BEFORE THE BOARD OF OIL, GAS AND MINING DEPARTMENT OF NATURAL RESOURCES

STATE OF UTAH

IN THE MATTER OF THE REQUEST FOR AGENCY

ACTION OF FIDELITY EXPLORATION &

F I LED MAR 11 2013

SECRETARY, BOARD OF OIL, GAS & MINING

PRODUCTION COMPANY FOR AN ORDER REQUEST FOR AGENCY ACTION MODIFYING THE SERIES OF CAUSE NO. 196 ORDERS AND AUTHORIZING THE FLARING OF GAS Docket No. 2013-011 IN EXCESS OF THE AMOUNTS ALLOWED UNDER

UTAH ADMIN. CODE RULE R649-3-20(1.1) ON A Cause No. 196-44 UNIT-WIDE BASIS FOR THE CANE CREEK FEDERAL

EXPLORATORY UNIT, LOCATED IN PORTIONS OF

TOWNSHIPS 25 AND 26 SOUTH, RANGES 18 THROUGH 20 EAST, SLM, GRAND AND SAN JUAN

COUNTIES, UTAH

COMES NOW, Fidelity Exploration & Production Company ("Fidelity"), acting by and

through its attorneys, MacDonald & Miller Mineral Legal Services, PLLC, and pursuant to

Utah Code Ann. §40-6-5(3)(f), and hereby respectfully requests the Board of Oil, Gas and

Mining (the "Board") to enter an order modifying the Board's Orders entered on November 5,

2004 in Cause No. 196-38 (the "196-38" Order), on September 3, 2008 in Cause No. 196-39

(the "196-39 Order"), on November 20, 2008 in Cause No. 196-40 (the "196-40 Order"), on

March 19, 2009 in Cause No. 196-41 (the "196-41 Order"), on August 21, 2012 in Cause No.

196-42 (the "196-42 Order") and January 16, 2013 in Cause No. 196-43 (the "196-43

Order")( collectively the "Cause No. 196 Series Orders") and authorizing Fidelity, or its

successors, as Operator of the Cane Creek Federal Exploratory Unit (the "Unit"), to flare gas on

a Unit-wide basis, with an aggregate rate limitation of 3,000 MCFPD, and with an individual

well rate limitation of 650 MCFPD, until pipeline construction to the Unit area is completed

(now estimated to occur by July 1,2014).

In support of this request, Fidelity respectfully states and represents:

1. Fidelity is a Delaware corporation in good standing with its principal place of

business in Denver, Colorado. It is a wholly-owned subsidiary of Montana-Dakota Utilities.

Fidelity is duly qualified to conduct business in the State of Utah, and is fully and appropriately

bonded with all relevant Federal and State of Utah agencies.

2. The Unit, administered by the Bureau of Land Management ("BLM"), was

approved effective April 15, 2002 and is currently comprised of the following Grand and San

Juan Counties, Utah lands:

Township 25 South, Range 18 East, SLM

Sections 1-16 inclusive: All Sections 21-24 inclusive: All

Township 25 South, Range 19 East, SLM

Sections 6-9 inclusive: All Sections 14-36 inclusive: All

Township 26 South, Range 19 East, SLM

Sections 1-3 inclusive: All Sections 10-15 inclusive: All Sections 22-27 inclusive: All Sections 34-36 inclusive: All

Township 26 South, Range 20 East, SLM

Sections 5-8 inclusive: All

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Sections 17-21 inclusive: All Sections 28-33 inclusive: All

(containing 53, 474.19 acres)

There currently are four Cane Creek participating areas within the Unit. Fidelity currently

serves as Unit Operator.

3. The oil and gas within the Unit Area is approximately 90% Federally owned,

with the remaining 10% owned by the State of Utah.

4. Pursuant to the 196-38 Order, the Board authorized the flaring or venting of gas

from the Cane Creek # 2-1 Well, located in Section 2 of T26S, RI9E, in amounts greater than

1,800 MCF per month, without setting a specific limitations on amount or timing, but requiring

periodic meetings between the Operator, the Division of Oil, Gas and Mining (the "Division")

and the Utah School and Institutional Trust Lands Administration ("TLA") to discuss the

feasibility of alternatives to flaring [or venting], the frequency of such meetings, to be

determined by the Division, and that the Division notify the Board if further review of the Order

is required due to the feasibility of any alternatives.

