BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

IN THE MATTER OF CHANGES TO THE RULES AND                                                     )         CAUSE NO. 1R

REGULATIONS OF THE OIL AND GAS CONSERVATION                                               )   

COMMISSION OF THE STATE OF COLORADO                                                                )         ORDER NO. 1R-100

                        Pursuant to a hearing before the Oil and Gas Conservation Commission on December 5, 2005, in Suite 801, 1120 Lincoln Street, Denver, Colorado, the Oil and Gas Conservation Commission promulgated amendments to its Rules and Regulations as described below:

(300 Series)

a. GWA, GWA wells, GWA windows and unit designations. The Greater Wattenberg Area ("GWA") is defined to include those lands from and including Townships 2 South to 7 North and Ranges 61 West to 69 West, 6^th P.M. In the GWA, operators may utilize the following described surface drilling locations ("GWA windows") to drill, twin, deepen, or recomplete a well ("GWA well") and to commingle any or all of the Cretaceous Age formations from the base of the Dakota Formation to the surface:

                    (4) Unit designations.

b. Recompletion/commingling of existing wells. Any GWA well in existence prior to the effective date of this rule, which is not located as described above, may also be utilized for deepening to or recompletion in any Cretaceous Age formation and for the commingling of production therefrom.

c. Surface locations. Prior to the approval of any Application for Permit-to-Drill submitted for a GWA well, the proposed surface well location shall be reviewed in accordance with the following criteria:

d. Prior wells excepted. This rule does not alter the size or configuration of drilling units for GWA wells in existence prior to the effective date of this rule. Where deemed necessary by an operator for purposes of allocating production, such operator may allocate production to any drilling and spacing unit with respect to a particular Cretaceous Age formation consistent with the provisions of this rule.

e. GWA infill. This subsection applies to the following area of the GWA: Township 1 North, Ranges 66 West through 68 West; Township 1 North, Range 69 West: E½; Township 2 North, Ranges 64 West through 68 West; Township 2 North, Range 69 West: E½; Township 3 North, Ranges 64 West through 67 West; Township 4 North, Ranges 63 through 67 West; Township 5 North, Ranges 63 West through 67 West; Township 6 North, Ranges 63 West through 66 West, 6th P.M.

f. Limit on locations. This rule does not limit the number of formations that may be completed in any GWA drilling and spacing unit nor, subject to subsection c., above, does it limit the number of wells that may be located within the GWA windows. However, absent Commission order otherwise, there shall be no more than eight (8) producing completions in the "J" Sand, Codell or Niobrara Formations in any 160-acre governmental quarter section.

g. GWA water sampling. The Director may apply appropriate drilling permit conditions to require water well sampling near any proposed GWA wells in accordance with the guidelines set forth in subsection e.(4), above.

h. Exception locations. The provisions of Rule 318.c. respecting exception locations shall be applicable to GWA wells, however, absent timely objection, boundary wells, wellbore spacing units, and additional producing formations shall be administratively approved as provided in subsection e.(6) above.

i. Correlative rights. This rule shall not serve to bar the granting of relief to owners who file an application alleging abuse of their correlative rights to the extent that such owners can demonstrate that their opportunity to produce Cretaceous Age formations from the drilling locations herein authorized does not provide an equal opportunity to obtain their just and equitable share of oil and gas from such formations.

j. Supersedes orders and policy. Subject to paragraph d. above, this rule supersedes all prior Commission drilling and spacing orders affecting well location and density requirements of GWA wells and supersedes and replaces the "Policy on Staff Administrative Application of the Greater Wattenberg Area Well Location Rule 318A.," dated April 26, 1999.

Attached, as Exhibit A, is a statement giving the basis and purpose of the revisions and such statements are incorporated herein by reference.

                        DONE AND PERFORMED by the Oil and Gas Conservation Commission of the State of Colorado this day of December, 2005.

IN THE NAME OF THE COLORADO

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

December 5, 2005

Exhibit A

This statement sets forth the basis, specific authority, and purpose for the amendments to Rule 318A. of the Rules and Regulations ("Rules" or, individually, "Rule") of the Colorado Oil and Gas Conservation Commission ("Commission"), 2 CCR 404-1. This statement is hereby incorporated by reference in the amendments adopted.

These Rules are adopted by the Commission under the provisions of Title 34, Article 60 of the Colorado Revised Statutes, as amended, specifically, the "Oil and Gas Conservation Act," §§ 34-60-101 et seq., C.R.S. (2005).

