IN THE MATTER OF THE PROMULGATION AND CAUSE NOS

IN THE MATTER OF THE PROMULGATION AND          CAUSE NOS. 499 and 232
ESTABLISHMENT OF FIELD RULES TO GOVERN
OPERATIONS IN THE WATTENBERG FIELD AND         ORDER NOS. 499-31 and
THE WATTENBERG GAS SPACED AREA, ADAMS                                 232-176
COUNTY, COLORADO

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on October 21, 1997, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing, as required by law on the application of Matrix Energy, LLC for an order pooling all interests in the 160-acre drilling and spacing unit consisting of the SW¼ of Section 7, Township 1 South, Range 67 West, 6th P.M., for the development and operation of the Dakota Formation underlying said unit and the production of oil, gas and associated hydrocarbons from said formation, pursuant to the provisions of §34 60 116, C.R.S., 1984. The Applicant proposes to drill a well at a legal location in the NW¼ SW¼ of Section 7 for production from the Dakota Formation. In addition, the Applicant seeks a determination by the Commission that Byron Oil Industries, Inc. owns a fifty percent (50%) leasehold working interest in the Dakota Formation drilling and spacing unit.

FINDINGS

The Commission finds as follows:

1. Matrix Energy, LLC, 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 testimony presented at the administrative hearing indicated that the 320-acre drilling and spacing unit consisting of the S½ of Section 7, Township 1 South, Range 67 West, 6th P.M. has been voluntarily segregated into two separate working interest units comprised of the SW¼ and the SE¼ of Section 7. Matrix is the operator of the SW¼ of Section 7 and they wish to drill a Dakota Formation well at a legal location in the SW¼ of Section 7. The condition of the existing “J” Sand Formation wellbore will not allow a recompletion to the Dakota Formation and therefore a new well is required to produce the Dakota Formation reserves from the unit.

5. Additional testimony presented indicated that Byron Oil Industries owns a fifty percent (50%) interest in the drilling and spacing unit consisting of the S½ of Section 7, Township 1 South, Range 67 West, 6th P.M. and has been offered an opportunity to participate in the drilling of the proposed Dakota Formation well in accordance with Rule 530.

6. Based on the facts stated in the verified application, having received no protests, and having been heard by the Hearing Officer, the Commission should enter an order pooling all interests in the 160-acre drilling and spacing unit herein described, in order to insure proper and efficient development of the oil, gas and associated hydrocarbons from the Dakota Formation underlying said unit.

7. An order of the Commission pooling all interests in said drilling unit is necessary in order to afford each owner of interest in each said drilling unit the opportunity to recover and receive his just and equitable share of the oil and/or gas from the common source of supply underlying said drilling unit.

8. Production obtained from said drilling unit should be allocated to each tract therein on the basis of the proportion that the number of acres in each tract bears to the total number of acres within said drilling unit.

9. Matrix Energy, LLC should be approved as the operator for the 160-acre drilling and spacing unit consisting of the SW¼ of Section 7, Township 1 South, Range 67 West, 6th P.M., for the development and operation of the Dakota Formation.

ORDER

NOW, THEREFORE, IT IS ORDERED, that 1. Pursuant to the provisions of §34 60 116, C.R.S., as amended, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the drilling and spacing unit consisting of the SW¼ of Section 7, Township 1 South, Range 67 West, 6th P.M., are hereby pooled for the development of oil, gas and associated hydrocarbons from the Dakota Formation underlying said unit.

2. The production obtained from said drilling unit shall be allocated to each owner in the unit on the basis of the proportion that the number of acres in such tract bears to the total number of mineral acres within said drilling unit; each owner of an interest in said drilling unit shall be entitled to receive his share of the production of the well located on said drilling unit applicable to his interest in said drilling unit.

3. The owner of the leased and unleased tract should be afforded the opportunity to elect whether to participate in the drilling and operation of said well, and pay a proportionate share of the actual costs thereof, which proportionate share shall be determined by dividing the number of acres in each unleased tract to the total number of acres within said drilling unit.

4. Within thirty (30) days from the date of receipt of said AFE by the owner of said tract, such owner shall indicate whether he consents to the cost of the drilling of the well and agrees to participate in such costs. Such election shall be made in writing either by executing the AFE or similar document. In the event a written election to participate is not made by said owner within such time period, said owner shall be deemed to have elected not to participate and shall therefore be deemed to be non consenting as to the well and be subject to the penalties as provided for by §34 60 116 (7), C.R.S.

5. Any non consenting unleased mineral owner within the spacing unit shall be treated as the owner of the landowner's royalty to the extent of 12.5% of his or her record title interest, whatever that interest may be, until such time as the consenting owner recovers, only out of the non consenting owner's proportionate 87.5% share of production, the costs specified in §34 60 116 (7)(b), C.R.S. as amended. After recovery of such costs, the non consenting mineral owner shall then own his proportionate 8/8ths share of the well, surface facilities and production, and then be liable for his proportionate share of further costs incurred in connection with the well as if he had originally agreed to the drilling.

6. The operator of any well drilled on the above described unit shall furnish all non consenting owners with a monthly statement of all costs incurred, together with the quantity of oil and gas produced, and the amount of proceeds realized from the sale of production during the preceding month.

7. Byron Oil Industries, who owns a fifty percent (50%) interest in the 160-acre drilling and spacing unit consisting of the SW¼ is a non-consenting owner as defined in §34-60-116(7), C.R.S.

8. Matrix Energy LLC is hereby approved as the operator for the 160-acre drilling and spacing unit consisting of the SW¼ of Section 7, Township 1 South, Range 67 West, 6th P.M., for the development and operation of the Dakota Formation.

IT IS FURTHER ORDERED, that the provisions contained in the above order shall become effective forthwith, as the party agreed to accept the verbal 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 13th day of November 1997, as of October 21, 1997.

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 November 13, 1997

(499-31)