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-104
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 August 28, 2007, 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:

310.	COGCC Form 8.  MILL LEVY

		On or before March 1, June 1, September 1 and December 1 of each year, every producer or purchaser, whichever disburses funds directly to each and every person owning a working interest, a royalty interest, an overriding royalty interest, a production payment and other similar interests from the sale of oil or natural gas subject to the charge imposed by §34‑60‑122 (1) (a) C.R.S., 1973, as amended, shall file a return with the Director showing by operator, the volume of oil, gas or condensate produced or purchased during the preceding calendar quarter, including the total consideration due or received at the point of delivery.  No filing shall be required when the charge imposed is zero mill ($0.0000) per dollar value.

		The levy shall be an amount fixed by order of the Commission.  The levy amount may, from time to time, be reduced or increased to meet the expenses chargeable against the oil and gas conservation and environmental response fund.  The present charge imposed, as of July 1, 2007, is seven tenths of a mill ($0.0007) per dollar value.

Rule 310B. was deleted as a result of the amendments to Rule 310. 

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 August, 2007.

	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
August 29, 2007

Exhibit A

STATEMENT OF BASIS AND PURPOSE

This statement sets forth the basis, specific authority, and purpose for the amendments to Rule 310A. and Rule 310B. of the Rules and Regulations ("Rules" or, individually, "Rule") of the Colorado Oil and Gas Conservation Commission ("Commission"), 2 CCR 404-1. The amendments to the Rules were heard and promulgated by the Commission on August 28, 2007.  This statement is hereby incorporated by reference in the amendments as adopted.
AUTHORITY
The Commission’s authority is primarily set forth in the provisions of Title 34, Article 60 of the Colorado Revised Statutes, as amended, specifically, the “Oil and Gas Conservation Act,” §§ 34-60-101 through 126, C.R.S. (2006).
C.R.S. §§ 34-60-122(1)(a) and (5) establish the oil and gas conservation and environmental response fund (“Fund”).
C.R.S. § 34-60-122(1)(a) gives the Commission authority to impose a charge on the market value at the well of all oil and natural gas produced, saved, and sold or transported from the field where produced, not to exceed one and seven-tenths mill ($0.00170) on the dollar.
C.R.S. § 34-60-122(1)(a) requires the Commission to fix the charge by order and gives the Commission authority to reduce or increase the amount from time to time to meet the expenses chargeable against the Fund.
C.R.S. § 34-60-124(10) requires that a portion of the Fund be spent to cover the cost of administering the Oil and Gas Conservation Act, including staffing, overhead, enforcement, and environmental response.
C.R.S. § 34-60-124(4)(a) authorizes the Commission to spend monies from the Fund to (i) investigate, prevent, monitor, or mitigate conditions related to oil and gas operations that threaten to cause, or that actually cause, a significant adverse environmental impact on any air, water, soil, or biological resource, (ii) gather background or baseline data on any air, water, soil, or biological resource that the Commission determines may be impacted by the conduct of oil and gas operations, and (iii) investigate alleged violations of any provision of the Oil and Gas Conservation Act, any rule, or order of the Commission, or any permit where the alleged violation threatens to cause or actually causes a significant adverse environmental impact. 
C.R.S. § 34-60-129 (enacted in 2007 by passage of HB 07-198) requires the Commission to monitor and mitigate the seepage of coalbed methane from the Fruitland Formation outcrop in La Plata and Archuleta Counties.  The money for this project is to come from the Fund.  
PURPOSE
Prior to 2005, there were separate levies authorized by C.R.S. § 34-60-122, one for the oil and gas conservation fund (Rule 310A.) and the other for the environmental response fund (Rule 310B.).  In 2005, the Colorado General Assembly modified C.R.S. § 34-60-122 and combined the two funds into the Fund, earmarking an account within the Fund as the environmental response account.  C.R.S. §§ 34-60-122(1)(a) and (5).    
The amendments combine Rules 310A. and 310B. into a single Rule 310. to reflect the combined Fund that was enacted by the 2005 legislative changes to C.R.S. § 34-60-122.
The amendments increase the charge (levy) imposed by the Commission, pursuant to C.R.S. § 34-60-122(1)(a), from five-tenths mill ($0.0005) (set in 2004) to seven-tenths mill ($0.0007) per dollar of market value at the well of all oil and natural gas produced, saved, and sold or transported from the field where produced.  The amendments, as publicly noticed, proposed to increase the levy to nine and one quarter-tenths mill ($0.000925); however, based on revised predictions of production levels and product prices, the Commission staff recommended the lower levy (seven-tenths mill ($0.0007)) that was promulgated by the Commission at the hearing.
The increased levy is necessary to supplement the Commission’s administration and operation budget, which has increased dramatically in the past three years because of increased drilling activity in the state.  Staff requirements are 57% higher than three years ago, requiring additional funds for salaries to attract qualified professionals.  More than half of the recently hired staff is in the field near areas of active drilling, requiring expenditures for, among other things, additional equipment, computers, and vehicles.  
The increased levy is also necessary to maintain the Fund balance adequately to address environmental response needs (not to exceed $4 million) as required by C.R.S. § 34-60-122(1)(b).  
The increased levy is also necessary to meet the estimated expense of the three-year project required by C.R.S. § 34-60-129 ($2,003,400 for each of the first two years and $445,200 for the third year).