Greater Wattenberg Area Special Well Location Rule 318A.

WHEREAS, the Colorado Oil and Gas Conservation Commission (the "COGCC") adopted Rule 318A. after notice and hearing, effective May 30, 1998, as a special well location rule for wells drilled, twinned, deepened, recompleted or commingled to any Cretaceous Age formation which are located in the Greater Wattenberg Area ("GWA") defined as Townships 2 South to 7 North, Ranges 61 West to 69 West, 6^th P.M.; and

WHEREAS, questions regarding the interpretation and proper application of Rule 318A. have arisen since the rule was adopted which require clarification; and;

WHEREAS, COGCC staff has consulted with GWA area operators regarding the technical application of Rule 318A. in order to formulate the policies contained herein.

NOW THEREFORE in order to provide COGCC staff and GWA operators consistent guidance on the application of Rule 318A. regarding the requirements for administrative approval of Applications for Permits-to-Drill, Deepen, Re-Enter or Recomplete and Operate ("APD") for wells located within the Greater Wattenberg Area, the Commission hereby approves and adopts the following policy to administer the provisions of Rule 318A.

1. Rule 318A.f. states that it supersedes the COGCC Orders that existed on its adoption that affected GWA wells. As the title to the Rule states, Rule 318A. is a well location rule and supersedes existing COGCC Orders in effect at the time of adoption only to the extent the existing Orders relate to permissible well locations. COGCC Orders in effect when Rule 318A. was adopted still apply with respect to the size of drilling and spacing units applicable to the completed formations.

Well Spacing and Production Allocation

2. Rule 318A. is not intended to establish well spacing. Accordingly, when an area is unspaced, Rule 318A. does not space the area, but instead provides the permissible location for any new Cretaceous Age formation well.

3. Rule 318A. does not affect production allocations for wells. An operator may reallocate production in accordance with applicable lease and contract terms, subject to the provisions of Rule 318A.e. recognizing owners’ rights to apply to the Commission to resolve correlative rights issues.

4. Rule 318A. does not limit the number of wells drilled or the number of formations completed in any GWA drilling and spacing unit. It is however the general intent of this policy to limit the number of future and existing wellsites to five (5) per quarter section. A wellsite may have one (1) or more existing surface locations. When application of the policy would otherwise result in forcing a new well to be drilled outside of a GWA drilling window, the Director shall give consideration to granting a variance.

5. Rule 318A.c. provides for the drilling of a new, twinned well when an existing well cannot be utilized for deepening or recompletion, but does not define twinned wells. Rule 318A.c. shall be interpreted to apply to surface locations only.

6. Prior to the approval of any Application for Permit-to-Drill submitted for a GWA well, COGCC staff shall examine the proposed surface location in accordance with the following criteria:

a. A new surface location shall be approved in accordance with COGCC rules when (i) no surface location exists within the GWA drilling window and there is no existing surface location outside of and attributed to the GWA drilling window; or (ii) the new surface location is less than 150’ from an existing surface location in or attributed to the GWA drilling window.

b. When the operator is requesting a new surface location greater than 150’ from an existing surface location, the operator shall notify the surface owner in writing that the Commission’s policy provides the opportunity for the surface owner to object. If the surface owner does not object in writing within 20 days of the operator’s advisory, or if the surface owner indicates in writing that they do not object, the Director may approve the location administratively. Otherwise, the operator may request the Director or the Commission to grant a 502.b. variance.

Bottomhole Locations and Unit Designations for Permitting Purposes

THE COMMISSION FURTHER RECOGNIZES AND FINDS that the following Bottomhole Locations and Unit Designations, further defined on the attached illustration, shall be considered permissible well locations or exception well locations for which APDs shall be administratively approved in accord with the purpose and intent of the Rule:

Rule 318A.a.(1) [400’ by 400’ in the center of ¼ ¼ section]

Well Location - Permissible under Rule 318A.

Unit Designation - When completing wells in the Cretaceous Age formations where spaced, operators shall designate drilling and spacing units in accordance with the spacing order. When completing wells in the Cretaceous Age formations where unspaced, operators shall designate drilling and spacing units not smaller than a governmental quarter-quarter section.

Rule 318A.a.(2) [800’ by 800’ in the center ¼ section]

Well Location - Permissible under Rule 318A.

Unit Designation - When completing wells in the Cretaceous Age formations, whether spaced or unspaced, operators shall either (i) designate drilling and spacing units in accordance with spacing orders where units are not smaller than a governmental quarter section, or (ii) form a voluntary drilling and spacing unit consisting of a governmental quarter section, or (iii) where designating a drilling and spacing unit smaller than a governmental quarter section, secure waiver(s) from the operator or owners toward whom the well is proposed to be moved; or (iv) apply to the Commission for permission to form an alternate unit or to respace the area.

Well Location – Wells completed in the Cretaceous Age formations not located in the 400’ X 400’ window or in the 800’ X 800’ window shall be considered exception locations. Locations inside of the square or rectangular area defined by connecting the exterior boundaries of the 400’ X 400’ windows within a drilling and spacing unit shall be administratively approved when waivers are submitted in accordance with Rule 318.c. or when a letter from the operator is submitted attesting that no waivers are required under Rule 318.c. Locations outside of the square or rectangular area defined by connecting the exterior boundaries of the 400’ X 400’ windows within a drilling and spacing unit shall be administratively approved when waivers are submitted in accordance with Rule 318.c.

Unit Designation – See Rule 318A.a.(2) above.

THE COMMISSION FURTHER FINDS that this policy is not intended to restrict operators from applying to the Director or Commission for approval to complete Cretaceous Age formation wells in a manner that differs from these described herein.