REPORT OF THE COMMISSION

This cause came on for hearing before the Commission at 8:30 a.m. on December 3, 1998 in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver, Colorado, on the amended application of Chandler & Associates, LLC, by its attorney for an order to establish 160-acre drilling and spacing units for certain lands in the Lorencito Field for the production of gas and associated hydrocarbons from the Vermejo Formation. Permitted wells shall be located no closer than 600 feet from the boundaries of the unit and the Director shall be authorized to grant waivers to the permitted locations due to topography, surface considerations and to avoid conflicts with coal mine operations. Further, certain wells shall be approved as exceptions to the permitted well locations and certain wells shall be approved as the permitted well for certain 160-acre drilling and spacing units.

FINDINGS

The Commission finds as follows:

1. Chandler & Associates, LLC ("Chandler"), 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. 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. On October 14, 1998 Chandler, by its attorney, filed with the Commission a verified application for an order to establish 160-acre drilling and spacing units for the below-listed lands for the production of gas and associated hydrocarbons from the Raton and Vermejo Formations, defined as the stratigraphic equivalent from the surface of the earth to the top of the Trinidad Sandstone Formation at a depth of 1,194 feet as shown on the porosity log from the Amoco Production Company MGP Enterprises A No. 1 Well located in the SW1/4 SE1/4 of Section 4, Township 34 North, Range 66 West, 6th P.M.

Township 33 South, Range 66 West, 6th P.M. Section 31: S1/2 Section 32: SW1/4

Township 33 South, Range 67 West, 6th P.M. Section 36: S1/2

Township 34 South, Range 66 West, 6th P.M. Section 3: SW1/4 Section 4: S1/2 Sections 5 - 9: All Section 10: W1/2 Section 15: W1/2 Sections 16 - 21: All Section 22: W1/2 Section 27: NW1/4 Sections 28 - 29: All Section 30: NE1/4

Township 34 South, Range 67 West, 6th P.M. Section 1: All Section 2: E1/2 Sections 11 -13: All Section 14: NE1/4

5. Chandler owns 100% of the following existing wells which are located on the subject lands outside of the setbacks requested hereunder. Should application be made to recomplete or produce these wells from the Vermejo Formation, Chandler requests approval to allow these wells as exceptions to the permitted well locations.

Existing Wells Location

Amoco MGP #A-2 325' FSL and 2300' FWL in Section 4, T34S, R66W

Amoco MGP #A-3 10' FSL and 2150' FEL in Section 4, T34S, R66W

Amoco MGP #A-5 740' FNL and 2515' FWL in Section 9, T34S, R66W

6. On November 23, 1998 Evergreen Resources filed with the Commission a Protest and Request for Continuance. On November 24, 1998 a prehearing conference was convened by the COGCC with Chandler and Evergreen at which discussion occurred to remove the Raton Formation from the spacing requested in the application. On November 25, 1998 a Stipulation Regarding Modification of Application and Withdrawal of Protest was filed by both parties with the Applica nt removing the Raton Formation and the Protestant withdrawing its protest to the application.

7. Letters in support of the application were filed with the Commission by F.E. Hill Company, Stroud Oil Properties and Pennzoil Exploration and Production Company. A letter in support of the approved permits to drill granted to Chandler by the COGCC was filed by F.E. Hill Company.

8. Testimony and exhibits presented at the administrative hearing indicated that the surface owners/mineral owners are the Hill Ranch and the F. E. Hill Company. One hundred sixty (160) acre drilling and spacing units are stipulated in the mineral lease between Chandler and the Hill Ranch and F. E. Hill Company.

9. Testimony presented at the administrative hearing indicated that thirty-seven (37) well locations have been approved for drilling on the application lands and that these locations were located in accordance with the surface owner's request. Chandler requests that these existing or permitted wells be approved as exception locations where necessary or required.

10. Testimony and exhibits presented at the administrative hearing indicated that the Vermejo Formation consists of multiple coals which are continuous across the application area.

11. Testimony presented at the administrative hearing indicated existing spacing in other areas of the Raton Basin averages 144-acres per well for the Vermejo Formation.

