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Politics and Government

What the landmark oil and gas bill really says — and its significance for Colorado

The measure would give local governments the ability to veto fracking and may give Anadarko Petroleum a monopoly when it comes to drilling rights on the Front Range

The oil and gas industry holds a rally outside of the Colorado Capitol on March 5, 2019, ahead of the first committee hearing for Senate Bill 181. The legislation would add significant new regulation to the industry and is being brought by Democrats. (Jesse Paul, The Colorado Sun)
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Gov. Jared Polis and the Democratic-led legislature are pushing forward a measure that could allow local governments to veto oil and gas drilling in their communities, add a litany of new rules and spark a wave of lawsuits.

A provision in the legislation to raise the threshold for forced pooling of mineral rights would give the Anadarko Petroleum Corp., the state’s largest operator, near monopoly control on Front Range oil and gas development.

These new details are just a few of the significant changes still emerging from a bill that Democrats are rushing to its first hearing Tuesday at the state Capitol.

“It is fraught with issues,” said Tracee Bentley, the executive director of the Colorado Petroleum Council. “Frankly, we are still trying to figure out its impact.”

The legislation represents a major shift in how the oil and gas industry — with its $30 billion economic impact — is regulated in Colorado, and it comes after decades of increasing conflicts about the location of drilling rigs, the potential health impacts and a heightened awareness and activism on the issue of climate change.

Significantly, the measure changes the mission of the Colorado Oil and Gas Conservation Commission from fostering fossil fuels development “consistent” with the protection of public health, safety and welfare to prioritizing the agency’s protection of public health, safety, welfare, the environment and wildlife.

Advocates for the measure who are concerned about oil and gas development encroaching on neighborhoods and schools say it is long overdue.

“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. “We needed to address the fact that operators are running roughshod over Colorado communities.”

The oil and gas industry holds a rally outside of the Colorado Capitol on Tuesday, March 5, 2019, ahead of the first committee hearing for Senate Bill 181. The legislation would add signficant new regulation to the industry and is being brought by Democrats. (Jesse Paul, The Colorado Sun)

A long-standing and stymied debate led to this point

Prior to the current legislation, the most significant reform in Colorado’s management of oil and gas drilling began in 2007, when then Gov. Bill Ritter launched an 18-month process to upgrade the law.

It led to new requirements that — for the first time — gave weight to public health, wildlife and the environment, and prompted the Colorado Oil and Gas Association to file a lawsuit against the state over the rules.

Other new rules in the years that followed set disclosure standards for the fluid pumped into wells to fracture shale rock and release oil and gas, increased setbacks of drill rigs to 500 feet from 150 feet and tightened the rules governing fugitive methane emissions.

The industry, however, consistently opposed measures to give more local control. Former Gov. John Hickenlooper in 2014 formed a blue ribbon commission to address the issue as part of a compromise that kept a Polis-backed setback initiative off the ballot, but the industry and their allies blocked every proposal regarding local control.

The clash re-emerged at the ballot box in November 2018 when voters rejected competing ballot measures on oil and gas.

“If the industry over the last eight years had allowed the smaller common-sense provisions and not screamed this is a ban, we would not be where we are today,” Loflin said.

The new bill, written in private, emerges to controversy

Polis and the Democratic legislative majority entered the 2019 session promising to take action on oil and gas, despite the election stalemate.

The bill’s sponsors, House Speaker KC Becker of Boulder and Senate Democratic leader Steve Fenberg of Boulder, worked in private and did not share the bill’s language with interest groups in the industry or environmental movement before its introduction just before 5 p.m. Friday. The bill’s fast-track path also is drawing criticism and calls for delays from Republican critics.

House Speaker KC Becker, left, and Senate Majority Leader Steve Fenberg, both Boulder Democrats, discuss their oil and gas regulation legislation. (Jesse Paul, The Colorado Sun)

In an interview Monday, Becker defended the timeline and noted that it will get two committee hearings and debate in each chamber, like most bills. “There is a lot of time still for (this bill) to work through the process,” she said, even as she acknowledged the private process was not typical.

