STATE OF COLORADO OIL AND GAS CONSERVATION COMMISSION

IN THE MATTER OF THE PROMULGATION AND                                 )                                 CAUSE NOS. 232 & 499

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE WATTENBERG FIELD,                                       )                                 ORDER NOS. 232-241 & 499-79

ADAMS COUNTY, COLORADO                                                               )

                This cause came on for hearing before the Commission at 9:00 a.m. on June 6, 2005, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado on the application of United States Exploration, Inc., for an order to segregate the 320-acre drilling and spacing unit consisting of the E½ of Section 3, Township 2 South, Range 65 West, 6^th P.M. into two 160-acre drilling and spacing units consisting of the SE¼ and NE¼ of said Section 3, for the production of oil and gas from the Dakota and "J" Sand Formations for any well located in accordance with Rule 318A.

                    The Commission finds as follows:

                1. On October 19, 1981, the Commission issued Order No. 232-23, which amended Order No. 232-20 to include additional lands and allowed an additional well to be drilled in the 320-acre drilling and spacing units for the production of gas from the "J" Sand Formation in the Wattenberg Field. Section 3, Township 2 South, Range 65 West, 6^th P.M. was included in this order.

                2. On November 16, 1992, the Commission issued Order No. 499-15 which, among other things, established 320-acre drilling and spacing units for the production of oil, gas and associated hydrocarbons from the Dakota Formation, including Section 3, Township 2 South, Range 65 West, 6^th P.M.

                3. On April 27, 1998, the Commission adopted Rule 318A. which, among other things, allowed certain drilling locations to be utilized to drill or twin a well, deepen a well or recomplete a well and to commingle any or all of the Cretaceous Age formations from the base of the Dakota Formation to the surface. Section 3, Township 2 South, Range 65 West, 6^th P.M. was included in this Rule.

                4. On April 11, 2005 United States Exploration, Inc., by its attorney, filed with the Commission a verified application for an order to segregate the 320-acre drilling and spacing unit consisting of the E½ of Section 3, Township 2 South, Range 65 West, 6^th P.M. into two 160-acre drilling and spacing units consisting of the SE¼ and NE¼ of said Section 3, for the production of oil and gas from the Dakota and "J" Sand Formations for any well located in accordance with Rule 318A.

                5. Testimony and exhibits presented at the administrative hearing showed that under a certain Exploration Agreement dated April 9, 1998, as amended, United States Exploration, Inc. has the right to earn an oil and gas lease covering the NE¼ of Section 3, Township 2 South, Range 65 West, 6^th P.M.

                6. Testimony and exhibits presented at the administrative hearing showed that United States Exploration, Inc. desires the order because it has the duty to the mineral owner, under the terms of the Exploration Agreement, to develop the oil and gas in the NE¼ of Section 3, Township 2 South, Range 65 West, 6^th P.M. Additional testimony indicated that the ownership of the oil and gas leasehold in the NE¼ is different from the ownership of the oil and gas leasehold in the SE¼ of Section 3, Township 2 South, Range 65 West, 6^th P.M., and the granting of the order requested will help to facilitate that oil and gas development.

                7. Testimony presented at the administrative hearing indicated that the SE¼ of Section 3, Township 2 South, Range 65 West, 6^th P.M., is unleased at this time.

                8. Testimony presented at the administrative hearing showed that no wells have been drilled in the E½ of Section 3, Township 2 South, Range 65 West, 6^th P.M., that there is no Dakota Formation production in the area of Section 3, Township 2 South, Range 65 West, 6^th P.M., and that the proposed well would be considered exploratory for the Dakota Formation.

                9. Testimony and exhibits presented at the administrative hearing showed that "J" Sand Formation recovery is estimated to be 26% of original gas in place for "J" Sand Formation wells in the area of Section 3, and that Dakota Formation recovery is estimated to be 17% of original gas in place for the 29 wells in Township 1 North, Range 65 West, 6^th P.M.

                10. Testimony and exhibits presented at the administrative hearing showed that a Dakota Formation and "J" Sand Formation well will drain less than 160 acres in Section 3, Township 2 South, Range 65 West, 6^th P.M., and therefore no violation of correlative rights will occur.

                11.  United States Exploration, Inc. agreed to be bound by an oral order of the Commission.

                NOW, THEREFORE IT IS ORDERED, that the 320-acre drilling and spacing unit consisting of the E½ of Section 3, Township 2 South, Range 65 West, 6^th P.M. is hereby segregated into two 160-acre drilling and spacing units consisting of the SE¼ and NE¼ of said Section 3, for the production of oil and gas from the Dakota and "J" Sand Formations for any well located in accordance with Rule 318A.

                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.

                                                                        OIL AND GAS CONSERVATION COMMISSION

                                                                                        ; ; OF THE STATE OF COLORADO

                                                                                        By _________________________________ &#&#

                                                                                                        ; ; Patricia Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

June 20, 2005