Sweeping changes to the COGCC mission and composition, mandate for new rulemakings, new permitting layers, and involvement of local governmental approvals will usher out ‘business as usual’ for Colorado’s oil and gas industry

The bill that lays out the language that will overhaul Colorado’s oil and gas rules, Colorado’s Senate Bill 19-181, has now jumped over the next to last hurdle, passing its third reading in the House this morning. After a final return trip to allow the Senate to vote on the House-passed amendments, the bill, if passed in the Senate with the House’s amendments, will travel to Governor Polis to sign into law.

[Latest Version of the bill with amendments here.]

Governor Polis, a strong proponent of getting off of fossil fuels and onto 100% renewable energy, is already scheduled to headline the 21st Century Energy Transition Symposium at the Grand Hyatt in Denver, on April 1st. It would have been his PR team’s perfect opportunity to have the new governor publicly sign the bill, offer comments about his dream to decarbonize Colorado and take a victory lap, but the Senate passed a motion to delay the bill’s Senate vote from Monday until Tuesday, April 2.

Colorado’s crude oil production has quadrupled since 2010, and the state holds about 4% of total U.S. crude oil reserves, according to data from the EIA. Colorado is the fifth-largest natural gas-producing state, and 11 of the nation’s 100 biggest natural gas fields are located in the state, the agency calculates.

Colorado Energy Overhaul Bill Clears Legislature, Heads to Governor’s Desk

Changes to Colorado’s oil and gas extraction enacted by new law

SB 19-181 changes the former regulatory landscape, often cited as one of the nation’s strictest set of regulations, and one that still allowed operators in Colorado to make it the nation’s fifth largest oil producing state. The new law labels Colorado as a lots-of-question-marks kind of state for companies and investors who drill and produce oil and natural gas.

Currently, an operator first gets a permit from the commission to drill one or more wells within a drilling unit, which is located within a defined area, and then notifies the applicable local government of the proposed development and seeks any necessary local government approval. SB 19-181 flips that around.

Section 11 of SB 19-181 requires operators to file, with the application for a permit to drill, either: Proof that the operator has already filed an application with the affected local government to approve the siting of the proposed oil and gas location and of the local government’s disposition of the application; or provide proof that the affected local government does not regulate the siting of oil and gas locations.

Section 11 also specifies that the Colorado Oil and Gas Conservation Commission and the director shall not issue a permit until the commission has promulgated every rule required to be adopted by oil and gas bills enacted in 2019 and the rules have become effective; except that the director may issue a permit if the director determines that the permit does not require additional analysis to ensure the protection of public health, safety, and welfare or the environment or require additional local government or other state agency consultation.

That looks somewhat like the doorway to a multi-year de facto moratorium on drilling permits, at least until any and all bills requiring making of oil and gas rules in 2019 (including SB 181) have been enacted and the new rules those laws require have been promulgated.  

“House Bill 1041” powers, which are a type of land use authority over oil and gas mineral extraction areas, only if the Colorado oil and gas conservation commission (commission) has identified a specific area for designation. Sections 1 and 2 of the bill repeal that limitation.

Section 3 directs the air quality control commission to adopt rules to minimize emissions of methane and other hydrocarbons and nitrogen oxides from the entire oil and gas fuel cycle.

Section 5 repeals an exemption for oil and gas production from counties’ authority to regulate noise.

The bill amends the “Oil and Gas Conservation Act” that has driven rulemaking and regulating for the extraction of oil and natural gas in Colorado. The legislative declaration for the Act states that it is in the public interest to “foster” the development of oil and gas resources in a manner “consistent” with the protection of public health, safety, and welfare, including protection of the environment and wildlife resources; this has been construed to impose a balancing test between fostering oil and gas development and protecting the public health, safety, and welfare.

Section 6 states that the public interest is to “regulate” oil and gas development to “protect” those values.

Current law gives the commission the authority to regulate oil and gas operations so as to prevent and mitigate “significant” adverse environmental impacts to the extent necessary to protect public health, safety, and welfare, taking into consideration cost-effectiveness and technical feasibility. Section 11 requires the commission to protect and minimize adverse impacts to public health, safety, and welfare, the environment, and wildlife resources and protect against adverse environmental impacts on any air, water, soil, or biological resource resulting from oil and gas operations.

