At a public forum last week, the oil and gas industry in Colorado complained to the state’s Governor, lambasting a new law that the industry says creates uncertainty. But the new law creates opportunities for the industry in some areas even as it throws up new hurdles.
“There is a lot of talk out there of people wanting to ban fossil fuels. It makes our folks nervous,” Dan Haley, CEO of Colorado Oil and Gas Association, said Colorado Governor Jared Polis at an industry event last week, according to S&P Global Platts.
The industry feels that it is on the defensive after the passage Senate Bill 181, which was signed into law earlier this year. The law gives new and strengthened authority to counties and cities to regulate oil and gas drilling. It also elevates public health, safety and the environment as top priorities for state regulators, a change of mission that up until now has been more focused on promoting industry development.
State regulators at the Colorado Oil and Gas Conservation Commission are in the midst of rewriting regulations in the wake of the new law. So too are counties and cities.
On the one hand, the new law creates a ton of new problems for drillers. Some Colorado cities have tried to ban fracking the past, only to be overruled by the Colorado Supreme Court. The city of Longmont, for instance, banned fracking in 2012, but the court struck it down. Longmont is hoping to reinstate that ban under the new law. To date, nine cities have passed drilling moratoria or some other form of limits on drilling, according to S&P.
“A few of those, Boulder, Broomfield, Adams County, are trying to figure out how they are going to wield this new authority that they have,” COGA’s Haley said to the Governor. “And we very much are concerned what that might look like. I'm afraid some these areas may not allow for oil and gas development.” Related: A Dramatic U-Turn In Mexican Oil & Gas
The beefed up regulatory powers come less than a year after the industry spent upwards of $50 million to defeat a ballot measure that would have created a 2,500-foot setback requiring for drilling projects, a move that companies say would have nearly killed off drilling entirely. But the industry’s victory in that public vote in 2018 was a pyrrhic one; even as voters shot down the ballot measure they also handed Democrats a stronger hand in the legislature and elected a Democratic governor that is less friendly to the industry than his predecessor. In the wake of that election, Democrats moved quickly to pass SB181 this year.
Nevertheless, it isn’t all bad news for the industry. Most of the state’s oil and gas production is located in Weld County, north of Denver, where county officials are uniformly allies of the industry. Roughly 88 percent of Colorado’s oil production comes from Weld County, as does 36 percent of its gas output. Counties that are more skeptical of an industry presence, such as Boulder, are much smaller in terms of production.
Moreover, Weld County officials are making the best of the situation, arguing that SB181 grants them the final say on industry activity. “Basically what S.B. 181 said is the state no longer has land use authority,” Weld County Commissioner Barbara Kirkmeyer told the AP in an interview. Drilling in Weld County can proceed out of reach from meddlesome state lawmakers and regulators, according to this logic.
Needless to say, not everyone agrees on this interpretation. As the AP reported, Democratic Senate Majority Leader Stephen Fenberg says that counties can set more stringent rules than the state, but not more lenient ones.
For his part, Governor Polis argues that SB181 does not increase uncertainty, but reduces it. The law puts an end to years of battles that pit local authorities against the industry, municipal law against state law, and high-stakes ballot measures at every election cycle. Now the rules will be clear, the Governor says. He was careful to dance around the fact that the legal fights are far from over.
“I think there is no question there's less uncertainty than there was in prior years,” Polis said, according to S&P Global Platts. “We think by empowering locally elected officials to solve problems - it doesn't mean every issue around oil and gas will be solved - what it means is instead of people venting their frustrations through risky statewide initiatives ... people will have those appropriate conversations on the local level. You now have less people looking for a one-size-fits-all solution.”
For now, the new law does not appear to be slowing down the state’s shale industry. Colorado’s oil production rose in June by 19,000 bpd from a month earlier.
By Nick Cunningham of Oilprice.com
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