IN THE MATTER OF THE PROMULGATION                      CAUSE NO. 517
AND ESTABLISHMENT OF FIELD RULES TO
GOVERN OPERATIONS IN THE LORENCITO FIELD,      ORDER NO. 517-7
LAS ANIMAS COUNTY, COLORADO 

REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on February 12, 2002, at 10:00 a.m. in the Raton Room, Holiday Inn Trinidad, 3125 Toupal Drive, Trinidad, Colorado on the application of Evergreen Resources, Inc., for an order to vacate Order Nos. 517-1 and 517-2.

FINDINGS

The Commission finds as follows:

1. Evergreen Resources, Inc., 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. On December 3, 1998, the Commission issued Order No. 517-1, which established 160-acre drilling and spacing units for the below-listed lands in the Lorencito Field for the production of gas and associated hydrocarbons from the Vermejo Formation with the permitted well to be located no closer than 600 feet from the boundaries of the unit.

Township 33 South, Range 66 West, 6th P.M.
Section 31: S½ Section 32: SW¼

Township 33 South, Range 67 West, 6th P.M.
Section 36: S½

Township 34 South, Range 66 West, 6th P.M.
Section 3: SW¼ Section 4: S½
Sections 5-9: All Section 10: W½
Section 15: W½ Sections 16-21: All
Section 22: W½ Section 27: NW¼
Sections 28-29: All Section 30: NE¼

Township 34 South, Range 67 West, 6th P.M.
Section 1: All Section 2: E½
Sections 11-13: All Section 14: NE¼

5. On February 23, 1999, the Commission issued Order No. 517-2, which pooled all interests in twenty-one (21) 160-acre drilling and spacing units located in Sections 3, 8, 9, 10, 15, 16, 17, and 22 of Township 34 South, Range 66 West, 6th P.M. for the development and operation of the Vermejo Formation.

6. On December 11, 2001, Evergreen Resources, Inc., by its attorney filed with the
Commission a verified Application for an order to order to vacate Order Nos. 517-1 and 517-2 and place the lands under the provisions of the Rules and Regulations of the Commission to allow the necessary latitude to more fully develop production of coalbed methane gas from the Vermejo Formation.

7. Testimony and exhibits presented at the administrative hearing described the
area involved in Evergreen’s infill drilling, the computer modeling study and the assumptions used in the study.

8. Testimony and exhibits presented at the administrative hearing indicated that five (5) wells per section is the optimum number of wells to be drilled. The results of the computer modeling study indicate that five (5) wells per section will yield a higher cumulative production than four (4) wells per section. An additional 2.2% of the Original Gas in Place can be recovered by drilling five (5) wells per section instead of four (4) wells per section. Additional drilling of six (6) or seven (7) wells per section yields very small increases in percent of gas recovered.

9. Testimony and exhibits presented at the administrative hearing indicated the comparison production history from wells drilled on a spacing of four (4) wells per section to production history from wells drilled on a spacing of five (5) wells per section.

10. Testimony and exhibits presented at the administrative hearing indicated the drainage pattern is an elliptical pattern and that more than four (4) wells are needed per section to insure complete drainage of the reservoir.

11. Approval of the application would prevent waste, protect correlative rights and more efficiently recover coalbed methane gas reserves.

12. At the time of the administrative hearing, Evergreen Resources Inc. agreed to be bound by oral order of the Commission.

13. Based on the facts stated in the verified application, having received no protests and having been heard by the Hearing Officer who recommended approval, the Commission should approve an order to vacate Order Nos. 517-1 and 517-2 and place the lands under the provisions of the Rules and Regulations of the Commission to allow the necessary latitude to more fully develop production of coalbed methane gas from the Vermejo Formation.

ORDER

NOW, THEREFORE IT IS ORDERED, that Order Nos. 517-1 and 517-2 are hereby vacated and the lands described below shall be placed under the provisions of the Rules and Regulations of the Colorado Oil and Gas Conservation Commission.

Township 33 South, Range 66 West, 6th P.M.
Section 31: S½ Section 32: SW¼

Township 33 South, Range 67 West, 6th P.M.
Section 36: S½

Township 34 South, Range 66 West, 6th P.M.
Section 3: SW¼ Section 4: S½
Sections 5-9: All Section 10: W½
Section 15: W½ Sections 16-21: All
Section 22: W½ Section 27: NW¼
Sections 28-29: All Section 30: NE¼

Township 34 South, Range 67 West, 6th P.M.
Section 1: All Section 2: E½
Sections 11-13: All Section 14: NE¼

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 25th day of February, 2002, as of February 12, 2002.

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 February 25, 2002

(517-7)