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Energy

Colorado oil and gas overhaul tips power toward local government. How that power is used will vary widely.

Towns and cities along the I-25 corridor, where drilling is closest to suburban neighborhoods, likely will be first to test the waters

A car drives along E-470 past Extraction Oil & Gas's Interchange A and B extraction sites in Adams County on Thursday, April 4, 2019. Photo by Andy Colwell, special to the Colorado Sun
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Before the city of Thornton adopted a new oil and gas ordinance, it got a letter from the state warning that it was overstepping its bounds. After the ordinance passed, the city was sued by the oil and gas industry.

When Longmont adopted an ordinance that blocked oil and gas development in residential areas, it was sued by both the state and the industry.

And when Erie’s trustees considered a one-year drilling moratorium, a representative of the state’s main oil and gas trade group stood up at the meeting and threatened a lawsuit. (That was after the trustees had been bombarded with email and phone calls from a national oil and gas industry lobbying group.)

Gov. Jared Polis is expected to soon sign the “Protect Public Welfare Oil and Gas Operations” bill, also known as Senate Bill 181, and when he does stories of such strong-arm tactics are to be a thing of the past – at least that’s the aim as the law tips power to local officials.

“A lot of these oil and gas companies have been real jerks,” Longmont Mayor Brian Bagley said. “It is kind of flipping off the guy in traffic on the way to a job interview and realizing ‘Oh! That’s the guy I am meeting with.’”

MORE: The oil and gas bill will soon become law. Here’s a look at the concessions the industry won.

Balance of power not yet understood, but cities get a bigger say

Still, questions remain about what the new law will mean on the ground and how much of an impact it will have on the oil and gas industry, which has drawn a picture of potentially dire consequences.

All sides agree that it gives local governments a bigger say in oil and gas development in their communities, a role that until now has been limited by state primacy in regulating oil and gas operations.

How that power is used may vary widely.

Boulder has already adopted what its commissioners call “the strongest set of regulations in the state,” while officials in Weld County, the focus of Front Range drilling, support the industry and opposed the legislation.

“Adams County isn’t going to treat oil and gas development like Boulder County or Weld County,” said Steve O’Dorisio, chairman of the Adams County commission. “Adams County has proven we are not intent on banning oil and gas development, we are intent on protecting health and safety first and allowing as many minerals as to be extracted as possible.”

Temporary signs direct traffic to oil and gas exploration sites along Huron Street near E-470 and Interstate 25 in Adams County on Thursday, April 4, 2019. (Andy Colwell, Special to the Colorado Sun)

The law also will give local governments some breathing room in determining how much oil and gas can be extracted by changing the goal from the maximum production of oil and gas to permitting  “nonproduction” if it is necessary to protect public health, safety, welfare or the environment.

What the new law will do, O’Dorisio said, is allow the county to “influence the location of wells to protect public health, safety and welfare.”

It will, Broomfield councilman Kevin Kreeger said, allow local officials to “move operations to a safe place to drill.”

Some local governments already have oil and gas ordinances, including the city of Brighton and Arapahoe County, or have negotiated operating agreements with drillers that included noise and air-emission standards stricter than the state’s.

Erie and Broomfield have both gotten drillers to move sites and agree to 1,000-foot setbacks from homes — double the state standard.

A few municipalities and counties – including Broomfield and Adams County – already have inspectors monitoring drilling operations. In 2017, Broomfield’s inspectors made 71 site inspections at 36 facilities and found 14 operations with leaks.

Despite these initiatives, the oil and gas industry remained outside much of the land-use controls and nuisance ordinances local governments applied to other industrial or commercial activities as the drillers relied on state preemption on these issues.

MORE: How would new regulations impact the oil and gas industry in Colorado? Here’s what we know.

“The industry has been operating from a position of coercive power, and now they have work on relationship power,” Bagley, Longmont’s mayor, said. “They are going to have to build relations like housing developers, they are going to have to become neighbors.”

To be sure, there are oil and gas operators who have worked with local governments in an effort to smooth the way for their projects and address local concerns. This has been true for the drillers who have been most active in the Interstate 25 corridor: Extraction Oil & Gas, Crestone Peak Resources and Great Western Oil & Gas Co.

