STATE OF COLORADO OIL AND GAS CONSERVATION COMMISSION

IN THE MATTER OF THE PROMULGATION AND                                 )                                     CAUSE NO. 526

ESTABLISHMENT OF FIELD RULES TO GOVERN                             )

OPERATIONS IN THE RUSH WILLADEL FIELD,                                   )                                     ORDER NO. 526-1

WASHINGTON COUNTY, COLORADO                                                    )

                This cause came on 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 Merit Energy Company, Inc. ("Merit") for an order to establish 160-acre drilling and spacing units for Section 26, Township 3 South, Range 51 West, 6^th P.M. for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations from the base of the Dakota Formation to the surface.

                The Commission finds as follows:

                1. Rule 318.a. of the Rules and Regulations of the Commission requires that wells drilled in excess of two thousand five hundred (2,500) feet in depth be located not less than six hundred (600) feet from any lease line, and located not less than one thousand two hundred (1,200) feet from any other producible or drilling oil or gas well when drilling to the same common source of supply, unless authorized by order of the Commission upon hearing. Section 26, Township 3 South, Range 51 West, 6^th P.M. was included in this Rule.

                2. On April 18, 2005, Merit, by its attorney, filed with the Commission a verified Application for an order to establish 160-acre drilling and spacing units for Section 26, Township 3 South, Range 51 West, 6^th P.M. for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations from the base of the Dakota Formation to the surface including the "J" Sand and Niobrara Formations. Merit wishes to drill two (2) sets of twin wells at the following locations approximately 100 feet from one another, with one (1) "J" Sand Formation well and one (1) Niobrara Formation well at each drilling location. Merit also requests that the existing wells located in Section 26 be deemed permitted wells within the 160-acre drilling and spacing units and that additional wells may be drilled at locations of operator’s election and discretion provided they are not closer than 600 feet from existing lease lines.

Location No. 1: 2,351 feet FSL and 1,359 feet FEL

Location No. 2: 845 feet FNL and 2,600 feet FEL

                3. Testimony presented at the administrative hearing corrected the footage originally described in the application for Location No. 2 to 600 feet FEL.

                4. Testimony and exhibits presented at the administrative hearing showed that Merit owns 100% of the working interest and 85% of the royalty interest in Section 26, Township 3 South, Range 51 West, 6^th P.M. Additional testimony indicated that the proposed Location Nos. 1 and 2 would allow wells to be located less than 1200 feet from wells producing from the same formation, but because the mineral ownership is consistent in the N½ and the S½ of Section 26, no correlative rights will be violated.

                5. Testimony and exhibits presented at the administrative hearing showed the original oil in place for the "J" Sand is estimated to be 14.2 MMBO and the cumulative oil produced to date is 6.1 MMBO, with a recovery factor of 43%. Testimony indicated that allowing the additional wells will increase the recovery factor to 47%.

                6. Testimony and exhibits presented at the administrative hearing showed that the average drainage area is approximately 30 acres. Additional testimony indicated that two (2) wells have produced since 1960 and have drained between 40 and 50 acres.

                8. Testimony presented at the administrative hearing showed that no communication will occur between the proposed well, that the application will prevent waste and recover additional reserves not otherwise recoverable.

                9. Merit Energy Company, Inc. agreed to be bound by an oral order of the Commission.

               10. 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 recommended approval, the Commission should approve an order to establish 160-acre drilling and spacing units for Section 26, Township 3 South, Range 51 West, 6^th P.M., for the production of oil, gas and associated hydrocarbons from the Cretaceous Age formations from the base of the Dakota Formation to the surface.