Global Traditional Energy Resources

Overview

Colorado has a long history of oil and gas development and is home to several major oil and gas basins, including the Denver & Julesburg, Raton, San Juan and Piceance Basins, and the Niobrara, Pierre and Hillard-Baxter-Mancos shale plays.^[1] In 2016, the United States Geological Survey revised its estimate of undiscovered, technically recoverable shale gas in the Mancos shale play within the Piceance Basin upward to 66.3 trillion cubic feet.^[2] Some industry representatives maintain that even this estimate understates the resource’s potential.^[3]

Legislation passed in 2019 has revised Colorado’s approach to oil and gas regulation to prioritize public health and environmental concerns over other issues, including production. The impacts of this refocusing are as of yet uncertain, though several regulatory initiatives are underway.

Statutory and Regulatory Framework

Oil and gas development is governed primarily by the Colorado Oil and Gas Conservation Act (the “Act”) ^[4] and rules promulgated by the Colorado Oil and Gas Conservation Commission (“COGCC”).^[5] The COGCC is a division of the Colorado Department of Natural Resources (“DNR”), and has broad statutory authority with respect to impacts on any air, water, soil, or biological resources resulting from oil and gas operations.^[6]

The COGCC evaluated hydraulic fracturing risks when it comprehensively updated its regulations in 2008,^[7] adopted a chemical disclosure rule in 2012,^[8] and adopted statewide water sampling and monitoring rules in 2013.^[9] Colorado’s rules also include well casing and cementing requirements,^[10] “buffer zones” near surface waters and tributaries that are sources of public drinking water,^[11] and other setback requirements.^[12]

The DNR Division of Water Resources (“DWR”) oversees the administration of surface and groundwater, including water produced by and used in oil and gas activities.^[13] However, a Memorandum of Agreement (“MOA”) between the COGCC and the Water Quality Control Division (“WQCD”) of the Colorado Department of Public Health and Environment (“CDPHE”) transfers reporting and initial oversight responsibilities for spills and releases from oil and gas operations to the COGCC, including responding to spills associated with hydraulic fracturing.^[14]

• In February 2014, the CDPHE’s Air Quality Control Commission adopted new air regulations implementing the federal Standards of Performance for Crude Oil and Natural Gas Production (40 C.F.R. pt. 60, subpt. OOOO) and regulating methane emissions from oil and gas operations, including fracking wells.^[15] These rules require an average hydrocarbon control efficiency of 95% at oil and gas production facilities;^[16] require green completions at all newly constructed, hydraulically fractured, or recompleted wells;^[17] require emissions reductions from centrifugal compressors;^[18] require VOC emissions control requirements at storage tanks utilized during production;^[19] and address fugitive emissions from components at natural gas compressor stations and well production facilities through various leak detection and repair requirements.^[20] Four statewide anti-fracking initiatives were originally going to be on Colorado’s November 2014 ballot, but Governor John Hickenlooper reached an agreement with supporters of the initiatives to keep the initiatives off the ballot.^[21] As part of that negotiation, Governor Hickenlooper agreed to establish a Task Force on State and Local Regulation of Oil and Gas Operations (“Task Force”).^[22] In its Final Report, dated February 27, 2015, the Task Force presented nine recommendations, primarily focused on increasing the authority of local governments with regards to oil and gas operations, increasing oversight from both COGCC and CDPHE, and facilitating greater information flow both to and from the agencies.^[23]

In January 2016, the COGCC approved new rules addressing some of the Task Force’s recommendations.^[24] Among other things, the rules call for increased involvement of local governments in processes for planning and siting oil and gas operations.^[25] 

Subsequently, in 2019, the Colorado legislature passed, and Governor Jared Polis signed into law, Senate Bill 19-181 (“S.B. 19-181”), a sweeping piece of legislation that, among other things, (i) re-envisions the Colorado Oil and Gas Conservation Act to focus primarily on the protection of public health and the environment, (ii) fundamentally redefines the role and composition of the COGCC, and (iii) elevates the power and level of input that local communities have with respect to oil and gas development activities. The introduction of S.B. 19-181 followed Colorado voters’ rejection of Initiative 97/Proposition 112 at the polls in November 2018, as well as the Colorado Supreme Court’s recent decision in COGCC v. Martinez. Indeed, certain of the COGCC reforms included in S.B. 19-181 were the subject of activist groups’ petitions to newly elected Governor Polis in the wake of Initiative 97’s failure. The bill was also an unambiguous legislative response to the Colorado Supreme Court’s decision in Martinez, which interpreted the COGCC’s mandate at the time to require balancing between oil and gas production and other policy goals.

