REPORT OF THE COMMISSION

This cause came on for hearing before the Commission on March 17, 2003 in the Birch Banquet Room, Ramada Inn & Suites, 124 W. 6th St., Glenwood Springs, Colorado on the verified application of Tom Brown, Inc. for an order to allow additional wells to be drilled on certain 320-acre drilling and spacing units, for production of gas and associated hydrocarbons from the Middle Lewis Formation, with the permitted well for all subsequent wells to be located no closer than 990 feet from another well producing or producible from the same formation.

FINDINGS

The Commission finds as follows:

1. Tom Brown, Inc. ("TBI"), 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 March 19, 1974, the Commission issued Order No. 290-1 establishing 320-acre drilling and spacing units for the production of gas and associated hydrocarbons from the Middle Lewis Formation for the below-listed lands, with the permitted well to located no closer than 600 feet from the boundaries of the drilling unit and no closer than 1,320 feet from another producing or producible well. Certain units were designated for Sections 14, 15 and 22, To wnship 10 North, Range 94 West, 6th P.M.

Township 10 North, Range 93 West, 6th P.M. Sections 6 and 7: All Sections 18 and 19: All Sections 30 and 31: All

Township 10 North, Range 94 West, 6th P.M. Sections 1 through 36: All

5. On January 31, 2003, Tom Brown, Inc., by its attorney, filed with the Commission a verified application for an order to allow up to three (3) additional wells, for a total of four (4) wells, to be drilled on the 320-acre drilling and spacing units for the below-listed lands, for production of gas and associated hydrocarbons from the Middle Lewis Formation, with the permitted well for all subsequent wells to be located no closer than 990 feet from a nother well producing or producible from the same formation. In addition, the Applicant requested that the Director be authorized, without additional notice and hearing or consent, to grant an exception to the well location setbacks up to and including 100 feet, but not beyond, to avoid archaeological sites and for topographic reasons.

Township 10 North, Range 94 West, 6th P.M. Sections 10 and 11: All Sections 14 and 15: All Sections 22 and 23: All

6. TBI requested an alternate order, should the testimony and exhibits not support the granting of the original application, providing (i) that, at the option of the operator, up to four (4) wells may be drilled to and completed in the 320-acre drilling and spacing unit consisting of the W1/2 of Section 14 and the E1/2 of Section 15, Township 10 North, Range 94 West, 6th P.M., for production from the Middle Lewis Formation as a pilot project to gather a dditional geological and engineering information about the Middle Lewis Formation, (ii) that, at the option of the operator in the remainder of the Application Lands described above, two (2) wells may be drilled to and completed in each 320-acre drilling and spacing unit in the Application Lands, (iii) that Order No. 290-1 be revised to provide that any well drilled subsequent to entry of the same order be no closer than 990 feet from another well produci ng or producible from the same formation, (iv) that the Director be authorized, without additional notice and hearing or consent, to grant an exception to the well location setbacks up to and including 100 feet, but not beyond, to avoid archaeological site and for topographical reasons.

7. Testimony and exhibits presented at the administrative hearing provided background information on the Middle Lewis Formation indicating that although the Middle Lewis Formation is continuous across the application lands the individual sands are discontinuous across the application lands. Further testimony indicated that there is low recovery from the existing wells, that the drainage areas are small and that the permeability is low. The evidence pr esented in the administrative hearing supports the drilling of additional wells which will allow TBI to gather more data in the area.

8. Testimony and exhibits presented at the administrative hearing defined the location, topography and surface use of the application lands. The application lands are bordered by the federal Pilgrim Unit and that there is extreme topography in portions of the application lands. Further testimony showed that approximately 87.5% of the surface of the application lands are fee and the remaining surface lands are federal. TBI has 100% of the working inte rests leased in all of the application lands except for portions of three sections where their working interests range from 70% to 97.8% and is currently trying to purchase or lease the remaining working interest. Additional testimony indicated that TBI proposes to amend the permitted well location setbacks to provide flexibility and allow a tolerance of 100 feet to avoid archeological sites and for topographic reasons. Further testimony showed that the re is no surface occupancy on the application lands, that TBI has a good relationship with the surface owners, and that no protests to the application have been filed.

