Week Ending March 8, 2019

Fast Track for Colorado Legislation Has Industry Alarmed, Fearing Impact

This Article Appears as Published in Foster Report No 3239
Fast Track for Colorado Legislation Has Industry Alarmed, Fearing Impact

Oil and natural gas producers in Colorado dodged a bullet when voters rejected a ballot initiative that would have hindered operations, but they’re facing a freight train in legislation moving swiftly through the General Assembly that the industry says would amount to a moratorium on new production and hamstring the state’s economy.

In less than one week, the bill (S.B. 19-181) has been introduced and moved through two Senate committees on party-line votes, with Democrats supporting it and Republicans opposing it. After the Senate Transportation & Energy Committee voted in the early morning hours March 6 in a 4-3 vote, the Finance Committee did the same March 7, sending the legislation to the Appropriations Committee for consideration on March 8.

The Colorado Petroleum Council, a division of the American Petroleum Institute, said the fiscal note on the bill fails to account for significant losses in severance tax and ad valorem tax revenue that support state and local economies. An objective analysis on oil and gas impact in the state shows that a 50% reduction in new production would result in a lower GDP by $4.4 billion and 36,000 fewer jobs in the first five years, the group said.

Others have told lawmakers that if the measure passes as written, producers will leave Colorado. In an appeal to Democrat leaders in the state, Ken Salazar penned an op-ed that appeared in the Denver Post deeming the measure “too extreme,” giving unfettered control to local governments and affecting funding for schools, roads and the state’s economy.

Salazar, a Democrat who served in the U.S. Senate, as Secretary of the Interior under former President Barack Obama and as Colorado’s attorney general, said lawmakers can address health and safety issues involving the oil and gas industry, but should do so in a more reasoned manner. “I urge my friends in the General Assembly who want to govern for the greater good of Colorado to provide more time to achieve the right result through a collaborative, open and constructive process,” he said.

The Finance Committee approved three amendments with some relatively minor wording changes but did not substantially alter the bill or slow down consideration, which was sought by Republicans and industry advocates.

The bill would essentially ban new oil and natural gas production in the state, or bring needed reforms to ensure public safety, depending on who is giving their view of the measure.

Many views were heard at the Senate Transportation & Energy Committee hearing, which extended past midnight March 5 and spanned roughly 12 hours of speakers addressing the bill and possible consequences.

Besides the drastic changes to the way production would be regulated under the bill, the Colorado Oil and Gas Association and industry supporters oppose the way the measure has been crafted by Democrats, with no stakeholder process and little notice before the Senate hearing. Democrats have a majority in the state Senate and House of Representatives, and Colorado Governor Jared Polis has expressed support for the bill.

The legislation, co-sponsored by Senate Majority Leader Steve Fenberg and House Speaker KC Becker, was introduced late in the day March 1, providing one business day before the first committee hearing and vote. At a press conference, supporters emphasized changing regulations to provide more local control over permitting and safety requirements and overhauling the Colorado Oil and Gas Conservation Commission (COGCC) , the primary body in the state that authorizes production.

Even Colorado Rising, a group opposing increased production without revised setback requirements and other safety/environmental measures, commented that the drafting of the bill was done by a select few, with little outreach. “Having a press conference and asking for support on language, still unknown, is bizarre at best,” Anne Lee Foster, spokeswoman for Colorado Rising, said before the bill was introduced.

State lawmakers that support the bill commented that it is still early in the legislative process and changes to the bill can be made, while conceding that the private drafting of the measure was not typical. When the measure was introduced, Tracee Bentley, executive director of the Colorado Petroleum Council, said not having a thorough stakeholder process is unprecedented, especially for such consequential legislation, and sends a bad signal for businesses in Colorado.

In a Twitter post to Bentley and the American Petroleum Institute, Fenberg said “special interests don’t write bills, legislators do. I understand it might be difficult for the industry to no longer be able to write their own laws. But that’s not how things work in Colorado anymore.”

The statements before and after the Senate committee hearing reflect the animosity in Colorado following several developments, including an April 2017 explosion at a home near an abandoned gas well that was leaking, a ballot initiative that was defeated by voters in November 2018 that would have required production wells to be at least 2,500 feet away from schools, homes, and water sources, and a state Supreme Court ruling that upheld the COGCC practice of acknowledging multiple policy goals in making its decisions. The January 2019 court ruling was praised by the industry and added to the bitterness felt by those who believe production should be limited or halted in the state, where the Denver-Julesburg Basin and Front Range areas have significant oil and gas resources.

Similar to the opposing views of the legislation, the political debate reflects differing views associated with production in the state. Production sites that have been in place, expanded or abandoned for many years are seeing residential and commercial development nearby, while advocates for the bill say oil and gas development is encroaching on neighborhoods and schools.

Fenberg and Becker represent areas around Boulder, Colorado, and lawmakers from Weld County, in the DJ Basin, and other areas with production have made arguments against the bill and its impact in the state.

