Statement of Basis, Specific Statutory Authority, and Purpose

New Rules of the Colorado Oil and Gas Conservation Commission, 2 CCR 404-1 Concerning accurate wellhead oil and gas measurement pursuant to HB 07-1180 

March 5, 2008

Basis 
These additions to 2 CCR 404-1 - Rule 328., Measurement of Gas and Rule 329., Measurement of Oil - are made pursuant to the authority granted to the Colorado Oil and Gas Conservation Commission (“COGCC”) in § 34-60-106(11)(b)(II), C.R.S., of the Oil and Gas Conservation Act.  The COGCC’s adoption of these rules is taken pursuant to procedures and requirements set forth in § 24-4-103(4), C.R.S., and § 34-60-106 and § 34-60-108, C.R.S.  
The purpose of these additions to 2 CCR 404-1 is to comply with a mandate from the General Assembly to promulgate new rules concerning accurate wellhead oil and gas measurement.  Pursuant to HB 07-1180, codified at § 34-60-106(11)(b)(II) C.R.S., these rules will be promulgated “to ensure the accuracy of oil and gas production reporting by establishing standards for wellhead oil and gas measurement and reporting.  At a minimum, the rules shall address engineering standards, heating value, specific gravity, pressure, temperature, meter certification and calibration, and methodology for sales reconciliation to wellhead meters.  The rules shall be consistent with standards established by the American Society for Testing and Materials, the American Petroleum Institute, the Gas Processors Association, or other applicable standards-setting organizations, and shall not affect contractual rights or obligations.” 
The new rules will be added to the 300 series of COGCC rules, 2 CCR 404-1, which deal with drilling, development, producing, and abandonment.  There are two rules that are proposed to meet the legislative mandate: Rule 328., Measurement of Oil and Rule 329., Measurement of Gas.  
Purpose
The purpose of these rules is to comply with § 34-60-106(11)(b)(II), C.R.S.  The General Assembly decided that it is in Colorado’s best interest to ensure that oil and gas is measured in a consistent manner, ensuring that royalty owners have a consistent system in place for calculating the amount due to them.  
These rules clarify the location where volume measurements and heating value measurements are taken, how often gas meters are calibrated, the technical standards for meter calibration, time periods for the retention of calibration records, and when sales allocation methods may be used. These technical requirements were recommended to standardize the location and methods of gas and oil measurement which are not currently addressed in COGCC rules. 
The decision to include language in the rules that says the rules are to be used consistently with contractual rights and obligations is because § 34-60-106(11)(b)(II), C.R.S., states that the rules “shall not affect contractual rights or obligations.”  The language in the rules is not intended to imply that the COGCC will interpret private contracts.  Rather, it is intended to clarify that the new rules are only to be used as a default and can be trumped by private contracts.  
Background
The COGCC initiated a stakeholder process in late 2007 for the development of language pertaining to the new rules required by HB 07-1180.  Draft language of the new rules were developed, shared, discussed, reviewed, and edited as part of the stakeholder process.  

COLORADO OIL AND GAS CONSERVATION COMMISSION
ADOPTED: