covered. Steps to determine the cement top, and the procedure ta ken to cover the coal sections, if necessary, shall be taken prior to any attempted completion efforts.

Rule 5: An initial completion report, Form 5, and basic logs shall be submitted within thirty (30) days of reaching total depth and the setting of production casing. The Form 5 shall contain all information including geologic data except perforated interval, treatments, production test data, and any special experimental data. This initial Form 5 shall be released upon processing by the Commission and shall not be granted "Confidential" status in accor d with Rule 306. A complete Form 5 containing the data omitted on the initial report shall be submitted within one year from the setting of production casing or within six months from the data of first production, whichever comes first. The complete Form 5 shall be released upon processing by the Commission.

Rule 6: All fluid production, including any and all water, shall be reported on a monthly basis, as required by Rule 307, and a Certificate of Clearance, Form 10, shall be submitted as required by Rule 310 of the Rules and Regulations of the Commission.

Rule 7: Any cathodic protection borehole shall be permitted and constructed as per State Division of Water Resources requirements. In addition, a Sundry Notice, Form 4, shall be submitted to the Commission indicating the location, total depth, aquifers penetrated, water quality, and borehole construction.

Rule 8: That the Director, without additional notice or hearing, shall be empowered to grant exceptions to well locations provided the owners of contiguous and cornering units toward which the proposed location would be moved, file a waiver or consent in writing agreeing to said exception.

IT IS FURTHER ORDERED, that the Rules and Regulations of the Commission shall govern all other matters pertaining to the production of methane gas from the Cameo Coal seams until the Commission may issue further orders after giving notice and hearing.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith as all parties present at the hearing agreed to accept the verbal order of the Commission.

IT IS FURTHER ORDERED, that the hearing to establish additional field rules as proposed by the Intervenor shall be continued to the August 20, 1991 hearing.

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 2nd day of July, 1991 as of June 14, 1991.

Amended this day of February, 1997, as of June 14, 1991.

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 March 25, 1997 ??

(494#1.amd)