12. Testimony presented at the administrative hearing indicated that 160-acres is not smaller than the maximum area that can be efficiently and economically drained by one well. Additional testimony indicated that approval of the application would protect correlative rights and would prevent the waste of hydrocarbons.

13. The COGCC has issued permits for two (2) potential well sites in six (6) of the proposed 160-acre drilling and spacing units in Sections 7 and 8, Township 34 South, Range 66 West, 6th P.M. In accordance with 34-60-116(3), C.R.S., only one well may be recognized as the acceptable permitted well location in any single spacing unit.

14. Chandler and Associates, LLC, agrees to be bound by oral order of the Commission.

15. Based on the verified application, the testimony presented at the administrative hearing and the Hearing Officer recommendation, the Commission should approve the amended application to establish 160-acre drilling and spacing units for certain lands in the Lorencito Field for the production of gas and associated hydrocarbons from the Vermejo Formation. Permitted wells should be located no closer than 600 feet from the boundaries of the unit and the Director should be authorized to grant waivers to the permitted locations due to topography, surface considerations and to avoid conflicts with coal mine operations. Further, certain wells should be approved as exceptions to the permitted well locations and certain wells should be approved as the permitted well for certain 160-acre drilling and spacing units.

ORDER

NOW, THEREFORE, IT IS ORDERED that 160-acre drilling and spacing units shall be established for the production of gas and associated hydrocarbons from the Vermejo Formation defined as the stratigraphic equivalent of those formations between the measured depths of 876 feet and 1,194 feet in the wellbore of the Amoco Production Company MPG A #1 Well located in the SW1/4 SE1/4 of Section 4, Township 34 South, Range 66 West, 6th P.M., Las Animas County, Colo rado for the lands described below, with the permitted well to be located in each quarter section no closer than 600 feet from the boundaries of the unit with existing or permitted wells approved as exception locations as necessary or required.

Township 33 South, Range 66 West, 6th P.M. Section 31: S1/2 Section 32: SW1/4

Township 33 South, Range 67 West, 6th P.M. Section 36: S1/2

Township 34 South, Range 66 West, 6th P.M. Section 3: SW1/4 Section 4: S1/2 Sections 5 - 9: All Section 10: W1/2 Section 15: W1/2 Sections 16 - 21: All Section 22: W1/2 Section 27: NW1/4 Sections 28 - 29: All Section 30: NE1/4

Township 34 South, Range 67 West, 6th P.M. Section 1: All Section 2: E1/2 Sections 11 -13: All Section 14: NE1/4

IT IS FURTHER ORDERED, that exception locations shall be granted upon recompletion to the Vermejo Formation for the following existing wells:

Existing Wells Location

Amoco MGP #A-2 325' FSL and 2300' FWL in Section 4, T34S, R66W

Amoco MGP #A-3 10' FSL and 2150' FEL in Section 4, T34S, R66W

Amoco MGP #A-5 740' FNL and 2515' FWL in Section 9, T34S, R66W

IT IS FURTHER ORDERED, that in accordance with 34-60-116(3), C.R.S., only one well shall be drilled and produced from the spaced formation and where the COGCC has previously approved two (2) permits for the 160-acre drilling and spacing unit the earlier approved permits shall be the approved location for the unit. The following wells are hereby approved as the permitted well for the specific 160-acre drilling and spacing unit:

Well Location Unit SW1/4 NE1/4 Sec 7-T34S-R66W NE1/4 SW1/4 SW1/4 Sec 7-T34S-R66W SW1/4 NW1/4 NW1/4 Sec 7-T34S-R66W NW1/4 NE1/4 SE1/4 Sec 8-T34S-R66W SE1/4 NW1/4 NE1/4 Sec 8-T34S-R66W NE1/4 SE1/4 SW1/4 Sec 8-T34S-R66W SW1/4

IT IS FURTHER ORDERED, that the Director of the Commission shall have the authority to approve without holding a hearing, exception locations due to topographical conditions, surface considerations, or to avoid conflicts with coal mining operations.

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.

ENTERED this day of December, 1998 , as of December 3, 1998.

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 December 21, 1998 ??

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