§ 24-65.5-103.7. Deposit for Incremental Drilling Costs

1. The deposit for incremental drilling costs required under section 24-65.5-103.3 (1)(b)(III)(C) shall be an amount for each well in an approved oil and gas operations area that is required to be drilled directionally in order to access a bottom-hole location in one of the five drilling windows permitted by the commission under its greater Wattenberg rule, 2 CCR 404-1, rule 318A, as in effect on August 3, 2007, excluding directional wells required by the commission’s greater Wattenberg rule, 2 CCR 404-1, rule 318A (e), as such rule was in effect on December 31, 2006, to be drilled at the operator’s expense, up to a total of four wells per governmental quarter section, and shall be determined in accordance with the following criteria:
   1. The amount deposited by the applicant for incremental drilling costs shall be eighty-seven thousand five hundred dollars per well, which amount shall be increased or decreased on July 1 of each year in accordance with corresponding percentage increases or decreases in the Denver-Aurora-Lakewood consumer price index, or its applicable predecessor or successor index, published by the United States department of labor, bureau of labor statistics.
   2. As a condition of obtaining approval to record the final plat, the applicant shall provide confirmation to the local government that the applicant has deposited into an escrow account maintained at a commercial financial institution approved by the commission the amount determined under paragraph (a) of this subsection (1) to defray incremental drilling costs to be incurred by mineral estate owners for drilling wells to prospective formations accessible from the oil and gas operations area that could otherwise have been vertically drilled within drilling windows established by the commission that are not included in such oil and gas operations area. As an alternative to such deposit, the applicant may post a letter of credit or other security for such costs in such manner as the commission shall determine to be adequate. An applicant’s failure to make such deposit shall not otherwise rescind, curtail, abrogate, or restrict any final approval of an application for development. If a directional well is commenced within the oil and gas operations area after final plat approval by the local government and before recordation of the final plat, the operator shall give written notice to the applicant of such commencement and the applicant shall be required to make the escrow deposit required under this section within ten days after the commencement for each well that is so commenced.
   3. At the end of three years after recording the plat, subject to extension for a period of up to one year during the pendency of any federal, state, or local drilling permit filed within such three-year period, any funds in escrow or posted as security for which a claim has not been made by a mineral estate owner shall be released or returned to the applicant or its designated successor.
   4. A mineral estate owner that begins to drill a well pursuant to a drilling permit approved no later than three years after final plat approval, as such period may be extended as provided in paragraph (c) of this subsection (1), is entitled to draw on the incremental drilling cost account the amount of its actual incremental drilling costs up to eighty-seven thousand five hundred dollars per directional well, as such amount may be adjusted pursuant to paragraph (a) of this subsection (1) and by allocation of earned interest, by presenting to the commission confirmation that the well has been drilled directionally and confirmation regarding the amount of incremental drilling costs it has incurred with respect to such well. Incremental drilling costs eligible for reimbursement shall not include a mark-up for overhead, administrative, or managerial costs in excess of the actual costs directly incurred as the result of directional drilling of wells within oil and gas operations areas. No mineral estate owner is entitled to recover more than the amount of incremental drilling costs initially deposited in the escrow account, plus its proportionate share of accrued interest, divided by the number of wells for which the deposit was initially made. Upon the commission’s approval of such information, the commission shall issue a directive to the escrow account holder or security holder to release the designated incremental drilling costs for such well to such mineral estate owner.
   5. Exhaustion of the incremental drilling funds in an escrow account or termination of the account shall not modify the availability of designated oil and gas operations areas for further drilling and other oil and gas operations or the protection afforded well sites, tanks, access roads, flowlines, and pipelines pursuant to section 24-65.5-103.5. The commission shall resolve disputes between the applicant and a mineral estate owner regarding the amount of incremental drilling costs to be deposited in escrow or the amount of such costs for which reimbursement is sought.

Source: L. 2007: Entire section added, p. 2118, § 4, effective August 3. L. 2018: (1)(a) amended, (HB 18-1375), ch. 274, p. 1711, § 52, effective May 29.