Energy overhaul bill SB 181 with House amendments passes final vote in Senate after 22 minutes of discussion in its last legislative appearance in past 4 1/2 weeks

Colorado’s controversial energy overhaul bill, Senate Bill 19 – 181, which was introduced March 1 and shot through six committees and two Committee of the Whole votes in the state’s two legislative houses, finished the final leg of its journey around the statehouse today when the Colorado Senate voted to repass the bill with the House amendments attached.

After only 22 minutes of discussion, Senate Bill 19-181 passed along party lines by a vote of 19 (D) – 16 (R), and it will now be given to Governor Polis (D), who is expected to sign the bill into law.

[Read the latest Senate Bill 19-181 version here, with amendments]

Colorado Energy Overhaul Bill Achieves Final Passage, Heads to Governor Polis - Oil & Gas 360

Colorado Gov. Jared Polis comments on the Senate Bill 19-181, the controversial energy overhaul bill, when the bill was first introduced by the Colorado legislature on March 1, 2019.

The bill’s Senate sponsors, Boulder County Senators Stephen Fenberg (D), the Senate Majority Leader, and Mike Foote (D) commented during the bill’s time on the floor today. Fenberg said that the bill had received robust debate in the Senate, House and several committees and had 14 amendments in the House. “I think it is in the best interest of our state, the best interest for this body, and in the best interest for the communities that are impacted by oil and gas extraction, as well as the communities that have oil and gas extraction industry that supports their economies, for us to accept these amendments. Call it a job well done, and make sure that we can move forward with certainty and make sure there are some basic health and safety measures for all folks around the state of Colorado.”

Senator Owen Hill (R) commented that “all along it’s been said that this was not intended to be a ban.” Hill asked the sponsors to discuss whether or not some of the amendments alleviated some of the concerns that Senate Bill 181 permitted bans on development of oil and gas resources.

Bill 181 is not a de facto drilling ban – Fenberg

Bill sponsor Fenberg responded, “I think many of us heard that this bill was a de facto ban, that this would stop the industry overnight. I would say the amendments do not change the fact that that was never true to begin with.” Fenberg said he had heard from the industry that they would like the Senate to concur with the House amendments. “I don’t think they would do this if the bill would create a statewide ban or even local bans,” he said.

“This bill does allow, in the interim before the health and safety rulemaking is officially adopted, it does provide the ability to do additional research into permits that potentially provide a health and safety risk to a community or to people. That is still in there. We clarified the intention of that. My understanding is that the industry doesn’t think it’s a potential moratorium or a ban, even though that was in some of the talking points.

“And we also clarified that the role of the local government at the local government is to have reasonable regulations when it comes to siting of oil and gas facilities. It does not give them blanket authority to do things like a ban or a long-term moratorium that is effectively a ban, the bill never did that; however, I do think some of the amendments clarify that they cannot do that and that the bill can not be used for those types of purposes,” Fenberg said.

Define ‘necessary and reasonable’

Bill sponsor Foote commented that a question had come up about the ‘necessary and reasonable standard’ language that we added in the Senate. He said there had been requests to further define it, “but that’s proven to be difficult.”

“I will say it was the sponsors’ intent to have that phrase interpreted together and in the context of the bill as a whole which is (1) a clear desire to prioritize health and safety when it comes to oil and gas operations, permitting and supervision, without consideration of profitability from the State regulatory authority, the COGCC. And (2) an ability for local governments to do the same and be more protective than the State if they choose.

“Necessary and reasonable is not intended to mean that regulatory authorities can only make a land use decision or enact a regulation once all other options are exhausted. Instead, it is meant to be a guardrail against a regulatory or land use decision without reasonable justification.

“State and local governments should not be able to impose requirements, limitations or decisions that defy explanation. However, they should be entitled to deference and allowed to use the precautionary principle to determine if a regulation or a land use decision is necessary and reasonable.

“Each locality of ‘necessary and reasonable’ may be different depending on its circumstances and should be examined on a case-by-case basis,” Senator Foote said.

Amendments to SB 19-181

Senator Fenberg commented about the amendments that went into the bill, some of which were put in at the request of industry. He said that at least 180 amendments were offered during the process, with Amendment L 180 being the last one that was adopted.

“It is not a perfect bill,” Fenberg said. “It is not perfect for communities that want additional tools, it is not perfect for environmental advocates, it is not perfect for families that feel threatened, and it is not perfect for the industry.” Fenberg said the bill “provides some certainty for communities, for local governments, for families and for industry alike.”

Professionalizing the COGCC in the bill was “a major concession, a major compromise” – Fenberg

Fenberg pointed out the House amendment that professionalized the Colorado Oil and Gas Conservation Commission, making the commissioners posts full time paid professional positions. “This is something that the industry was asking for all along the way.” Fenberg said his original feeling was that “we need to figure out what the Commission is going to need to be successful in this new world and decide in a year or two what those structural changes should be.”

But he said the House took that concept further and added the amendment that professionalizes the COGCC now. Fenberg said, “Will it look like the PUC and operate like the PUC? Some would say, ‘God, I hope not’. Some would say ‘that sounds great’.”

