Colorado regulatory agency approves new rules to prevent leaks at new well sites

As the Colorado oil and gas industry grapples with regulators seemingly intent on pushing back drilling setbacks fourfold, the state's air quality commission adopted rules to strengthen monitoring of methane leaks during the completion process as well as the first six months after a new well comes online.

Colorado's Air Quality Control Commission unanimously adopted preliminary new rules to reduce leaks from oil and gas operations across the state during a meeting Sept. 23. Once in effect, the rules will require high-frequency monitoring for gas leaks starting when construction on a well begins and continuing through early production. The rules also prohibit natural gas venting during the early period of well completion. Operators will have to capture and eliminate 95% of air pollutants released when hydraulically fracturing wells, and then monitor well-site emissions continuously for six months.

The new rules are slated to go into effect in May 2021.

The AQCC rejected some of the more contentious proposals for the new rules, including one that would require the oil and gas industry to electrify all engines used in the extraction process. The approved rules received positive feedback from the industry and environmental protection groups.

"By statute, the AQCC is required to evaluate technical and economic feasibility, both incredibly important considerations that should be thoroughly evaluated when making any regulatory decision," said Lynn Granger, executive director of American Petroleum Institute-Colorado, in a statement. "The rules adopted this evening reflect those realities."

"Today, the AQCC continued that leadership by extending monitoring requirements to the pre-production phase and by prohibiting natural gas venting during completions when drilling activities can result in significant emissions of methane and other dangerous pollutants," said Jon Goldstein, director of regulatory and legislative affairs for the Environmental Defense Fund, in a statement. "These new rules mark continued progress in reducing the climate and health impacts of oil and gas operations in the state."

The new rules come at a time when drilling activity in the Denver-Julesburg Basin, the most active and prolific play in Colorado, has screeched to a near stop following the crude price collapse and onset of the coronavirus pandemic in March.

Active rigs in the DJ fell to as low as three in June and July. The basin has averaged five active rigs over the past three months, according to S&P Global Platts Analytics. In contrast, the rig count averaged 25 over the first three months of 2020.

DJ Basin oil production fell to 417,000 b/d in June. It has since recovered to 574,000 b/d since, according to Platts Analytics. However, if the active rig count remains, it is projected to fall below 400,000 b/d by spring 2021. Associated gas production in the basin has not dropped as precipitously as crude. It has averaged 2.3 Bcf/d over the last three months, a drop of 200 MMcf/d over the first five months of the year. However, it is projected to fall below 2 Bcf/d by April 2021.