9. Testimony and exhibits presented at the administrative hearing showed the application lands located within the boundaries of the Big Hole Field, the boundaries of the federal Pilgrim Unit and the wells producing from the Lewis Formation. Further testimony showed the various sands within the Lewis Formation, including the Middle Lewis Formation and that both wet and gas saturated sands are found in the Middle Lewis Formation. Additional testimony sh owed that the depositional facies of the Lewis Formation is identical to that of the Lewis Formation in the application lands and that the Lewis Formation is an alternating series of fine-grained sandstones and thick impermeable shales, with extremely compartmentalized sandstones due to stratigraphy. Lithology changes between the wells are due to differences in sandstone development and porosity

10. Testimony and exhibits presented at the administrative hearing showed the wells on which Agarwal Gardner analyses were performed. The wells had poor reservoir rocks and poor stimulations which caused low gas recoveries ranging from 1% to 28% in the Big Hole Field. Further testimony indicated that the wells have an average drainage area of 45 acres. Additional testimony showed that the model that was created is a close match to the actual rate vs. time and the actual cum vs. time. These plots show that the model used is valid for predicting the EUR, gas in place and drainage area of the existing wells.

11. Testimony and exhibits presented at the administrative hearing showed the range of drainage areas from 7 acres to 160 acres in the Big Hole Field. Further testimony indicated the estimated well life for one well on a 320-acre drilling and spacing unit ranges from 28 years to 90 years, and that the long well lives are due to low permeability and poor completion techniques. Due to the quality of the well logs and other well data, some calculations may be even more conservative than the calculations reflect. Additional testimony indicated that in 2003 TBI plans to drill two (2) wells in the Big Hole Field, complete the wells with fracture stimulation non-damaging fluid, gather core pressure and production data, and analyze the data and well results to determine future activity.

12. Testimony and exhibits presented at the administrative hearing showed the rate of return will be economic for wells drilled on 80-acre density. Further testimony indicated that up to four (4) additional wells are necessary to recover remaining reserves in the Middle Lewis Formation, that mineral owners' correlative rights will be protected and that waste will be prevented if additional wells are allowed. TBI should provide the Commission wit h initial reservoir pressure data and production data analysis acquired from any new well drilled in the application lands to evaluate the affects of increased well density no later than June 30, 2005.

13. A discussion was held regarding a telephone conversation between COGCC Deputy Director Brian Macke and Wes McStay, a rancher involved with the Sage Grouse Working Group. Mr. McStay expressed concerns about how TBI's application might affect the sage grouse population. TBI proposed to the Hearing Officers specific language to address these concerns to be included in any order the Commission may enter. The Hearing Officers agreed to recommend the l anguage to the Commission for inclusion which would require TBI to notify the Colorado Division of Wildlife ("CDOW") if any wells are proposed to be drilled between March 1 and June 30 so that CDOW may provide comments regarding protection of sage grouse leks to the Director for consideration in permit issuance.

14. At the time of the administrative hearing, Tom Brown, Inc. agreed to be bound by oral order of the Commission.

15. 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 enter an order allowing up to four (4) additional wells to be drilled on the 320-acre drilling and spacing units described above in Finding No. 5 for the production of gas and associated hydrocarbons from the Middle Lewis Formation, with the permitted well for all subseq uent wells to be located no closer than 600 feet from the boundaries of the unit and 990 feet from another well producing or producible from the same formation. In addition, the order should allow the Director, without additional notice and hearing or consent, to grant an exception to the well location setbacks up to and including 100 feet, but not beyond, to avoid archaeological sites and for topographic reasons.

ORDER

NOW, THEREFORE IT IS ORDERED, that an order shall be approved to allow up to four (4) additional wells to be drilled on the 320-acre drilling and spacing units described below for the production of gas and associated hydrocarbons from the Middle Lewis Formation, with the permitted well for all subsequent wells to be located no closer than 600 feet from the boundaries of the unit and 990 feet from another well producing or producible from the same formati on.

Township 10 North, Range 94 West, 6th P.M. Sections 10 and 11: All Sections 14 and 15: All Sections 22 and 23: All

IT IS FURTHER ORDERED, that the Director shall be allowed, without additional notice and hearing or consent, to grant an exception to the well location setbacks up to and including 100 feet, but not beyond, to avoid archaeological sites and for topographic reasons.

IT IS FURTHER ORDERED, that Tom Brown, Inc. shall provide the Commission with initial reservoir pressure data and production data analysis acquired from any new well drilled in the application lands no later than June 30, 2005.

IT IS FURTHER ORDERED, that if the operator intends to construct a wellsite for any well to be drilled in the lands affected by this order between March 1 and June 30 of any year, the operator shall notify the Colorado Division of Wildlife ("CDOW") of the location of such proposed wellsite, and advise the Director of the date such notice was provided. If the Director receives comments from the CDOW within ten (10) days of the date the notice was provide d, such comments may be considered by the Commission in determining whether any conditions related to protection of sage grouse leks are to be attached to any application for permit to drill such well approved by the Commission.

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 April 2003, as of March 17, 2003.

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 April 3, 2003

1 (290-#2)

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