Producers lament new oil, gas rules

DENVER – A new set of rules to govern the oil and gas industry in Colorado has industry officials and some Republican lawmakers fuming and environmentalists and Gov. Bill Ritter’s office feeling satisfied that a fair compromise has been reached.

The new rules, adopted by the Colorado Oil and Gas Conservation Commission on Dec. 10, are the result of months of negotiation between the commission and interested parties, especially the Colorado Oil and Gas Association, which represents the oil and gas industry in the state.

Despite months of talks with the commission over some of the more controversial rules, John Swartout, an industry group spokesman, said the end result was “disappointing” and would create “the most expensive, time-consuming and burdensome regulatory environment in the nation.”

The regulations “officially make Colorado the most challenging state in the nation for the natural gas and oil industry to conduct business,” Swartout said in a statement released immediately following the official adoption of the new rules.

But Harris Sherman, director of the Colorado Department of Natural Resources and chair of the oil and gas commission, said he sees the results differently.

“Thanks to all of this public, industry and stakeholder input, we have crafted a modern framework that will allow one of our most important industries to thrive while protecting the things that make Colorado such a great place to live and work,” Sherman said.

Reining in industry

The new rules were sought by the Ritter administration and state environmental groups to rein in the oil and gas industry, which has enjoyed record profits from a drilling boom in the state over the last five years. Annual applications for drilling permits have tripled since 2003 and were on pace to quadruple by the end of 2008.

A recent Colorado School of Mines study showed the oil and gas industry contributes an estimated $23 billion annually to the state’s economy.

But industry officials warn that Colorado’s new rules could make seeking a permit so onerous that oil and gas companies will look elsewhere to drill.

“Permits aren’t always the best indicator in the oil industry,´ said Swartout, COGA’s senior vice president for policy and government affairs. “I think rig count is more important, and I think we could lose 40 percent of our rigs next year and that relates to jobs.”

Even before the rules were adopted, energy companies in the state were cutting operating budgets, mostly because of dropping oil and gas prices in recent months. One projection for the Piceance Basin in western Colorado called for the number of drilling rigs to drop by up to 60 percent in the first quarter of 2009.

Conservationists doubtful

The new rules will make that situation even worse, Swartout said. But Elise Jones, executive director of the Colorado Environmental Coalition, said she rejects that assertion.

“I do take issue with that sort of sky-is-falling claim,” she said. “We all know that the cost of natural gas and oil is set far beyond Colorado and that’s not something the rules had anything to do with. As prices change, drilling activity will be affected regardless.”

Jones said environmental groups are generally pleased with the new rules. “We didn’t get everything we wanted to be sure, but we thought the process was fair and the new rules are a good step forward,” she said.

Compromises were made during the 18-month rulemaking process, including reducing the buffer zone around streams and rivers within five miles of an intake for a public water supply system from 500 feet to 300 feet.

The oil and gas commission also dropped a proposal that would have restricted drilling for up to 90 days in the winter to protect wildlife.      

Swartout said one of the most objectionable of the new rules is one he says allows the Colorado Department of Wildlife, Colorado Department of Public Health and Environment and surface landowners the right to appeal any new drilling permit.

“Obviously, the industry should be regulated but what you need from that regulatory structure is certainty that at the end of the application process you get a permit,” he said. “Now, at the end of that process, a host of parties can appeal.”

Republican revamp?

Some Republican legislators have vowed to try to revamp the rules in the next session of the Legislature that convenes Jan. 5. Western Slope Sen. Josh Penry, R-Grand Junction, called the new rules “a mess” and said he would help lead a fight to change some of them.

However, given the Democratic majority in the Legislature, Swartout acknowledged it will require a bipartisan effort to get that accomplished. “In all honesty, the only way certainty can be added to these rules is to work in a bipartisan way,” he said. “What the Legislature really has to decide is did this process go beyond the intent of the legislation or did it meet that intent.”

Swartout said the main thing he’d like to see is the creation of an appeals process that is clearer and less burdensome to drilling applicants.

“There’s a way for us all to get certainty in these rules and satisfy the governor and get the rebalancing they were looking for,” he said.

Meanwhile, Jones said she rejects the notion that the new rules are a threat to Colorado’s economic well-being unless they are modified in the Legislature.

“It’s just not based in fact that these rules will change the cost of the production so as to lead to the collapse of the oil and gas industry – that’s just ridiculous,” she said.

“Most of the state’s economy is based on clean air and clean water and quality of life,” Jones said. “That’s really the part of the economy that needs to be protected as well. So it’s a balancing act.”

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