Before completing the legislation, the bill’s sponsors met repeatedly with the Polis administration and state’s oil and gas commission, as well interest groups on both sides. But Becker acknowledged the industry’s push for Amendment 74 in the 2018 election left distrust.

Republican lawmakers who are opposed to the legislation say they are infuriated by the process. “We have a governor who bragged about a stakeholder process for the new oil and gas restrictions when, in fact, there was none,” said Sen. Jerry Sonnenberg, R-Sterling. “Integrity meant working with constituents to draft problem-solving language. Drafting any legislation in back rooms and then being dishonest when it is introduced is not the definition of good policymaking, let alone integrity.”

Oil and gas activities have moved closer to neighborhoods in Colorado, including this Crestone Peak site known as the Pratt pad in Erie. (Doug Conarroe, The Colorado Sun)

The big change: Give local governments the control

Under the legislation, the most significant change is the shift in responsibility to local governments when it comes to the siting and oversight of oil and drilling operations. The state’s oil and gas commission, known as the COGCC, won’t even see a permit application until it has been filed with the local government.

The local leaders would not only gain the power to make land-use decisions, but would get the authority to inspect facilities, levy fines for spills, leaks and emissions, and collect fees to cover the cost of regulation.

The new guiding principles in the legislation for the state and local government would require officials to protect public health, safety and welfare, as well as the environment. The current language in the commission’s statute balancing that with cost-effectiveness and technical feasibility is removed.

The scenario would allow local governments to enact rules on zoning, odors or noise that are so stringent it could amount to a de facto ban on drilling — a point the bill sponsors and industry acknowledge. The industry warns this creates a constitutional issue regarding property rights that will lead to lawsuits.

“You are giving the local government a veto over a permit without any standards, and if that’s not reasonable, there is a taking issue,” said Lance Astrella, an attorney who represents landowners, mineral owners and municipalities in oil and gas leasing cases. “The courts could be crowded.”

Astrella said some limits to local control when it comes to odor and noise are needed, cautioning that lawmakers “probably went too far the way it is written.”

Loflin, however, defended the bill, saying it is the “most important foundational step we’ve seen introduced and it is critical for impacted people that this bill move forward and pass.”

One provision in the bill attempts to address the issue that the government regulations would amount to taking a property without compensation by changing the definition of “waste.”

In the current statute, waste is defined as the inefficient or incomplete development of a petroleum reserve. But the bill would change the definition to qualify that a waste doesn’t apply in situations where the government determines that protection of public health, safety, the environment or wildlife trumps drilling.

“There are a lot of landowners, mineral owners and even some communities that rely on oil and gas revenues that could be hurt,” Astrella said.

A woman holds a sign at a rally on Tuesday, March 5, 2019, in support of Senate Bill 181, Democrats’ effort to add regulations onto the Colorado oil and gas industry. (Jesse Paul, The Colorado Sun)

A subsequent rule-making process leaves questions unanswered

A major component of the legislation would leave key decisions to the state’s oil and gas commission. The bill would require a five new sets of rules that could take years to adopt during which time the director of the commission would exert tighter control over new permits. The new rules would govern:

  • How evaluations are conducted for an alternative drill site if there is opposition to a company’s proposed site
  • A list “hazardous pollutants” that would have to be continuously monitored at well sites along with methane and volatile organic chemicals
  • Emission control regulations
  • 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.

The rule-making process typically involves multiple drafts, hearings and meetings with stakeholders. It took more than six months for the commission to change the rule regarding required setbacks between a drill site and a building to 500 feet from 150 feet.

“Rule-makings are robust and could takes years,” Bentley said. “And we are looking at many rule-makings.”

Even organizations pushing for tougher drilling regulations are hesitant to endorse the legislation because of all the unanswered questions left to rule-making. “Implementation is a different matter because a lot of it will go through the COGCC and a lot of it will be left up to the hands of local governments, and that’s where we are concerned,” said Joe Salazar, a former state lawmaker who is now executive director of Colorado Rising, an advocacy organization.