“Through close collaboration and engagement with local leaders, we’re able to listen to feedback and concerns from communities and adjust our operations, when possible,” Bridget Ford, a Crestone community relations adviser, said in an email.

Ford offered examples in the towns Erie, Dacono and Firestone, where the driller has made adjustments to its activities to address local concerns.

The Extraction Oil & Gas Coyote Trails pad is visible behind residential neighborhoods in Erie on Thursday, April 4, 2019. (Andy Colwell, Special to the Colorado Sun)

“We have a really good relationship with our oil and gas developers, like Great Western,” O’Dorisio said. Great Western did not respond to a Colorado Sun request for comment.

Still, in these negotiations, the operator has always held the advantage of the state primacy card, and often, it already held drilling permits issued by the Colorado Oil and Gas Conservation Commission.

One of the most extensive agreements between an oil and gas operator and a municipality, after nearly two years of negotiations, is the one between Broomfield and Extraction.

But Broomfield Councilman Mike Shelton said, “We had to pass a moratorium on first reading to get Extraction to participate. It started with the threat of moratorium. Now, that threat doesn’t need to be made.” Extraction declined to comment.

Mission of COGCC has changed

For local communities, the new law has two key elements, according to municipal land-use attorneys. First, it removes the mandate for the Colorado Oil and Gas Conservation Commission to “foster” oil and gas development. This weakens state primacy and places oil and gas development with all the other activities that fall under local land-use and nuisance ordinances.

Second, it sets the primary goal of the state as regulating oil and gas development to protect the health, safety and welfare, aligning the state with the same goal local governments have under their police powers.

Beyond that, the legislation requires an operator to first file for an application to drill with the local government before seeking a state drilling permit and to note in its state application the local government’s decision.

It clarifies that local governments have siting authority and the power to inspect oil and gas operations, levy fines for violations and impose fees on drillers to cover the cost of their oil and gas oversight. It removes a prohibition on counties imposing noise and odor ordinances.

MORE: Colorado lawmakers are using the deadly Firestone explosion as a fulcrum for change — just as Erin Martinez wanted

The new law also gives local governments the power to enact standards that are more protective or stricter than those of the state.

To assuage industry concerns that communities would enact drilling bans or rules so severe as to make development impossible, language was added to the bill at the last minute requiring local rules to be “necessary and reasonable.”

“No operator will be subject to wild land use requirements or setbacks,” said Kevin Bommer, executive director of the Colorado Municipal League. A ballot initiative to require drilling sites be set back 2,500 feet from homes was defeated in November.

Opponents of drilling worry the addition will blunt local control. “Adding ‘reasonable’ removes the teeth from local control because the decision is then going to be made in a court, where oil and gas companies will have much deeper pockets,” said Christiaan van Woudenberg, an Erie trustee.

Municipal land-use attorneys say that while the “reasonable” standard has not previously been applied to land use, local governments have to establish a record to show that their land-use decisions are necessary and further public health and safety.

Local governments could face lawsuits for a lack of due process or taking of private property if their decisions are not properly grounded.

“Some communities may want to ban fracking,” Shelton said. “Don’t think of it as drilling. Think of it as a guy who wants to run a paint store and the community shuts that down. That’s a problem.”

The new law may have little impact in much of Colorado, according to Bommer. “As a practical matter, a municipality may not need to change anything,” he said. “In Northern Colorado, where there is more comfort between local authorities and operators, I don’t see them adding a lot of new ordinances.”

For other communities, the law will make dealing with oil and gas operators easier as things such as nuisance abatement will no longer need to be negotiated. “It really allows local government to focus on site-specific issues,” Bommer said.

Extraction Oil & Gas drilling rig on the Coyote Trails pad is visible behind houses along Tundra Circle in Erie on Thursday, April 4, 2019. (Andy Colwell, Special to the Colorado Sun)

Law will be first tested along the I-25 corridor

The fast-growing suburban communities along Interstate 25, such as Broomfield, Erie, Brighton, Thornton and Windsor, as well as Adams and Boulder counties, are the places where the new power may most likely be used. Only a handful of oil companies are operating in those areas.

