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'Costs and consequences': Colo. producers adapting to new permitting law

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'Costs and consequences': Colo. producers adapting to new permitting law

When Colorado Gov. Jared Polis signed Senate Bill 181 into law in April, proponents and opponents alike expected the policy to change how oil and gas producers do business in the state. But in the six months since, regulators have focused largely on ironing out their new jurisdiction, putting producers into a holding pattern.

"If you go too far too fast, there are costs and consequences," Colorado Oil and Gas Association President Dan Haley said. The consequences, so far, have included an ongoing dispute over permitting that could lead to a slowdown in production statewide.

SB 181, according to the Colorado Oil and Gas Conservation Commission, "ensures that oil and gas development and operations in Colorado are regulated in a manner that protects public health, safety, welfare, the environment and wildlife resources." It also gives local municipalities a say in the regulatory process, something they did not have before.

The law changes the mandate of the COGCC, requiring it to protect public and private interests against waste in oil and gas production as well as be responsible for permitting. That has forced the commission to change its rulemaking process and, along with the increased authority given to county and city officials, has led to plenty of confusion for producers.

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Senate Bill 181, being signed here by Gov. Jared Polis, has become a source of frustration for regulators, producers and environmentalists.
Source: AP Photo

'Not quite a moratorium'

Of the nearly 1,900 drilling permits approved by the COGCC year to date in 2019, more than 56% were stamped before SB 181 became law on April 16. At the same time, there has been a noticeable increase in the number of permits being either withdrawn or rejected since April.

As a result of SB 181, the COGCC can hold up or reject permits on any one of 16 different conditions while the new rules are being implemented. The conditions include whether a well site is within 1,500 feet of an occupied building, in a flood plain or within 2,000 feet of a school property line.

While the COGCC has put some permits on hold and rejected others, most are simply in a holding pattern, especially in Weld County, which accounted for 89% of the state's oil production in 2018.

"The state is hugely backlogged with respect to permitting," Weld County Commissioner Barbara Kirkmeyer said. "It's not quite a moratorium; they're just squeaking a few by."

SNL Image

A moratorium is precisely what some environmental groups want. The activist group Colorado Rising has filed a lawsuit in Denver District Court with the intent of halting all permitting until the COGCC has finished completing its new rulemaking process.

"This case is an example of a systematic problem at the agency. Governor Polis has created a quagmire by flipping oil and gas permitting on its head all while declaring that fracking approvals must continue," Colorado Rising spokesperson Anne Lee Foster said. "Unfortunately, everyday people are the ones caught in the political crossfire and are suffering in their homes due to industrial fracking nearby. Pausing the permits is the responsible thing to do."

Colorado Rising has accused the COGCC of allowing permitting to return to pre-SB 181 levels, something COGCC Director Jeff Robbins denies. "I'm trying to do what I believe the legislature told me to do, which is do not put a ban or moratorium on all new oil and gas development and don't give oil and gas development a free ride and a pass from [SB] 181," he told the Denver Post.

Industry trudges on, for now

Environmentalists are not the only ones frustrated with both Polis and the COGCC. The new law allows municipalities and counties to have greater regulatory control, including establishing setback distances for new drilling. Kirkmeyer said Weld County had taken care of its new responsibilities by establishing an Oil and Gas Energy Department, but the changes are moot until the COGCC starts permitting at a normal pace.

"Downhole, that's still the purview of the COGCC and they need to get it in gear," Kirkmeyer said. "We're planning our land use powers and everything we can do to ensure development continues in a responsible manner."

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Slowed permitting could lead to diminished Colorado oil and gas production.
Source: AP Photo

The current situation may have many frustrated, but producers themselves are keeping quiet. S&P Global Market Intelligence reached out to a number of major producers in the DJ Basin for their thoughts on the effects of SB 181 becoming law and were either referred to COGA or received no response at all. One of the largest operators in the region, Anadarko Petroleum Corp., has been acquired by Occidental Petroleum Corp. and its assets in Colorado have been rumored to be a potential sale chip as Occidental looks to repair its balance sheet. Another major player, Noble Energy Inc., seems to be unfazed by the rule changes.

"I would say, start with kind of DJ being the most active program at around 100 wells a year that we had planned this year, and then followed by the Delaware at 50 to 60 wells," Noble Energy Chairman and CEO David Stover said while describing his company's 2020 capital plan in September.

Haley said companies will attempt to function as normal in the state, but the lack of firm rules at the COGCC and the pressure from environmentalists remains a cause for concern for COGA's members.

"As we've said all along, certainty and stability matter, and the only way that happens is if legislators and regulators allow businesses to function," he said. "SB 181 was not meant to be a stimulative bill for our industry, but if communities and agencies proceed with caution and focus on what is reasonable and necessary, then it gives our members a chance to continue responsibly producing the resources we all use and rely on each and every day."

Weld County officials believe producers operating in the county have enough permits approved to last into 2020, but continued slow permitting could slow operations and damage the regional economy in a matter of months.

"If permits don't start getting through, 2020 and 2021 will be bad years for the state's economy," Kirkmeyer said.