In the interim, while all these rules are being hammered out, the state’s oil and gas commission would have tighter control over issuing permits, but the legislation sows confusion about how it would work.

The bill’s summary says “the 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.”

An exception is allowed 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.

The Colorado Chamber of Commerce seized upon this apparent moratorium on permitting as part of its opposition to the bill.

But the summary is not consistent with the actual legislation. The bill says only that the COGCC director may refuse, but is not required to reject, a permit if it requires additional analysis.

The ability to put a hold on permit applications is needed to prevent industry from flooding the commission with applications before the new law would take effect, supporters argue.

In the months before the November vote on Proposition 112, which would have required drill sites to be at least 2,500 feet from homes, more than 6,500 permit applications were filed, bringing the 2018 total to 10,200 applications, compared with an average of 4,159 in the five years before. The ballot measure was defeated. (The industry used 1,360 permits last year.)

The bill doesn’t say what permits would fall under the new rules, but a bill sponsor said the commission’s mission will change as soon as the bill is signed. “And I think as they review these permits, they will be reviewing them with the (new) health, safety and environment framework in mind,” Becker said.

Oil and gas facilities in Weld County on Oct. 19, 2018. (Jacob Paul, Special to The Colorado Sun)

Hidden consequences in the new forced pooling rules

A flashpoint between some communities and the industry is the issue of forced pooling, which enables an oil and gas operator to get an order from the state to combine the mineral rights owned by a group of property owners into a cohesive drilling unit — even those of owners who do not consent.

Thirty-four states have forced-pooling statutes, including all the major oil-producing states except for California. It is seen as a tool to ensure the orderly and efficient development of oil and gas resources and requires a driller to compensate everyone in the pool.

Last year, the legislature passed and the governor signed a law giving property owners more time and information to respond to pooling order.

Under current practice, an operator needs only a single signed lease to ask COGCC for a pooling order that can include hundreds of landowners. In recent years, the commission has not rejected a request for a pooling order.

But the new legislation would require that a company obtain leases from more than 50 percent of the mineral interests to be pooled.

Other states have similar thresholds. It is 51 percent in Illinois, 75 percent in Nevada and 90 percent in Kansas, according to a survey of state pooling statutes by the law firm Steptoe & Johnson.

The difference in Colorado is that Anadarko, the state’s largest driller, owns 400,000 acres of land and mineral rights stretching from Adams County through Weld and Larimer counties into Wyoming.

That will make it difficult to put together a drilling unit with 50 percent of the mineral interests without Anadarko’s participation, said Astrella, the attorney that represents landowners.

“You basically created a monopoly for Anadarko,” said Astrella. “Having a number makes sense, but 50 percent gives the power to an oil company. They can dictate the terms to a landowner.”

Anadarko did not respond to a request for comment by The Sun, but in a statement Monday it said: “We have reviewed the proposed Colorado oil and gas legislation and remain optimistic in the long-term value of our acreage position. … We do not expect the bill’s proposed changes to forced-pooling rules to materially affect Anadarko.”

A new vision for an empowered COGCC

A larger and better-financed oil and gas commission regulating the industry is a key principle in the legislation.

The state’s oil and gas commission would add up to two deputy directors and as many professional staff clerical as necessary “for the efficient and effective operation of the commission,” the bill states.

A provision in the bill also would overhaul the COGCC to reduce oil and gas industry representation to one member from three.

The prior caps on application fees are removed and the commission is directed to make fees adequate to meet the direct and indirect costs for the more intensive analysis of permits that would be required. The bill also removes a $200 limit on the fees for filing dockets and pleadings.

The legislation sets the stage for more inspections, financial oversight of drillers and in consultation with the Department of Public Health and the Environment to evaluate and address the cumulative impacts of oil and gas development.

Other state agencies that would get a more defined role include the air quality control commission, the water quality control commission, the state board of health, and the solid and hazardous waste commission. All told, that creates a potential six layers of government oversight.

Updated 12 p.m. April 2, 2019: An earlier version of this story incorrectly how the original legislation would change the Colorado Oil and Gas Conservation Commission. The commission would remain at nine members under the introduced bill.

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