By - Jim Vess

Bill overhauling Colorado oil and gas regulations is speeding through the legislature

Energize Weekly, March 13, 2019

A bill aimed at dramatically overhauling regulation of oil and gas operations in Colorado is swiftly moving through the state legislature.

The legislation is in response to growing concerns as large fracking operations get closer to suburban development and in the wake of a string of court rulings that knocked down local attempts to deal with oil and gas development.

The bill, SB19-181, calls for more oversight and new rules. Two of its most significant steps would be to change the mission of the state oil and gas regulatory agency and give local government more control over oil and gas operators.

Senate Majority Leader Steve Fenberg and House Speaker KC Becker, both Boulder Democrats, are sponsoring the bill. Boulder County is trying to block Crestone Peak Resources from drilling on county open space.

The legislation was filed late on the afternoon of March 1. It had a hearing before the Senate Transportation & Energy Committee on March 5, a hearing before the Senate Finance Committee on March 7 and a hearing before the Senate Appropriations Committee on March 8. It passed all three committees on straight party-line votes.

“This bill is running like a freight train through this building,” said Sen. Rob Woodward, a Loveland Republican and member of the finance committee.

The Colorado Oil and Gas Conservation Commission (COGCC), which issues drilling permits and inspects well sites, under current law has the mandate to foster oil and gas development “consistent” with the protection of public health, safety, welfare and the protection of the environment.

Under the pending legislation, protection of public health, safety and welfare, along with protection of the environment and wildlife, would be the commission’s prime responsibility.

The bill also gives the commission the power to increase its fees and foresees the agency increasing its staffing. It cuts the number of industry representatives to one from three and adds members with environmental and soil restoration expertise.

Underlying the state’s Front Range is the Niobrara Shale, which is being intensively drilled, with a record 12 million barrels of oil produced in 2018.

The area between Denver and Fort Collins is also the fastest-growing suburban area in the state and has become a battleground among drillers, developers and homeowners.

Efforts by local governments to limit local impacts of oil and gas projects have been squelched by the courts, for under existing case law, the state has primacy over oil and gas development.

Those lawsuits have been brought by COGCC and the Colorado Oil & Gas Association (COGA), the state’s main industry trade group.

SB19-181 would give sweeping powers to local government to regulate oil and gas projects under their land-use powers, as well as the authority to inspect facilities, levy fines and issue fees to cover the cost of local oversight.

It “enhances local governments’ ability to protect public health, safety, and welfare and the environment by clarifying, reinforcing, and establishing their regulatory authority over the surface impacts of oil and gas development,” according to House Speaker Becker.

But the power that the bill gives to local governments is so broad that it could create a local “veto of a permit,” said Lance Astrella, an attorney who represents landowners and municipalities in oil and gas leasing cases.

“If that’s not reasonable, there is a takings issue,” Astrella said. “The courts could be crowded.”

Nevertheless, frustration has been high in some suburban communities, such as Erie Township, where oil and gas drilling has been linked to odors, noise and vibrations strong enough to rattle plates on a table.

“At some point the industry needs to be accountable to a social license to operate,” said Sara Loflin, executive director of the League of Oil and Gas Impacted Communities, an umbrella organization for local community groups. “We need to address the fact that operators are running roughshod over Colorado communities.”

The bill would require oil and gas operations to have continuous air monitoring and directs the state Air Quality Control Commission to develop rules to “minimize emissions of methane and other hydrocarbons and nitrogen oxides from the entire oil and gas fuel cycle.”

That is one of a series of new rules that the bill would create, primarily by the COGCC. The new rules would govern:

  • Evaluating alternative drill site if there is opposition to a company’s proposed site
  • “Hazardous pollutants” that would have to be continuously monitored at well sites
  • Tests for the integrity at a wellhead
  • Financial assurances that companies are “financially capable of every obligation imposed,” such as plugging, reclaiming and remediating wells after their useful life

“Rulemakings are a robust process,” said Tracee Bentley, the executive director of the Colorado Petroleum Council, a trade group. “These could take years.”

The bill also sets a high bar for use of the state’s so-called forced pooling statute, which enables an operator to consolidate the mineral leases in a drilling unit, even if some property owners don’t consent.

Pooling statutes were enacted in most oil and gas states to ensure efficient use of resources and to make sure that all mineral owners in the unit were compensated.

In Colorado, an operator could seek a forced pooling order from the COGCC with as little as a single signed lease. Under SB19-181, an operator would have to hold leases from more than 50 percent of the mineral owners in the unit to get a pooling order.

Oil and gas attorneys say that this rule will give unprecedented market power to the Anadarko Petroleum Corp., which controls 400,000 Front Range and southern Wyoming acres, making it nearly impossible to form a drilling unit without Anadarko’s consent.

The bill also raises the upfront royalty for pooled increases form 12.5 percent to 15 percent.

“What our industry wants is certainty,” Dan Haley, COGA president, said in testimony before the Senate Finance Committee. “There is a lot of uncertainty here.”

An analysis by the credit-rating agency Moody’s said, “The bill was written without apparent input from the energy industry, and its sudden appearance for consideration in a committee hearing heightens the legislative and regulatory risks for Colorado oil and gas producers.”

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