Section 11 also requires the commission to adopt rules that require alternate location analyses for oil and gas facilities that are proposed to be located near populated areas and that evaluate and address the cumulative impacts of oil and gas development.

The nine-member commission currently includes three members who must have substantial experience in the oil and gas industry and one member who must have training or experience in environmental or wildlife protection.

Section 8 reduces the number of industry members to one and requires one member with training or substantial experience in wildlife protection; one member with training or substantial experience in environmental protection; one member with training or substantial experience in soil conservation or reclamation; one member who is an active agricultural producer or a royalty owner; and one member with training or substantial experience in public health.

The Act currently specifies that the commission has exclusive authority relating to the conservation of oil or gas.

Section 10 clarifies that nothing in the Act alters, impairs, or negates the authority of:

  • The air quality control commission to regulate the air pollution associated with oil and gas operations;
  • The water quality control commission to regulate the discharge of water pollutants from oil and gas operations;
  • The state board of health to regulate the disposal of naturally occurring radioactive materials and technologically enhanced naturally occurring radioactive materials from oil and gas operations;
  • The solid and hazardous waste commission to regulate the disposal of hazardous waste and exploration and production waste from oil and gas operations; or
  • A local government to regulate land use related to oil and gas operations, including specifically the siting of an oil and gas location.

Section 15 amends preemption law by specifying that both state agencies and local governments have authority to regulate oil and gas operations and establishes that, where there is a conflict in the exercise of that authority, the more protective standard as to health, safety, and welfare, the environment, and wildlife resources controls.

In other words, if Weld County, which houses the prolific Wattenberg field, and is a strongly pro-oil and gas county, chooses to adhere to current regulations and promote new drilling, it will have to abide by any state rulemaking that requires more protective standards. Some of the stricter state rulemaking includes:

Section 25-7-109. Commission to promulgate emissions control regulations. (10) (a) THE COMMISSION SHALL ADOPT RULES TO MINIMIZE EMISSIONS OF METHANE AND OTHER HYDROCARBONS, VOLATILE ORGANIC COMPOUNDS, AND OXIDES OF NITROGEN FROM OIL AND NATURAL GAS EXPLORATION AND PRODUCTION FACILITIES AND NATURAL GAS FACILITIES IN THE PROCESSING, GATHERING AND BOOSTING, STORAGE, AND TRANSMISSION SEGMENTS OF THE NATURAL GAS SUPPLY CHAIN. (b) (I) THE COMMISSION SHALL REVIEW ITS RULES FOR OIL AND NATURAL GAS WELL PRODUCTION FACILITIES AND COMPRESSOR STATIONS AND SPECIFICALLY CONSIDER ADOPTING MORE STRINGENT PROVISIONS… .

(III) (A) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, INCLUDING SUBSECTION (11) OF THIS SECTION, UNTIL THE COMMISSION HAS PROMULGATED ANY RULES REQUIRED TO BE ADOPTED BY SUBSECTIONS (2.5)(a), (11)(c), AND (19) OF THIS SECTION AND EACH RULE SPECIFIED IN THIS SUBSECTION (1)(f)(III)(A) HAS BECOME EFFECTIVE, THE DIRECTOR MAY DELAY THE FINAL DETERMINATION REGARDING A PERMIT APPLICATION IF THE DIRECTOR DETERMINES, PURSUANT TO OBJECTIVE CRITERIA TO BE PUBLISHED BY THE DIRECTOR WITHIN THIRTY DAYS AFTER THE EFFECTIVE DATE OF THIS SUBSECTION (1)(f)(III) AND FOLLOWING A PUBLIC COMMENT PERIOD, THAT THE PERMIT REQUIRES ADDITIONAL ANALYSIS TO ENSURE THE PROTECTION OF PUBLIC HEALTH, SAFETY, AND WELFARE OR THE ENVIRONMENT OR REQUIRES ADDITIONAL LOCAL GOVERNMENT OR OTHER STATE AGENCY CONSULTATION.

SECTION 19. Applicability. This act applies to conduct occurring on or after the effective date of this act, including determinations of applications pending on the effective date.

SECTION 20. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate 21 preservation of the public peace, health, and safety.

Read the Amended Third Reading of SB 19-181, dated March 29, 2019 here.


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