5. Pursuant to the 196-39 and 196-40 Orders, the Board authorized the flaring of gas

from the Cane Creek # 24-1 Well, located in Section 24, T26S, RI9E, SLM, and from the Cane

Creek # 1-1 Well, located in Section 19, T26S, RI9E, respectively, in amounts greater than

1,800 MCF per month, without setting a specific limitation on amount, until completion of a gas

pipeline or July 1, 2009, whichever occurred earlier, and with the Division monitoring the gas

flare rates and pipeline construction.

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6. Pursuant to the 196-41 Order, the Board modified the 196-39 and 196-40 Orders

to allow flaring from the Cane Creek # 24-1 and # 1-1 Wells until such time as construction of a

gas pipeline would be an economically viable alternative at the then production rates from the

Wells at the then particular prices. The Board required Fidelity to file with the Board every six

months a written report detailing the number of operating wells in the Unit, the status of the

Wells, including production to date from the Wells, gas flared to date, the price of oil and gas,

and any other information that may bear on the economics of the preferred pipeline or other

alternatives, and to provide a copy of said report both to the Division and BLM.

7. Pursuant to the 196-42 Order, the Board authorized the flaring of gas from the

Cane Creek # 26-2 Well, located in Section 26, T25S, RI9E, and the Cane Creek # IS-1 Well,

located in Section IS, T26S, R20E, until June 30, 2013; provided that the aggregate volume of

gas so flared from both wells may not exceed 500 MCFPD for the allowed period.

S. Pursuant to the 196-43 Order, the Board allowed the flaring of gas from the CCU

# 12-1 Well, located in Section 12, T26S, RI9E, until June 30, 2013; provided the aggregate

volume of gas so flared from the Well may not exceed IS,OOO MCFPM (based on an average of

600 MCFPD) for the authorized period.

9. The June 30,2013 date referenced in the 196-42 and 196-43 Orders was based on

Fidelity's representation to the Board of its commitment to construct an approximate 30-mile

pipeline to transport Unit gas to market, which Fidelity believed would be completed by July 1,

2013 based on its existing Rights-of-Way obtained from the BLM. In Findings of Fact No. 10

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of the 196-43 Order, the Board expressly found "the construction of the pipeline is the only

economic and practical option to deal with the produced gas, and Fidelity's commitment to

build said pipeline reflects its good faith and due diligence."

10. As stated in Findings of Fact No. 11 of the 196-43 Order:

However, as a consequence of concerns in part raised by the BLM based on completed engineering studies and resulting in route changes, an amendment of the Rights-of-Way has been submitted by Fidelity and is pending approval by the BLM.

Since the hearing on the 196-43 Order, the BLM has advised Fidelity that the filed Amendment

raised concerns over visual impacts requiring further adjustment of the pipeline route away

from State Hwy U-313 , and consequently further analysis under the National Environmental

Protection Act ("NEP A") will be required. This additional and unforeseen NEP A analysis will

delay BLM approval of the Amendment until at least July 1, 2013, and Fidelity's revised

construction schedule suggests the earliest the pipeline will now be completed and in service

will be July 1, 2014.

11. The existing status of Unit Wells is as follows:

Well Name Cumulative Production ~arch,2013 i\verage Through December 2012 Daily Rates DO ~CF DO ~CF

Kane Springs 501616 543592 59 63 Fed. 27-1 Kane Springs 389215 345196 21 14 Fed. 19-1A Kane Springs 636990 564120 24 23 Fed. 10-1 Kane Springs Fed. 25- 365738 307686 12 0 19-34-1

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Cane Creek 421907 328112 31 16 2-1 Cane Creek Unit 132303 0 0 0 24-1 Cane Creek Unit 130557 134944 0 0 1-1

Cane Creek Unit 26-2 115761 79705 161 99

Cane Creek Unit 18-1 18753 8961 250 100

Cane Creek Unit 12-1 147395 60394 1536 610

Cane Creek Unit 26-3 2068 193 16 7

Cane Creek Unit 28-2 0 0 90 33

As shown, only the Kane Springs Federal 27-1 and Cane Creek Unit 26-2, 18-1 and 12-1 Wells

are producing in excess of 60 MCFDP, the amount allowed to be flared without need for Board

authorization under Utah Admin Code Rule R649-3-20(1.1).

