Beware the Ides of March - Will Colorado Effectively Ban Gas and Oil Development?

Just a few months after Coloradans rejected Proposition 112, a ballot initiative that would have imposed a 2,500-foot setback for new oil and gas facilities, the Democratic-controlled legislature appears intent on passing a fast-tracked bill that has the potential to significantly restrict the gas drilling permit program in Colorado and impose new requirements on exploration and production activities. The bill, SB 19-181, named the “Protect Public Welfare Oil and Gas Operations,” doesn’t use setbacks but, if enacted as proposed, would: (1) revamp the state agency that handles issuance of drilling permits; and (2) elevate the power and level of input that local communities have regarding oil and gas development activities. 

If the bill that is ultimately passed revamps the state agency, it will impact all producers, but a bill that vests greater control in local government would most likely impact only those producers in counties where opposition of gas and oil development is strongest. In connection with the state-wide revamp, the bill requires a moratorium on the issuance of additional permits which could become effective as early as April. Today, we look at impacts from both by focusing first on those producers with the greatest number of permits currently pending before the Colorado Oil and Gas Conservation Commission (COGCC) and then looking at those producers with current or planned development opportunities in counties that were not decidedly against Proposition 112. 

Key Provisions Create Statewide Risk

The bill is being promoted as an effort to delegate authority to local governments over the regulation of oil and gas development. According to Colorado Governor Jared Polis, there is no room for a “one-size-fits-all approach to implementing oil and gas development,” in a state as diverse as Colorado, but the bill seems to do just that. In particular, while the bill grants localities greater authority to limit further development, it also seems intent on restricting overall development in the state and does not allow localities to ignore or reduce any such state-wide restrictions. 

A number of key provisions appear to be aimed at limiting gas development on a statewide basis by making some key revisions to the statute that established the COGCC, the entity that must approve all drilling permits state-wide. These revisions include:

• Eliminating the portion of the COGCC’s mandate that includes the obligation to “foster” the development of oil and gas resources, and changing it to “regulate” such development;
• Revising the COGCC’s standard for approving wells if significant adverse environmental public health, safety and welfare impacts have been reduced to the extent practicable, by eliminating the practicality requirement;
• Clarifying that “waste” under the statute does not include oil and gas left in the ground to the extent deemed necessary to protect public health, safety and welfare, the environment or wildlife resources;
• Changing the makeup of the COGCC by reducing from three to one the number of members who are representatives of the oil and gas industry, eliminating the requirement that two members have degrees in petroleum geology or petroleum engineering and adding a requirement that one member have experience or training in environmental protection, another in wildlife protection, and a third member in public health; and
• Requiring the COGCC, in consultation with the Colorado Department of Public Health and Environment, to evaluate and address the potential cumulative impacts of oil and gas development.

All of these changes are clearly designed to substantially restrict the ability of the COGCC to grant permits for drilling. A section of the bill could lead to an immediate moratorium on the granting of permits by the COGCC. That section directs the COGCC to stop issuing permits until the COGCC issues all of the new rules required to be adopted by the bill and the rules have become effective, unless the COGCC 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 following production companies have the most permits currently pending before the COGCC, and, thus, may be impacted the most from the passage of the bill:

Delegating Control to Local Governments

The bill would increase the power of local governments to regulate oil and gas development by:

• Specifically allowing local governments to regulate oil and gas operations under their authority over land use and to minimize adverse impacts to public health, safety and welfare, the environment and wildlife; and
• Providing that in case of a conflict between state and local regulations, the one that is more protective of public health, safety and welfare, the environment or wildlife resources would prevail.

To determine how such local control might be exercised, we looked to how votes were cast last fall concerning Proposition 112. While that vote was fairly close overall, with only 55% opposing the measure statewide, the percentages by county were very different. Twenty-three of the state’s 64 counties rejected the measure, with more than 66% of each county’s voters opposing the measure. On the flip side, there were only three counties, Boulder, Pitkin and San Miguel, where more than 66% of the voters approved the measure. 

Interestingly, when this map is compared to a map for oil and gas production, there is not a lot of overlap between the blue counties and the counties where oil and gas was produced in 2018.

Similarly, when you look at the counties where there are a lot of permits pending before the COGCC, most of those permits are pending in the solid red counties. In fact, over 5,000 of the almost 7,000 permits pending before the COGCC are pending in only one county, Weld, which was solidly against Proposition 112. For those production companies operating in counties that are supportive of oil and gas development, the bill’s provisions that would grant greater local control would probably not pose a significant risk, on the assumption that such counties would be in favor of continued oil and gas development.

On the flip-side, there are approximately 1500 permits pending in the other counties that were not overwhelmingly opposed to Proposition 112. Looking only at those counties, the following operators have the most permits pending before the COGCC:

Next Steps

The bill was introduced first in the Colorado State Senate and had its second reading of three in that chamber yesterday, only eleven days after it was first introduced. It is scheduled for the final reading in the Senate today. Presuming it passes the Senate, it would then move on to the House, where it is sponsored by the Speaker of that chamber. Given the Governor’s apparent support, the activity on this bill needs to be followed closely.

Presuming the bill can be passed through the House as quickly as it has in the Senate, it could be on the Governor’s desk for signature by the end of March and the moratorium on additional permits could occur as early as April. Unless the rule allowing the COGCC to place a moratorium on all permits is successfully challenged and stayed, the issuance of permits would stop until the COGCC adopts all of the new requirements in the bill, which may take it years to do if that process is slowed with litigation. 

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