By - Jim Vess

Colo legislature passes oil and gas bill giving local governments more control over drilling

Energize Weekly, April 10, 2019

The Colorado legislature has passed a sweeping oil and gas bill aimed at giving local government more control over drilling, but only after adding a few industry-friendly amendments. Gov. Jared Polis has indicated he will sign the bill.

The legislation, Senate Bill 181, came in response to protests from residents and officials in suburban municipalities and fast-growing counties that drilling was getting too close to homes.

The focus of both the drilling and housing development is an area north of Denver in the Denver-Julesburg Basin. The Niobrara Shale play in the region is being intensively developed.

“This finally gives communities a voice,” said Sara Loflin, executive director of the League of Oil and Gas Impacted Coloradans, an umbrella grassroots organization.

In the last four years, about 29 percent of the state’s drilling, more than 800 wells, was in a 10-mile corridor along Interstate 25, which runs from Denver to Wyoming, according to an analysis by BTU Analytics, a Lakewood, Colo.-based industry analyst.

The oil and gas industry has expressed concerns that some municipalities would use their new powers to block drilling and that new rules will add to the time it takes to get permits and run projects.

“This is a period of regulatory risk,” said Matt Hagerty, an analyst with BTU Analytics. “There is a question of how much longer it will take to get permits.”

The uncertainty is compounded by the bill’s requirement that state agencies issue five new sets of oil and gas rules covering hazardous pollutants, air emissions, wellhead integrity, alternate site location, and financial capacity of operators.

Hagerty said that until all these rules are in place operators will be in a “regulatory gray zone.”

Under the existing statute, the state, through the Colorado Oil and Gas Conservation Commission (COGCC), has primacy in regulating oil and gas development.

A series of state Supreme Court decisions ruled that local governments can exercise their land-use controls on oil and gas up to a point. If the COGCC, which has the mandate to “foster” efficient oil and gas development, approved a project and issued drilling permits, local government could not block it.

The bill awaiting Gov. Polis’ signature changes that. It removes the mandate to foster oil and gas and requires the COGCC to regulate drilling consistent with protecting public health, safety, welfare and the environment.

For local governments, the bill clarifies that their land-use powers can be used to regulate the siting of oil and gas projects to “minimize adverse impacts to public safety, health, welfare and the environment.”

It also gives local government the ability to inspect oil and gas operations and impose fines for leaks, spills and emissions. To cover the cost of local oversight, the bill allows local government to levy fees on operators.

Either the local government or the oil and gas company can request the COGCC director to convene a technical review board to evaluate a local government’s decision on an application. Before filing for state drilling permits an operator must seek local approval.

A series of last-minute amendments were made to address industry concerns. The amended bill says that any local oil and gas ordinances must be done in a “reasonable manner” and meet a “necessary and reasonable” standard.

The language was added in an effort to prevent drilling bans or local rules so severe they made drilling impossible.

A change was also made so that permits pending during the extensive state rulemaking could be delayed, but not denied. The initial bill gave the COGCC executive director the power to reject any of those permit applications.

Finally, the amendments makes the COGCC board a full-time commission with five appointed commissioners. The COGCC director and the head of the state Department of Public Health and Environment will sit on the board ex officio.

There are seven part-time members on the current commission, and the bill initially was going to raise that to nine.

The industry has been pushing for a more professional board as the commission is already backed up on hearings. Industry officials voiced concern that with all the require rulemakings, it would be an impossible task with a volunteer board.

“SB 181 is the most comprehensive oil and natural gas legislation Colorado has seen in decades,” the state’s two industry trade groups—the Colorado Oil and Gas Association and the Colorado Petroleum Council—said in a joint statement.

“While a few critical amendments were added that begin to address some of industry’s concerns and provide a degree of certainty to our member companies, our industry remains firmly opposed to this bill because it threatens one of the pillars of Colorado’s economy,” the two groups said.

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