12. Fidelity anticipates drilling 15 additional wells within the Unit Area by July 1,

2014. All such wells will be targeting oil production from the same Cane Creek clastic of the

Paradox formation and are anticipated to have the same gas composition (primarily methane,

ethane and propane with no hydrogen sulfide and very little carbon dioxide), and the same

economic analysis as provided in the 198-43 Order hearing, as the existing Unit wells; the only

uncertainties will be the estimated reserves and rates of production. If the wells have

production rates similar to the Cane Creek 12-1, 18-1 and 26-2 Wells, in order to continue

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producing the wells and to avoid potential skin damage which will result if the wells are shut in,

flaring in excess of the regulatory rates will again be required.

13. Instead of separately filing Requests for Agency Action for each additional Unit

well, given the circumstances, Fidelity is requesting the Board to authorize the flaring of gas on

a Unit-wide basis through June 30, 2014 with an aggregate rate limitation of3,000 MCFPD and

an individual well rate limitation of 650 MCFPD. This is based on a production profile derived

from the existing Unit wells.

14. The BLM, by Letter dated November 29, 2012 and which was admitted into

evidence in the 196-43 Order hearing, has already authorized Fidelity to flare the volume of

natural gas on a Unit basis "necessary to continue production operations" through July 1, 2013,

"the anticipated date of pipeline completion." In addition, Fidelity has had preliminary

discussions with both the BLM and the Division regarding the potential for Unit-wide flaring

pending completion of the pipeline, and both Agencies expressed support of the concept.

15. Fidelity will continue to take all steps required under State and Federal regulation

for the protection of the health, safety and welfare of the general public.

16. Presuming the relief requested herein is granted, Fidelity will file a conforming

NTL-4A request with the BLM if and as necessary.

17. Fidelity believes and therefore alleges that granting its request will be in

furtherance of the public policies of this State to promote greater recovery of oil without waste

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and with protection of the correlative rights of all affected owners, and is just and reasonable

under the circumstances.

18. Fidelity will, in accordance with Board rules, timely submit exhibits and present

testimony in support of these allegations.

19. Fidelity will separately file a certificate of mailing listing all parties known to it,

based on a search of the respective BLM, TLA and Grand and San Juan County realty records

and the records of the Division, whose "legally protected interests" will be affected by this

request. There are no respondents or adverse parties known at this time to Fidelity.

WHEREFORE, Fidelity respectfully requests:

1. That this matter be set for hearing on April 24, 2013;

2. That notice of such hearing be given as provided by law; and

3. That, upon sufficient evidence produced and testimony given at the hearing, the

Board issue an order:

a) Modifying the Cause No. 196 Series Orders and authorizing Fidelity or its successor(s) as operator of the Cane Creek Federal Exploratory Unit, to flare gas on a Unit-wide basis, with an aggregate rate limitation of 3,000 MCFPD and an individual well rate limitation of650 MCFPD, through June 30, 2014.

b) Making such findings and orders in connection with this request as it deems necessary; and

c) Providing for such other and further relief as may be just and equitable under the circumstances.

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Respectfully submitted this 11 th day of March, 2013.

Petitioner's Address:

MACDONALD & MILLER MINERAL LEGAL SERVICES, PLLC

7090 S. Union Park Ave., Ste. 420 Salt Lake City, Utah 84047 Telephone: (801) 676-0050 Facsimile: (801) 676-0051 E-Mail: fred@macmillerlegal.com

Attorneys for Petitioner Fidelity Exploration & Production Company

Fidelity Exploration & Production Company Attention: Joel Schulz, Landman 1700 Lincoln St., Suite 2800 Denver, CO 80203 Telephone: 303-893-3133 Facsimile: 303-893-1964 E-Mail: joel.schulz@fidelityepco.com

FMM:nmc 1050.02

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