Industry reacts to gas drilling rules

Legislators positive, but oil and gas group voices some initial complaints

By Phillip Yates
Post Independent Staff
Glenwood Springs, CO Colorado
April 3, 2008

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Some new rules and the Colorado Oil & Gas Association (COGA) initial concerns

Permitting • THE NEW RULE: The new rules require companies to provide additional information of their ancillary facilities’ impacts on the surface in an expanded Form 2A — a form the state already uses — when applying for drilling permits. Companies operating in the Piceance Basin would have to receive approval of the form before a permit to drill is issued, according to the new rules. The state seemed to have dropped a proposal that had been floated that would have required companies seeking a new drilling location to obtain a Form 34 permit — a process that would have “focused the involvement” with the Colorado Department of Public Health and Environment (CDPHE) and the Colorado Division of Wildlife (DOW). COGA’s CONCERN: The trade group says the state claims it eliminated the Form 34 by incorporating a streamlined version into the Colorado Oil and Gas Conservation Commission existing Form 2A and that outside of the Piceance Basin, the form would be used for “informational purposes only.” “The fine print reveals another story entirely,” according to COGA. One concern of the group says the information requirement of the expanded Form 2A is open-ended, and may include “any additional data” required pursuant to consultation with the DOW and the CDPHE. Wildlife restrictions • THE NEW RULE: Prohibits drilling in critical wildlife areas, primarily in western Colorado, for specified periods of up to 90 days. However, the timing restrictions for drilling can be avoided if a company limits the density of its development in an area or consults with the COGCC and Colorado Division of Wildlife to find a “mutually agreeable solution” that would allow drilling to occur “in exchange for alternative mitigation,” according to the COGCC. COGA’s CONCERN: The trade group says “the draft rules will result in shutting down entire fields ‘west of Interstate 25’ for up to 90 days, based on arbitrary limitations ostensibly to protect certain species such as sage grouse, elk and mule deer.” “This is despite the fact that the DOW says that Colorado has too many elk and that last year saw a 10-year record harvest of mule deer,” COGA officials have written. “Industry has worked with community-based efforts in Northwest Colorado for sound alternatives to seasonal drilling restrictions on federal lands.” An analysis of the impact of seasonal drilling shutdowns, according to the trade group, shows that “reducing drilling activity in Northwest Colorado by 20 percent, decreases the gross state product by $206 million, cuts statewide employment by 1,782 jobs and reduces labor earnings by $104 million.” Such a shutdown of activity would mean that “drill rigs and workers will leave the state, and industry capital expenditures will go elsewhere,” according to the industry group.

GLENWOOD SPRINGS, COLORADO — Some rules were tweaked. New ones were included. Others were abandoned.

After almost four months of controversy over new regulations for the state’s oil and gas industry, the Colorado Oil and Gas Conservation Commission released its set of draft rules for the industry on Monday.

Dave Neslin, acting director of the COGCC, described the immediate feedback from the legislature, the agency’s commissioners and others about the proposed rules as “positive.” However, he said he has yet to speak in-depth with energy companies operating in the state.

Despite the heated rhetoric that surrounded the drafting of the new rules for energy development in Colorado, Neslin called it a good process.

“I think it has accomplished what we intended,” Neslin said.

The state is drafting new rules for the state’s oil and gas industry because of legislation passed by the state Legislature, which required that the COGCC expand its focus to consider public health and wildlife impacts, and require the use of best management practices to minimize harm from oil and gas development. The agency’s commissioners, which include Garfield County Commissioner Trési Houpt, will make the final call on what the rules will look like.

The Colorado Oil & Gas Association, which represents about 80 percent of the oil and natural gas production in the state, said the industry was optimistic on Monday that state agencies “heard the industry’s concerns and adequately addressed those concerns in the draft rules.”

“However, after an initial review of the draft rules, COGA maintains many of its long-stated concerns,” the industry group said in a document outlining its initial problems with the draft rules.

EnCana Oil & Gas (USA), one of the biggest natural gas operators in Garfield County, said in a prepared statement that the company “is committed to working through this process and looks forward to the commission’s consideration of each of these proposed regulations.” The company said it trusts those decisions will be based upon “sound science, real data and fact, as opposed to anecdote or unsubstantiated claims and perception.”

“At a time when Colorado is experiencing an 18-month high in unemployment, the economic consequences for promulgating rules on anything but fact could be dire for the State of Colorado,” EnCana’s statement said.

Williams Production RMT, another large natural gas operator in the county, did not have a response to the rules as of late Wednesday.

The controversy

An “initial predraft” proposal of new rules, which were released in November, led several lawmakers to write to Gov. Bill Ritter, warning that they could drive oil and gas companies out of Colorado. The energy industry also blasted the predraft rules, saying they could cause uncertainty to their business operations in the state and cause permitting delays of several months.

But Neslin said the predraft proposal helped the agency “frame the issues and focused the dialogue.”

“We got a lot of good input,” Neslin said. “Some of it was maybe a little more shrill than it needed to be.”

Criticism that the proposed rules were taking a “one-size-fits-all approach,” which was a common refrain from many opponents about the preliminary draft rules, was overblown, Neslin said. Some provisions in the draft rules apply only to specific regions, like the San Juan Basin and the Piceance Basin, he added.

“We do not believe the new rules are one-size-fits-all,” Neslin said. “We do not believe that one-size-fits-all approach would be appropriate for Colorado.”