BEFORE THE OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

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

AND REGULATIONS OF THE OIL AND GAS )

CONSERVATION COMMISSION OF THE STATE ) ORDER NO. 1R-111

OF COLORADO )

REPORT OF THE COMMISSION

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

Pursuant to a hearing before the Oil and Gas Conservation Commission on November 30, 2009, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver Colorado, the Oil and Gas Conservation Commission promulgated amendments to its Rules and Regulations as described below:

303. REQUIREMENTS FOR FORM 2, APPLICATION FOR PERMIT-TO-DRILL, DEEPEN, RE-ENTER, OR RECOMPLETE, AND OPERATE; FORM 2A, OIL AND GAS LOCATION ASSESSMENT.

j. Permit expiration.

(1) For Applications for Permit-to-Drill, Form 2. Approval of a Form 2 for a well permitted pursuant to an application submitted on or after July 1, 2009 on federal land or April 1, 2009 on all other land, and for which a Form 2A was also submitted in compliance with the rules as amended in December 2008, shall become null and void if drilling operations on the permitted well are not commenced within two (2) years after the date of approval. Approval of a Form 2 for a well permitted pursuant to an application submitted before July 1, 2009 on federal land or April 1, 2009 on all other land, or for which a Form 2A was not submitted in compliance with the rules as amended in December 2008, shall become null and void if drilling operations are not commenced on the permitted well within one (1) year after the date of approval. The Director shall not approve extensions to applications for Permit-to-Drill, Form 2.

(2) For Oil and Gas Location Assessments, Form 2A. If construction operations are not commenced on an approved oil and gas location within three (3) years after the date of approval, then the approval shall become null and void. The Director shall not approve extensions to Oil and Gas Location Assessments, Form 2A.

Exhibit A, attached and incorporated by this reference, is a statement giving the basis, statutory authority, and purpose for the revisions.

DONE AND PERFORMED by the Oil and Gas Conservation Commission of the State of Colorado this day of December, 2009.

IN THE NAME OF THE COLORADO

OIL AND GAS CONSERVATION COMMISSION

OF THE STATE OF COLORADO

Carol Harmon, Secretary

Dated at Suite 801

1120 Lincoln Street

Denver, Colorado 80203

December 16, 2009

Exhibit A

Statement of Basis, Specific Statutory Authority, and Purpose

Amendment to Rule 303 of the

Colorado Oil and Gas Conservation Commission, 2 CCR 404-1

This statement sets forth the basis, specific statutory authority, and purpose for amendment of Rule 303 of the Rules and Regulations and Rules of Practice and Procedure (Rules) of the Colorado Oil and Gas Conservation Commission (COGCC or Commission). Rule 303 concerns the requirements for Form 2, Application for Permit-to-Drill, Deepen, Re-Enter, or Recomplete and Operate (APD), and Form 2A, Oil and Gas Location Assessment.

The Commission amended Rule 303.j.(1) to extend the duration of permits issued in response to APDs submitted on or after July 1, 2009 on federal land or April 1, 2009 on all other land, and for which a Form 2A was also submitted in compliance with the Rules as amended in December 2008. Prior to amendment, this Rule provided that if drilling operations are not commenced on the permitted well within one year after the date of approval, then the approval would become null and void. As amended, this Rule provides that approvals for wells permitted pursuant to an APD submitted on or after July 1, 2009 on federal land or April 1, 2009 on all other land, and for which a Form 2A was also submitted in compliance with the Rules as amended in December 2008, will become null and void if drilling operations are not commenced within two years after the date of approval. All other approvals, that is, approvals for wells permitted pursuant to an APD submitted before July 1, 2009 on federal land or April 1, 2009 on all other land, or for which a Form 2A was not submitted in compliance with the Rules as amended in December 2008, will become null and void if drilling operations are not commenced on the permitted well within one year after the date of approval. The prior Rule provision prohibiting the Director from approving extensions to APDs, Form 2, remains unchanged.

The rulemaking hearing for consideration of this amendment to Rule 303.j.(1) was held on November 30, 2009 (testimony and deliberations). This amendment becomes effective 20 days after it is published in the Colorado Register.

Statutory Authority

The specific statutory authority for the proposed amendment is provided by §24-4-103, §§34-60-103(2), (6.5) and (7.5), §34-60-105(1), §§34-60-106(1)(f), (2)(a), and (2)(d), and §34-60-108, C.R.S. (2009).

Basis and Purpose

The Commission amended Rule 303.j.(1) to provide that approvals for wells permitted pursuant to an APD submitted on or after July 1, 2009 on federal land or April 1, 2009 on all other land, and for which a Form 2A was also submitted in compliance with the Rules as amended in December 2008, will become null and void if drilling operations are not commenced within two years after the date of approval. The Commission adopted this amendment to help operators by assisting them in scheduling their work and complying with other regulatory requirements and to reduce the number of refiled APDs that they submit.

This amendment responds to the increasing number of wells that operators are drilling from a single pad, particularly in western Colorado. While these multi-well pads can reduce surface impacts and promote efficient resource development, they also present additional challenges for operators in terms of obtaining regulatory approvals, scheduling drilling rigs and work crews, and commencing drilling operations within existing permitting time constraints. This amendment should also reduce the number of refiled APDs that are annually submitted to the Commission. There is a federal precedent for such an extension. The U.S. Department of Interior, Bureau of Land Management, extended the term of its drilling permits from one to two years in 2007.

In previously adopting the rule amendments in December 2008, the Commission had chosen to retain a one-year term for drilling permits. It explained that it did so “to ensure that the special conditions remain current where drilling operations are not commenced within a year. In addition, the [Oil and Gas Conservation] Act promotes the development of oil and gas resources, and the Commission wants to deter operators from sitting on their rights and not developing the minerals as authorized.” COGCC Amended Rules (Effective July 1, 2009 on federal lands, April 1, 2009 on all other lands), Statement of Basis, Specific Statutory Authority, and Purpose at 26.

Upon further consideration, the Commission has determined that although these objectives remain important, they no longer warrant retention of the one-year permit term. As amended in December 2008, the permitting process and Form 2A now require the submittal of additional information and provide additional opportunities for interagency consultation and public comment. This additional information and input should reduce the need for staff to reassess special conditions where drilling operations are not commenced within a year and thereby support a longer term for permits issued under the current rules. In addition, the timing of mineral development appears to be much more dependent upon market conditions than permit duration. Given the numerous factors affecting development decisions, the Commission does not believe that extending the permit term to two years will materially delay the development of mineral resources under current and foreseeable conditions.

While rule amendments have generally been prospective, the Commission elected to make this amendment apply to APDs submitted on or after the effective date (July 1, 2009 on federal lands, April 1, 2009 on all other lands) of the Rules as amended in December 2008. The Commission did so to create a smooth transition process and to avoid creating a disincentive for operators to submit APDs during the Commission’s consideration of this change. Such a disincentive would not only disrupt operators’ regular schedule for obtaining permits, but it could also result in permitting delays due to a large number of APDs being submitted after the final rule became effective.

Accordingly, the Commission amended Rule 303.j.(1) as described above.