One of the largest producers in the DJ Basin, Anadarko Petroleum Corp. said it is clear that state leaders want to move the bill along quickly, which is at odds with the collaborative and open process Colorado has traditionally taken on regulatory changes. “The bill’s current form leaves too many unanswered questions regarding the revised regulatory framework. For these reasons, we oppose the current proposal,” the company said in a March 5 statement.

More time is needed to debate and amend a bill as complex as S.B. 19-181 to ensure its impacts are fully considered and understood, ambiguity is removed to the greatest degree possible “and unintended consequences are minimized,” Anadarko said.

That last element was mentioned by several speakers at the hearing opposed to the legislation. Producers and industry supporters said companies will exit Colorado if the bill is not amended, as the current version amounts to essentially a moratorium on new production. Producers said they will move operations to shale plays in Texas, New Mexico, North Dakota, Montana, or other states, harming the Colorado economy and royalty benefits that support schools and other public needs.

Among those who spoke in support of the bill was Erin Martinez, a survivor of the 2017 explosion that killed her husband and brother, who told lawmakers that they did not know there was an abandoned well beneath their house. She said she would like to see changes made for enhanced regulation and inspections, so such tragedies do not happen to others.

With passage by the Senate Transportation & Energy Committee, the measure moved to consideration by the Senate Finance Committee, which also passed it by a 4-3 vote.

“It is absolutely unconscionable for Democratic leadership in the state Senate to continue to advance this jobs-killing bill at breakneck speed without sufficient input from every Coloradan who it would affect,” Bentley said in a March 7 statement. “This measure would dramatically and permanently alter Colorado’s energy landscape, putting at immediate risk hundreds of thousands of jobs, billions of dollars of critical state revenue, and hundreds of millions in direct funding for public education,” she said.

The level of analysis and review required for such comprehensive legislation cannot be provided in three-minute testimonials to lawmakers that Democrat leaders in the General Assembly currently deem sufficient, Bentley said. The industry advocates “will continue to sound the alarm at full volume,” she said.

Supporters of the legislation say it will prioritize local control, health and safety, and environmental protection for areas near production sites, requiring producers to be accountable and in good standing to have a social license to operate in the state.

Under current law, city and county governments in Colorado may have authority over oil and gas sites only if the COGCC allows it. The legislation would repeal that limitation and basically reverse the roles, with local authorities gaining authority to make land-use decisions before turning matters to the COGCC. The state commission would not see a permit application until it has been filed and addressed by the local government, and local leaders would have the ability to inspect facilities, impose fines, and collect fees to cover the cost of the enhanced regulation and oversight, according to a legislative summary of the bill.

The bill would amend the Colorado Oil & Gas Conservation Act to change the mission of the COGCC, from fostering resource development consistent with the protection of public health, safety, and welfare, to a priority of protecting public health, safety, welfare, the environment, and wildlife.

If approved in its current form, the measure could enable communities to ban hydraulic fracturing, which was attempted previously but was overturned by the Colorado Supreme Court because they were deemed an attempt to override the authority of the COGCC, observers have said.

The legislation has so many changes that were only recently revealed, the oil and gas industry is still trying to sort out the potential impact, said Bentley and others.

Currently, the COGCC has nine members and must include three members with substantial experience in the oil and gas industry and one member who must have training or experience in environmental or wildlife protection. The bill would reduce the members with oil and gas industry experience to one, while having one member with wildlife protection experience, one with environmental protection experience, one with soil conservation or reclamation experience and one with public health experience. It would require the director of the COGCC to hire up to two deputy directors.

The bill would establish up to six commissions to regulate various aspects of oil and gas production – on air quality, water quality, disposal of any radioactive materials, disposal of any solid or hazardous waste and land use.

It also modifies forced pooling provisions, where mineral interest owners in a joint project can force any minority interest owners into a production agreement. A section of the bill specifies that an operator cannot use the surface owned by a nonconsenting owner without permission of the nonconsenting owner, which could limit production.

Current law sets the royalty rate for nonconsenting owners in forced pooling at 12.5% of the full royalty rate until they’ve been reimbursed for their costs, and the bill would increase that rate to 15%.

Bentley of the Colorado Petroleum Council termed the measure “bad policy and a gross overreach by bill sponsors in every aspect. The bill has the most overreaching provisions the group has ever reviewed “and all but guarantees that industry will be forbidden from operating in certain jurisdictions,” she said in a statement following the Senate committee vote.

In terms of the substance of the legislation, Bentley said there are no time limits for any decision by local governments, meaning they could sit on a request and prevent a producer from ever filing an application with the COGCC. It also calls for a halt to new permitting until every rulemaking contemplated has been completed, with at least six rulemakings draining resources and taking years to complete. “At a minimum, this could result in a multi-year ban on oil and gas development in the state,” she said.

“We are still hopeful that the sponsors of the bill and Governor Polis’ office will slow down this process and listen to as much stakeholder input as is needed,” Bentley said, referring to many speakers who expressed strong concern about the lack of input on the bill.

By Tom Tiernan TTiernan@fosterreport.com

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