BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

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

REGULATIONS OF THE OIL AND GAS CONSERVATION                            )

COMMISSION OF THE STATE OF COLORADO                                          )                             ORDER NO. 1R-95

                        Pursuant to a hearing before the Oil and Gas Conservation Commission on September 21, 2004 at the Chancery Building, 1120 Lincoln Street, Suite 801, Denver, Colorado, the Oil and Gas Conservation Commission promulgated amendments to its Rules and Regulations to add new Rule 318B. as shown below:

Range 44 West: Sections 7, 18, 19, 30 through 33

Range 45 West: Sections 7 through 36

Range 46 West: Sections 4 through 9

Ranges 47 and 48 West: All

Ranges 46 through 48 West: All

Range 45 West: Sections 1 through 18

Ranges 46 through 48 West: All

Ranges 45 through 48 West: All

Ranges 45 through 48 West: All

Ranges 45 through 48 West: All

Range 44 West: Sections 3 through 10, 16 through 21, 27 through 34

Range 45 West: Sections 3 through 5

Range 46 West: Sections 4 through 9, 16 through 36

Ranges 47 and 48 West: All

Range 44 West: Sections 3 through 6

Range 45 West: Section 7: W½, Section 18: W½, Section 19: All

Range 46 West: Sections 1 through 24

Ranges 47 and 48 West: All

Range 48 West: All

Range 48 West: All

(the "WLR Area")

                        Within the WLR Area, operators may conduct drilling operations to the Niobrara Formation as follows:

                        i. Four (4) Niobrara Formation wells may be drilled in any quarter section.

                        ii. 9; No more than one (1) well may be located in any quarter quarter section.

    iii. No minimum distance shall be required between wells producing from the Niobrara Formation in any quarter section.

                        iv. Wells shall be located at least 560’ from the outer boundary of said quarter section, and wells located outside any drilling units already established by the Commission in the WLR Area prior to this WLR’s effective date shall, in addition, be located at least 200’ from any lease line.

                        b. Any well drilled to the Niobrara Formation in the WLR Area prior to the effective date of this WLR which is legally located when this WLR becomes effective but is not located as listed above shall be treated as properly located for purposes of this WLR.

                        c. This WLR does not alter the size or configuration of any drilling units already established by the Commission in the WLR Area prior to this WLR’s effective date.

                        d. This WLR 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 from the Niobrara Formation at locations herein authorized does not provide an equal opportunity to obtain their just and equitable share of oil and gas from such formation.

                        e. Well exception locations to this WLR shall be subject to the provisions of Rule 318.c.

                        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 September, 2004.

                                                                                                                            IN THE NAME OF THE COLORADO

                                                                                                                            OIL AND GAS CONSERVATION COMMISSION

                                                                                                                            OF THE STATE OF COLORADO

                                                                                                                            By 9; ___________________________________________________

                                                                                                                                                        Patricia C. Beaver, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

September 27, 2004

Exhibit A

The Colorado Oil and Gas Conservation Commission is directed to promote the development of oil and gas resources in Colorado by, among other things, 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. Pursuant to this authority, the Commission is empowered to regulate "the spacing of wells", §34-60-106(2)(c), C.R.S. to designate "drilling units" and to prevent the "drilling of unnecessary wells". § 34-60-116(1), C.R.S.

In existing field orders pertaining to lands within the area covered by the Special Well Location Rule (WLR Area), the Commission has recognized the Niobrara Formation as a common source of supply or pool, has established drilling units covering the Niobrara Formation, and has specified the well spacing for such units. As development has matured, the Commission has entered orders allowing increased well density on a field-by-field basis, such that the applicable well spacing rules are now inconsistent from field to field, even though the production characteristics of the Niobrara Formation within the fields have been shown to be substantially similar. (See Cause Nos. 300, 315, 316, 317, 318, 327, 328, 320, 330, 331, 341, 350, 351, 352, 353, 489 and 520.) To date, for certain fields, increased well density orders have been entered allowing the drilling of up to four Niobrara Formation wells in each quarter section. (See Order Nos. 489-6 and 351-4.) In the absence of this special well location rule, authorization for increased well density will require multiple additional proceedings before the Commission on a field-by-field basis.

Existing Commission Rules 318.a. and 318.b. provide the setback criteria for wells drilled in the WLR Area outside the boundaries of established fields. The production characteristics of the Niobrara Formation and its geologic compartmentalization both inside and outside the boundaries of the established fields in the WLR Area have been shown to be substantially similar. However, the setback criteria of Rules 318.a. and 318.b. are inconsistent with the setback criteria contained in the field orders. Further, the relatively inflexible setback criteria of Rule 318.a. is likely to generate numerous applications for exception locations on a well-by-well basis pursuant to Commission Rule 318.c.

The adoption of a new well location rule for the WLR Area will:

This rule is designed to alleviate the inefficiency and the burden upon the Commission caused by the necessity of numerous Commission applications for modifications of existing field orders and applications for individual well exception locations. It is also designed to permit the maximum efficient recovery of natural gas from the Niobrara Formation by providing greater flexibility in the location of wells. Adoption of this rule will permit offset owners to protect their correlative rights by providing them the opportunity to drill wells to protect their lands from drainage. This is consistent with the Commission's mandate to ensure that all owners have "an equal opportunity to obtain and produce ...(a) just and equitable share of the oil and gas underlying such pool or source of supply" §34-60-103(4), C.R.S. Moreover, allowing location flexibility within each governmental quarter-quarter section will foster cooperation between operators and surface owners in the selection of surface facility locations.