Jim Cole and Garin Vorthmann
Colorado Legislative Services (CLS)
Like many years past, there was a great deal of legislative attention paid to oil and gas development. Given the number of bills introduced, having a split House and Senate ensured that legislation which emerges successfully only happens when both sides of the aisle have properly vetted the issues and have reached compromise and agreement.
The Colorado Oil & Gas Association (COGA) participated in and led several bills of note this legislative session.
The most visible of these was the compromise on statutory pooling (SB18-230). Residential growth in the Denver-Julesburg Basin coupled with increases in oil & gas production create an atmosphere of increased scrutiny on the industry. Pooling the natural resource is a common practice, but to many who are unfamiliar with the concept, the process was intimidating and confusing. Concerned citizens advocated for legislation that would eliminate pooling all together or allow certain school districts and some minerals located under county open space to be exempted from pooling orders.
Industry leaders recognized the need to update pooling statues and were committed to talking about greater transparency, timing of notice, pooled interest owner liability and the statutory royalty rate and risk penalty. The negotiations were difficult but the various stakeholders were able to forge a compromise on a bill which increased the mineral owner notice from 35 to 60 days, directed the COGCC to prepare a plain language brochure covering the rights and responsibilities of all parties to include with every notice letter, and clarified that pooled mineral owners would have no liability for decisions made by the operator.
Governor Hickenlooper signed SB18-230 into law on May 30th.
Another bill, HB18-1215, governing how Technically Enhanced, Naturally Occurring Radioactive Material (TENORM) was to be regulated, became a fierce debate directed at oil and natural gas operations and other generators of these materials, like water and wastewater facilities.
The regulation of TENORM has been limited because the state statute prohibited the Colorado Department of Public Health & Environment (CDPHE) from regulating it until the EPA did. This has from time to time put various industries in a difficult position when determining acceptable treatment or disposal options. In order to deal with this conundrum, CDPHE developed guidance documents that were used to qualify disposal options such as landfilling or land application based on measuring loads of waste for their relative hotness. It is important to note that TENORM is considered to have very low levels on the radioactive spectrum. Another key fact to consider is that Colorado naturally has higher background radiation levels than the rest of the nation. TENORM waste, with few exceptions, is easily and safely handled.
HB18-1215 as introduced was very prescriptive and would have statutorily defined oil and gas drill cuttings as radioactive waste. This would be a drastic change in law and created significant operational concerns for the oil & natural gas industry.
In this volatile and skeptical political environment, COGA recognized that without a rational regulatory regime, calls for a robust state regulatory program would only intensify. The bill sponsor called for a stakeholder meeting with landfill operators, water providers and oil & natural gas representatives to discuss potential areas of compromise. In order to have appropriate evidence and data, industry experts began measuring and sampling oil field waste and quickly confirmed that material was at or below levels that would require increased regulatory oversight. Leaders in the Senate agreed and helped push the conversation forward.
Experts in the wastewater community believed that the proper authority for new regulation should be at the administrative level, rather than through the legislature. COGA presented this concept to other stakeholders and a deal began to take shape. There would be a temporary agreement to maintain the current guidance policy until rulemaking could be done to govern options for the disposal of various forms of waste. COGA played a crucial role in bringing the appropriate experts to the table and guiding the discussion to an acceptable agreement.
The two bills described above are just a snapshot of the issues the oil & gas industry faced this session. Other important issues included:
SB18-167 – Updating and modernizing the 811 system to locate underground facilities system. This bill updated the “Call Before You Dig” program by narrowing exemptions for agriculture and water interests and creating the Colorado Underground Damage Prevention Safety Commission. This new commission will advise stakeholders on best practices and safety-enhancement policies, and review complaints alleging violations of the state's excavation laws. This was another bill where diverse interests such as construction, government, farming, water and industry came together to forge compromise with the goal of enhancing public safety.
HB18-1400 - Increasing fees on air permits was another important compromise. Industrial interests need permits in a timely fashion, so oil & natural gas leaders worked with other industrial stakeholders and CDPHE on an effort to make billing more transparent and find increased efficiencies through a workgroup process to examine the data and detail necessary to comply. The oil & natural gas industry will benefit through quicker processing of permits. Ultimately, this bill passed with wide bipartisan margins in both houses.
Days of Future Past
With respect to the title of the Moody Blues 1967 album, there were many pieces of legislation introduced this session that reflected past themes and project future legislation that will likely be introduced again.
HB18-1352 — School Setbacks. The issue of setbacks from schools was introduced in the House but met with an anticipated end in the Senate. This year’s proposal ignored the recent COGCC rulemaking and stipulated that the setbacks from schools had to be measured from the property boundary instead of the school building.
HB18-1071-- Regulate Oil Gas Operations to Protect Public Safety. This legislation wanted to codify in state law a State Appeals Court decision that states that public health and safety must be completely protected before oil & natural gas development can occur. The bill would have removed the balance test between development and safety. Passage of this bill would have prevented mineral development and resulted in increased costs for home heat and electricity. The bill died in the Senate.
The environmental community is always looking to mandate data collection and summarize it so they may use it to enhance their song against development. HB18-1157 - Increased Reporting Oil and Gas Incidents – was another verse in this song. The expressed intent was to consolidate reporting of oil & natural gas incidents. The actual result was the bill duplicated many of the current reporting requirements and, in some cases, contradicted or weakened existing requirements. The data would have no context and thus could become ripe for distorted reporting. This bill also met its demise in the Senate.
This blog will end with a bill that was not introduced, but discussion about its introduction was had throughout the session. The issue was orphaned wells. The COGCC had identified 250+ wells that were abandoned and need plugging and/or reclamation. One proposed solution was for the industry to create a program where funds were raised by the industry to pay for plugging these wells. This proposal was met with skepticism from multiple interests and ultimately it was not pursued. A different proposal, supported by COGA, was promoted by the Legislative Joint Budget Committee to add $5 million of spending authority to the Environment Response Fund (ERF) to begin COGCC action on taking control of the issue. With the increasing price of oil it was proposed that additional ERF taxes would be collected without a tax increase and that if there was a need for additional revenue the agency could set the adjust the mil levy rate to match the spending authority. This passed as an amendment to the Long Budget Bill and should be a good start on addressing the issue. It is also a good example that problems can many times be resolved without a separate bill if the right people and knowledge come together.