§34-60-102(1), C.R.S., declares that it is in the public interest to foster, encourage, and promote the development, production, and utilization of the oil and gas resources in the State of Colorado in a manner consistent with protection of public health, safety, and welfare.

§34-60-102(1), C.R.S., declares that the General Assembly intends to promote the development of oil and gas resources in Colorado by, among other things, prohibiting waste and permitting "each oil and gas pool in Colorado to produce up to its maximum efficient rate of production…."

§34-60-102(1), C.R.S., declares that it is the public interest to safeguard, protect, and enforce the coequal and correlative rights of owners and producers in a common source or pool of oil and gas.

§34-60-103(6.5), C.R.S. defines "Oil and gas operations" to mean exploration for oil and gas, including the conduct of seismic operations and the drilling of test bores; the siting, drilling, deepening, recompletion, reworking, or abandonment of an oil and gas well, underground injection well, or gas storage well; production operations related to any such well including the installation of flowlines and gathering systems; the generation, transportation, storage, treatment, or disposal of exploration and production wastes; and any construction, site preparation, or reclamation activities associated with such operations.

§34-60-105(1), C.R.S. provides that "The commission has jurisdiction over all persons and property, public and private, necessary to enforce the provisions of this article, and has the power to make and enforce rules, regulations, and orders pursuant to this article, and to do whatever may reasonably be necessary to carry out the provisions of this article. . . ."

§34-60-106(2)(a), C.R.S. provides that the Commission has the authority to regulate "[t]he drilling, producing and plugging of wells and all other operations for the production of oil or gas . . . ."

§34-60-106(2)(c), C.R.S. provides that the Commission has the authority to regulate "the spacing of wells . . . ."

§34-60-106(2)(d), C.R.S. gives the Commission authority to regulate "[o]il and gas operations so as to prevent and mitigate significant adverse environmental impacts on any air, water, soil or biological resource to the extent necessary to protect public health, safety, and welfare, in consideration of cost-effectiveness and technical feasibility."

§34-60-106(11), C.R.S. mandates the Commission to "promulgate rules and regulations to protect the health, safety and welfare of the general public in the conduct of oil and gas operations."

§34-60-116(1), C.R.S. authorizes the Commission to prevent waste and avoid the drilling of unnecessary wells by establishing "drilling units."

§34-60-116(4), C.R.S. authorizes the Commission to prevent waste and avoid the drilling of unnecessary wells by increasing or decreasing the size of drilling units or by permitting additional wells to be drilled within established drilling units.

The 300 Series of the Rules pertain to location, drilling, development, producing and abandonment of oil and gas operations.

In April 1998, the Commission promulgated Rule 318A ("GWA Rule"), the Greater Wattenberg Area ("GWA") Special Well Location Rule, pursuant to Order No. 1R-84. The purpose of the GWA Rule was "to facilitate the maximum efficient recovery of oil and gas from the Cretaceous Age formations by authorizing the use of any previously designated drilling window for production from any or all of such formations." Order No. 1R-84, Exhibit A, Statement of Basis and Purpose at ¶3. On April 26, 1999, the Commission approved and adopted a policy relating to interpretation and administrative application of the GWA Rule entitled, "Policy on Staff Administrative Application of the Greater Wattenberg Area Special Well Location Rule 318A" ("Policy").

The Commission is amending the GWA Rule, consistent with the original purpose of the GWA Rule and Policy, and in light of data gathered by operators that indicate significant amounts of gas-in-place are not being recovered. The purposes of the amendments are to increase the number of potential bottom hole locations in portions of the GWA and to eliminate the need for the Policy.

The amendments limit the location of surface wellsites, reduce well-twinning distances and provide for directional drilling from existing surface drilling windows consistent with the intent of the General Assembly to "foster, encourage and promote" the development of oil and gas "in a manner consistent with protection of public health, safety, and welfare." C.R.S. § 34-60-102(1).

These amendments protect the correlative rights of offset owners by requiring operators to form "wellbore spacing units" and provide notice to adjacent mineral owners (who are afforded an opportunity to be heard) when infill wells encroach on boundaries of sections and existing drilling and spacing units. These provisions are consistent with the intent of the General Assembly to protect coequal and correlative rights in common pools of oil and gas. C.R.S. § 34-60-102(1).