REPORT OF THE COMMISSION

This Cause came on for hearing before the Commission on June 4, 1999, at 8:30 a.m. in Rifle Town Hall Council Chambers, 202 Railroad Ave., Rifle, Colorado, after giving Notice of Hearing, as required by law on the application of Energy Alliance Company, Inc., for an order pooling all interests in the 320-acre drilling and spacing unit located in the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. for the development and operation of the Re d Cave and Waubunsee Formations in the Spelunker Field, pursuant to the provisions of 34-60-116(7), C.R.S., 1984. The applicant proposes to pool this unit for the existing Grotto Rouge No. 1-30 Well drilled at a legal location 1143 feet FNL and 1497 feet FEL in the NW1/4 NE1/4 of said Section 30 for the production of gas and associated hydrocarbons from the Red Cave and Waubunsee Formations.

FINDINGS

The Commission finds as follows:

1. Energy Alliance Company, Inc. ("Energy Alliance"), 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.

4. On November 18, 1997, the Commission issued Order No. 504-1 which established 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Red Cave and Waubunsee Formations including Section 30, Township 33 South, Range 43 West, 6th P.M., 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 cond itions, with existing or permitted wells approved as exception locations as necessary or required.

5. On April 14, 1999, Energy Alliance, by its attorney, filed with the Commission a verified application for an order pooling all interests in the 320-acre drilling and spacing unit consisting of the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. for the development and operation of the Red Cave and Waubunsee Formations pursuant to the provisions of 34-60-116 (7), C.R.S., 1984. The applicant has drilled the Grotto Rouge No. 1-30 Well a t a legal location 1143' FNL and 1497' FEL in the NW1/4 NE1/4 of said Section 30 for the production of gas and associated hydrocarbons from the Red Cave and Waubunsee Formations.

6. Testimony and evidence presented at the administrative hearing indicated nonconsenting mineral owners and their net acre ownership. Mineral owners Gieri F. Cotton and Van Cotton have now signed lease agreements. Mineral owner Vera Winegar (40 net acres) does not wish to join in the well or to lease to Energy Alliance. Mineral owners Randy Kreft (4 net acres) and Fred Boekel (4 net acres) request unreasonable lease provisions of a 3/16 overriding ro yalty interest and four hundred dollars ($400) per acre lease bonus. Mineral owner Donald Alexander Trust (3 net acres) has not returned any correspondence. Mineral owner Stephen Thompson (4 net acres) has no known address and thus cannot be located.

7. Testimony and evidence presented at the administrative hearing indicated that Energy Alliance has 13,000 acres under lease in the area. Energy Alliance offered each nonconsenting mineral owner a just and reasonable offer to lease and an offer to participate in the cost of drilling the well. The offer to participate included an AFE, the location and depth of the well, and an estimated spud date.

8. Based on the facts stated in the verified application, having received no protests to the application, and having been heard by the Hearing Officer who recommends approval, the Commission should enter an order pooling all interests in the 320-acre drilling and spacing unit consisting of the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. for the development and operation of the Red Cave and Waubunsee Formations.

9. That 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 their just and equitable share of the oil and/or gas from the common source of supply underlying said drilling unit.

10. That 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 with said drilling unit.

11. That Energy Alliance should be designated as the operator for the 320-acre drilling and spacing unit consisting of the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. for the development and operation of the Red Cave and Waubunsee Formations.

ORDER

NOW, THEREFORE IT IS ORDERED that, 1. Pursuant to the provisions of 34-60-116, C.R.S., 1984, of the Oil and Gas Conservation Act of the State of Colorado, all interests in the 320-acre drilling and spacing unit consisting of the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. are hereby pooled for the development and operation of the Red Cave and Waubunsee Formations.

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/her 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 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 A.F.E. 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).

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. That Energy Alliance Company, Inc. shall be designated as the operator for the 320-acre drilling and spacing unit consisting of the E1/2 of Section 30, Township 33 South, Range 43 West, 6th P.M. for the development and operation of the Red Cave and Waubunsee Formations.

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.

RECOMMENDED this day of June, as of June 4, 1999.

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 June 11, 1999 ??

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