In the past four years, about 29% of the wells drilled in the main Front Range oil field, the Denver-Julesburg or DJ Basin – more than 850 wells – were within 10 miles of I-25, the most densely populated area in the field, according to an analysis by BTU Analytics, a Lakewood-based industry analyst.

Four operators – Great Western, Crestone, Extraction and Anadarko Petroleum Corp. – drilled almost all those I-25 corridor wells, and they accounted for about two-thirds of all wells drilled by Great Western, Crestone and Extraction.

Anadarko is the state’s largest operator, and its I-25 corridor wells represent a little less than 50% of its activity.

A truck drives past oil and gas development equipment near Crestone Peak Resources’ Cosslett site near Erie Parkway as seen from Interstate 25 in Weld County on Thursday, April 4, 2019. (Andy Colwell, Special to the Colorado Sun)

BTU Analytics is forecasting a slowdown in drilling activity in the basin. “There is more regulatory risk,” said Matt Hagerty, a BTU analyst. “There is a question of when and how long it will take to get permits, and that may hurt business plans.”

The problem is that the “best economic portion” of the field and the Front Range housing boom overlap in the southwest corner of Weld County, Hagerty said.

“I don’t think the DJ is going away by any means, that you pass a law and oil and gas drilling goes away,” Hagerty said. “There is just more regulatory uncertainty.”

That uncertainty is compounded by a requirement that state agencies develop five new rules on covering hazardous pollutants, air emissions, wellhead integrity, alternate site location and financial capacity of operators.

A clue as to how local governments may use their new power might be seen in the actions some have already taken, including ones that state courts have knocked down.

Longmont does not permit drilling in areas zoned residential. The state and industry sued the city, but in a compromise to remove oil and gas initiatives from the 2014 ballot, the lawsuit was dropped.

Thornton’s ordinance called for a 750-foot setback, with the option of an operator drilling closer with enhanced protections. It also required abandoned flow lines from oil and gas wells to be removed. Both provisions were struck down by a district court, which cited state primacy.

The city also sought to require $5 million liability insurance for operations, while the state standard is $1 million.

Boulder County’s ordinance calls for air monitoring, water-well testing for as long as six years, disruption payments to residents affected by drilling, local inspections and restrictions beyond state requirements in flood plains.

In its comprehensive development plan for oil and gas, Broomfield proposes a sliding scale for setbacks ranging from 750 feet to 1,350 feet depending upon the number of wells at the site.

Broomfield is also conducting a $1.7 million baseline air-quality monitoring study and had a consultant do a risk analysis of Extraction’s proposed Broomfield operation at a cost of $60,000. “It would be good if operators paid some of that, but you want to be careful about exorbitant fees,” Shelton said.

An Ajax Analytics air monitoring station is pictured on a utility pole along the 15000 block of Lipan Street in Adams County as part of a program to track air quality in areas near oil and gas operations. The air sampler is one of 19 operating in Broomfield and Adams counties as part of a cooperative program. It was photographed Thursday, April 4, 2019. (Andy Colwell, Special to the Colorado Sun)

As part of an operating agreement with Erie, Crestone will pay the town $35,000 per well pad to help the community defray its oil and gas-related costs.

A March decision by the Adams County Commission to adopt a six-month moratorium on new drilling permits while it evaluates the new law immediately drew flak from the industry.

“Adams County’s commissioners have just given Coloradans a glimpse of the consequences that Senate Bill 181 will have in the state,” said Ben Marter, spokesman for the Colorado Petroleum Council, in a statement.

O’Dorisio said there are hundreds of approved permits that are not covered by the moratorium. “We’ve had hundreds of wells approved in the last few years, and we are not going to abuse that power.”

Moving forward, the goal should be for both sides to work together, Bagley said. “If everybody does their jobs, oil and gas companies will negotiate with local municipalities to find the best locations. And those who don’t want drilling in their town should come to the meeting and show that they are off the grid and don’t drive a car anymore or use plastics.”

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