Fenberg said, “that is a major concession, a major compromise that was made with the industry, was to say ‘yes’, let’s do this.”

“If we’re trying to be honest about what we’re trying to accomplish, including certainty, let’s do this because the industry wants it; we think it can overall be a good thing to professionalize the commission and make sure that they are on a regular basis meeting, that they are meeting efficiently and that they have a professional way of conduct to evaluate the cases that they evaluate.” He commented that “some ballot measures that were filed out there would professionalize the commission…that has been taken care of” and he said the ballot measures were not necessary. “A huge part of the objective in professionalizing the Commission will be codified in law under this bill.”

Shortly after the bill was passed, the COGCC sent out a notice to its email notification subscribers:

April Commission Hearing POSTPONED

Published: 04/03/2019

Today the Senate passed SB 181.  SB 181 will become law once signed by the Governor, which we expect to happen soon. When SB 181 is signed into law the Commission itself will be reformed. To allow the Governor and his team time to conduct an evaluation of SB 181, the April hearing is postponed until sometime in May. When we have more information about the next hearing we will communicate those details to you. In the meantime, we appreciate your understanding as we work through these details.

Colorado Oil and Gas Conservation Commission

Analyst Commentary

From SunTrust Robinson Humphrey
SB 19-181 passed, marking the end of a period of regulatory driven underperformance for the Wattenberg group (18-mo -22% vs XOP).
The final bill is similar to previous interpretations. Some positive amendments came in the 11th hour; "moratorium" only lasts until initial rules are made, and the COGCC director can no longer "refuse" permits only "delay" them. In previous regulatory bouts the Wattenberg group has expanded to group multiples in 3-9 months; perhaps this overhang could be longer but we strongly feel normalization is coming. We are buyers of NBL, PDCE, SRCI, XOG, and HPR.
The most significant last minute amendments were,
1) a language change to allow the COGCC director to “delay” but not “refuse” permits,
2) softening of various pieces of language that could help in any lawsuits,
3) additional professional employees added to help the COGCC,
4) a Senate floor discussion where Rep Feinberg stated that long term bans were not allowed, and
5) permit delays will end when the initial COGCC rules from 181 are made, not when all of them are final.
Every Senate Democrat voted for #181, and we feel it will be hard for them to turn around and say that a bill crafted when they controlled the House, Senate, and Governorship did not go far enough. Of course, the wildcard is an accident like Firestone, which could create a groundswell of regulatory support. However, aside from that scenario we don’t feel that a major ballot fight in 2020 will occur.
As a reminder, while on the surface the bill may appear to dramatically reduce oil and gas development in Colorado, given the mostly rural acreage footprints of our companies under coverage, we currently expect only a 0-4% impact to our NAVs as a result of this legislation.

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From Baird
CO SB181 Heads to Governor Polis for Signature
No change to cautious view. The Colorado state senate passed a revised oil and gas omnibus bill (19-16), including amendments from the CO House, which now heads to Governor Jared Polis for his signature, which he is likely to sign. The bill will reconstitute the oil and gas commission and allow local control into the state's oil and gas framework. Key midstream companies with CO exposure include DCP, NBLX, TGE and WES.
More complex operating environment ahead. Whereas before a promotional COGCC expedited oil and gas development, a new health-and-safety focused COGCC likely creates a higher hurdle at the state level for permitting. In addition, local jurisdictions will have the power to constrain or prevent development. For Weld County producers, a finalized rule set could remove some open-ended legislative risk, at least until the next election. Increased costs and regulatory compliance for air emissions and orphan wells are likely digestible.
Political not scientific. The decision comes without the benefit of a second Colorado Department of Public Health & Environment report, which appears to have been shelved during the process. The votes on SB181 reflected party lines between Democrats (recently ascendant winning the governor's mansion and both the Senate and the House) and Republicans. We don't see a reversal in Colorado's political biases given the immigration of coast-wise voters with a more liberal bias and no love for the oil and gas industry.
Key conclusion. Since most state oil production comes from right-leaning Weld County, we expect the bulk of the state's activity and operators to continue to flourish through 2020. Longer term, if the COGCC begins to equate health and safety with climate change, state-level permitting could become onerous or impossible. In the intermediate period, we would expect Weld activity to continue to thrive. Severe roadblocks likely arise immediately in the urban interface of the DJ Basin for Extraction (XOG) and some private operators. Moreover, we could see another legislative effort for a state severance tax increase.
Next things to watch. Investors should focus on: a) the appointments to the Colorado Oil & Gas Commission made by Jared Polis, followed by b) the rulemaking process at the revised commission. Simultaneously, expect c) local zoning and moratoria from Front Range communities such as Broomfield, Erie and Lafayette, which in turn could precipitate d) litigation from operators and mineral owners, and potentially inter-jurisdictional litigation. A key legal battle we foresee is granted permits vs. new local zoning along with potential minerals takings claims.
Key risks. Our approach to Colorado could prove to be overly cautious if a new COGCC promulgates rules quickly and efficiently that do not add to producer burdens, avoids conflating climate with health and safety, and new local rules are limited to just a few cities.  


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