Colorado’s Oil and Gas Conservation Commission voted Wednesday to push its massive overhaul of the state’s drilling regulations to the late summer while oil and gas activity in the state is plummeting.
The culprit for both the rulemaking delay and eroding oil and gas activity is the same: the novel coronavirus pandemic that has shut down Colorado and most of the U.S.
The deteriorating finances of some oil and gas operators have also sparked concern that the state may see an increase in abandoned and shut-in wells. “These issues that are coming up quickly and dramatically need our attention,” said Brenda Haun, a commission member and Weld County veterinarian.
“Does that create any safety and health risks?” asked Commissioner Erin Overturf, an attorney with Western Resource Advocates, a nonprofit environmental policy organization
The COGCC staff is already working on a survey and white paper on the issue that will be ready in about a week, said Jeff Robbins, the agency’s executive director. (The commission meeting was held remotely on the Zoom teleconferencing platform.)
Kelly Nordini, executive director of Conservation Colorado, called the work on orphan wells “a critical science-based step to protect public health.”
The expansive rule changes – aimed at revising the agency’s mission – were supposed to be in place by June 30, passed by the current volunteer commission, with a new full-time commission taking over July 1.
Under Robbins’ recommendation the full-time commission will handle the overhaul of eight sections of the state rules with hearings starting in late August and finishing in early September and the new regulations taking effect Nov. 1.
“We are all in unsettled times,” Robbins said. “I think this is the best path forward.”
The regulatory timetable, set in Senate Bill 181, the 2019 law aimed at revising the state’s oil and gas rules, ran aground as the state shutdown to deal with the virus, COVID-19, making it impossible to hold public meetings, hearings and in-person commission meetings.
The action comes as new drilling permit applications plunged in April to just 21 compared with 139 in March and 522 in April 2019. There were six drill rigs operating in the state on April 20, one on the West Slope and five on the Front Range, compared with 21 in April 2019.
“Colorado has seen a large number of rigs lay down in percentage terms (among the highest for any state in the country),” said Bernadette Johnson, vice president of strategic analytics at Enverus, an industry consultant. “We’re now starting to see existing wells shut-in in addition to the slow down in new drilling.”
The combination of the pandemic, which has depressed global demand for oil, and cratering oil prices, sparked by a price war between Saudi Arabia and Russia, has put the industry under great pressure.
The Saudi-Russia price war was resolved with the Organization of Petroleum Exporting Countries (OPEC), Russia and other major producers agreeing to cut production, but the drop in demand for oil due to the pandemic outstripped their efforts and created an oil glut.
The world is projected to use 21 million barrels less in May, putting consumption at 1995 levels, according to the International Energy Agency. U.S. oil consumption is forecast to be near a 30-year low.
The spot price of West Texas Intermediate (WTI) crude, the U.S. benchmark, was $13.25 a barrel Wednesday. The breakeven price for oil companies drilling in Colorado’s shale formations range from $35 to $55 a barrel, according to BTU Analytics, an industry consultant. Corporate costs, such as debt payments, can add $5 to $8 a barrel.
Activity also looks to be slowing since new drilling permits will only be approved if the operator has first received local approval with full public participation – something Robbins conceded could only be met by applications that had been in the process before the state’s shelter-in-place order.
The commission is proceeding with a rulemaking on well integrity standards, for which there is some consensus, and may complete that before June 30.
The COGCC decision to move the rulemaking to the summer won praise from both industry and environmental advocates.
“We are grateful to Director Robbins and the Commission staff for their recognizing the importance of conducting crucial rulemakings in an atmosphere that is safe and conducive to maximum stakeholder participation,” Lynn Granger, executive director of the American Petroleum Institute Colorado, said in a statement.
Revisions to five sections of the rules to emphasize the regulation of oil and gas operation to protect health safety and welfare, as well clarifying the role of local government will be the focus of the August-September hearings. Robbins said that since these sections are related to each other they needed to be taken in “one fell swoop.”
The new commission will also take up updating rules on waste and noise management and protecting wildlife.
If need be, Robbins said, the hearings will be held through Zoom, although it took 40 minutes to get through a roll call during an April 28 Zoom preliminary meeting with the 97 parties involved in the rulemaking. The COGCC is going to work on best practices for remote meetings. “We will facilitate the best Zoom meeting possible,” he said.
“Our preference has always been to have these complicated rulemakings, which will impact an industry that’s so important to our state, conducted in person, not on conference calls or in virtual chat rooms,” Dan Haley, president of the Colorado Oil and Gas Association, a trade group, said in a statement. “We’re hopeful that will be the case later this summer. We all have experienced the downside of Zoom meetings and connectivity issues in recent weeks.”
Robbins said he wants the rules completed before the next election to “provide perspective to Coloradans around ballot measures in November … to show that 181 adopted protective measures” for the state.
There is a pending ballot measure from environmentalists to require a 2,500-foot setback of oil and gas operations from homes. Pro-industry ballot initiatives would freeze regulations, replace the COGGC with an independent oil and gas board, and enable local governments to take total control of oil and gas regulations.
The five members of the new commission – one with industry expertise, one with an environmental background, one with public health experience, one with land use or planning expertise and one with decision-making expertise – will be appointed by Gov. Jared Polis with confirmation by the state Senate.
The executive directors of the Department of Natural Resources and the Department and Public Health and Environment will sit as non-voting members.
The agency is already interviewing candidates. “There is a good pile of applications for the governor to work through,” Robbins said.
UPDATED: This story was updated at 10:52 a.m. on April 30, 2020, to add a quote from industry consultant Enverus. A quote from Conservation Colorado’s Kelly Nordini also was moved higher in the story.