Order No. 504-1

IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN SPELUNKER FIELD, BACA COUNTY, COLORADO

Cause No. 504 Order No. 504-1

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on October 21, 1997 at 8:30 a.m., in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, after giving Notice of Hearing as required by law, on the verified application of Energy Alliance Company, Inc. for an order to establish 320-acre drilling and spacing units for certain lands for production of gas and associated hydrocarbons from the Red Cave Formation. Permitted wells should be located in the center of the NE1/4 or SW1/4 of the spacing units subject to a 300 foot tolerance in any direction based on surface or geologic conditions. The Director should be granted authority to approve exceptions to the permitted well locations due to topography or surface hazards. Further, the Applicant requests that certain existing Red Cave Formation wells be approved as the permitted wells for such drilling and spacing units, three of which are exceptions to the proposed permitted well locations. In addition, the Applicant requests the approval of dual completion of the Red Cave Formation with the Waubunsee Formation and downhole commingling of such, if encountered.

FINDINGS

The Commission finds as follows:

1. Energy Alliance Company, Inc., as applicant herein, is an interested party in the subject matter of the above-referenced matter.

2. Due notice of the time, place and purpose of the hearing has been given in all respects as required by law.

3. That 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. A protest to the Application was filed on September 8, 1997 by Gary L. and Patricia Laner, against any forced pooling of their mineral interests and the matter was continued. On October 10, 1997, a written withdrawal of the protest was filed with the Commission.

5. That evidence and testimony presented at the administrative hearing indicates the Red Cave and the Waubunsee Formations constitute a common source of supply of gas and associated hydrocarbons underlying the following lands in Baca County, Colorado, and that 320-acre drilling and spacing units are not smaller than the maximum area that can be efficiently and economically drained by one well:

Township 33 South, Range 43 West, 6th P.M. Sections 7-9: All Sections 15-21: All Sections 29-30: All

6. 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 entered establishing 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Red Cave and Waubunsee F ormations underlying the lands described herein.

7. That the permitted wells should be located in the center of the NE1/4 or SW1/4 of the spacing units subject to a 300 foot tolerance in any direction based on surface or geologic conditions, and that downhole commingling of production from the Red Cave and Waubunsee Formations should be allowed due to the compatibility of the formation pressures, liquids and gases.

8. That the Director should be granted authority to approve requests for exception locations due to topographic conditions, archeological conditions, irregular sections, surface use conflicts, or reservoir considerations provided the Operator obtain a waiver or consent signed by the lease owner toward whom the well is proposed to be moved, agreeing to the proposed location.

9. That the below-listed wells previously drilled to the Red Cave Formation should be approved as exceptions to the permitted well location:

Well Name Legal Location Footages Cook No. 2-7 Well SE1/4 SW1/4 Section 7-33S-43W 1,120' FSL, 1,410' FWL Doke No. 2-8 Well SE1/4 NE1/4 Section 8-33S-43W 2,077' FNL, 691' FEL Greensburg State No. 1-16 Well NE1/4 SW1/4 Section 16-33S-43W 1,980' FSL, 1,980' FWL WECO State No. 1-16 Well SW1/4 NE1/4 Section 16-33S-43W 1,334' FNL, 1,351' FEL Alley No. 2-17 Well C SW1/4 Section 17-33S-43W 1,320' FSL, 1,320' FWL Redstone No. 1-18 Well C NE1/4 Section 18-33S-43W 1,323' FNL, 1,352' FEL McKinley No. 2-20 Well SE1/4 NE1/4 Section 20-33S-43W 2,400' FNL, 600' FEL

10. At the time of the administrative hearing, the Applicant agreed to be bound by oral order of the Commission.

11. Based on the facts stated in the application and having been heard by the Hearing Officer who recommends approval of the application, the Commission should approve the request and establish 320-acre drilling and spacing units for production of gas and associated hydrocarbons from the Red Cave Formation and the Waubunsee Formation, with the permitted wells to be located in the center of the NE1/4 or SW1/4 of the spacing units subject to a 300 foot to lerance in any direction based on surface or geologic conditions. In addition, the downhole commingling of production from the Red Cave and Waubunsee Formations should be allowed due to the compatibility of the formation pressures, liquids and gases and the above-mentioned wells should be approved as exceptions to the permitted well location. Further, the Director should be granted authority to approve requests for exception locations due to topographic conditions, archeological conditions, irregular sections, surface use conflicts, or reservoir considerations provided the Operator obtain a waiver or consent signed by the lease owner toward whom the well is proposed to be moved, agreeing to the proposed location. . ORDER

NOW, THEREFORE, IT IS ORDERED, that 320-acre drilling and spacing units are hereby established for production of gas and associated hydrocarbons from the Red Cave Formation and the Waubunsee Formation underlying the below-described lands with the permitted well to be located in the center of the NE1/4 or SW1/4 of the spacing units subject to a 300 foot tolerance in any direction based on surface or geologic conditions.

Township 33 South, Range 43 West, 6th P.M. Sections 7-9: All Sections 15-21: All Sections 29-30: All

IT IS FURTHER ORDERED, that Certificates of Clearance, Form 10s, shall be filed within thirty (30) days of the date this order is entered on all wells currently producing and operated by Energy Alliance Company, Inc. to correct the field name from Walsh Field to Spelunker Field.

IT IS FURTHER ORDERED, that the downhole commingling of production from the Red Cave Formation and the Waubunsee Formation is hereby approved.

IT IS FURTHER ORDERED, that the Director shall be granted authority to approve requests for exception locations due to topographic conditions, archeological conditions, irregular sections, surface use conflicts, or reservoir considerations provided the Operator obtain a waiver or consent signed by the lease owner toward whom the well is proposed to be moved, agreeing to the proposed location. If any owner of the proposed well is also the majority owner of the leasehold interest covering a spacing unit toward which the well is proposed to be moved, then a waiver or consent shall be obtained from the mineral interest owner subject to such lease.

IT IS FURTHER ORDERED, that the below-listed wells previously drilled to the Red Cave Formation shall be approved as exceptions to the permitted well location:

IT IS FURTHER ORDERED, that the rules and regulations contained herein 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, rules and regulations.

ORDERED this 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 18, 1997 ??

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