In addition to reorienting the COGCC to focus on public health and the environment, S.B. 19-181 also revisits the structure of the COGCC. Among other things, the COGCC must now have at least one member each with formal training or substantial expertise/experience in the oil and gas industry, planning or land use, and environmental protection, wildlife protection, or reclamation. S.B. 19-181 also substantially expands the authority of local governments with regards to oil and gas development activities. Several communities have taken advantage of this development to establish setbacks or other regulations on oil and gas production.^[26] Additionally, several communities had previously passed restrictions that may be substantially more difficult to challenge under the S.B. 19-181 overhaul; for example:

• Erie, CO – updated public health and safety code to make it “unlawful and a public nuisance for any person, tenant, occupant or property owner to permit the emission of odor from any source to result in detectable odors that leave the premises and are detected by a reasonably prudent person with a normal sense of smell.”^[27] The measure is seen as Erie’s first step toward regulating the oil and gas industry,^[28] and the town is evaluating amendments to the town’s Unified Development Code to take advantage of S.B. 19-181.^[29]
• Thornton, CO – passed a suite of 15 rules aimed at comprehensively regulating the oil and gas industry. The rules required, among other things, 750-foot setbacks from existing or proposed buildings, increased operator insurance requirements, and the removal of flow lines following operations.^[30] In April 2018, many of the rules were overturned by a Colorado district court in a lawsuit brought by the industry.^[31] Following the lawsuit, rules requiring companies to consolidate wells and minimize disturbances to the surface remain in effect.^[32]
• Broomfield, CO – passed Issue 301, an amendment to Broomfield’s Home Rule Charter, which requires Broomfield to “condition oil and gas development permits to require oil and gas development to only occur in a manner that does not adversely impact the health, safety and welfare of Broomfield’s residents in their workplaces, their homes, their schools[,] and public parks in order to protect the public’s health, safety, and welfare and to safeguard the environment and wildlife resources.”^[33]
• Lafayette, CO – approved a six-month moratorium on drilling activity,^[34] which has been repeatedly extended, now through Nov. 30, 2020.^[35]
• Longmont, CO – reached a $3 million agreement with TOP Operating and Cub Creek Energy that would allow the companies to develop oil and gas resources underneath Union Reservoir, but would prevent them from doing so via drilling activities on the surfaces of properties within city limits, or on city-owned properties.^[36]
• Boulder, CO – voted in favor of a two-year extension to its fracking moratorium, which was set to expire in June 2018.^[37] Unlike the Longmont and Fort Collins measures described above, the Boulder measure has yet to prompt any legal challenge, presumably due to lack of operator interest in drilling activity in the area.^[38] Meanwhile, Boulder County’s fracking moratorium lapsed in 2017.^[39] The Boulder County moratorium was replaced with what county officials called the “most restrictive” county oil and gas regulations in Colorado.^[40]

S.B. 19-181 states explicitly that local governments may regulate the land use and siting of oil and gas facilities in a manner “more protective or stricter” than the state-level requirements. The bill also provides a mechanism allowing local governments and operators to seek review of the local government’s location and siting decisions by a technical review board appointed by the COGCC director to assess any “issues in dispute.” These issues include whether (i) the local government’s siting determination “could affect oil and gas resource recovery,” (ii) the local government’s determination is “impracticable” or would require technologies that are “not available,” and (iii) the operator is proposing to use “best management practices.”  Determinations by the technical review board must not address the economic effects of local governments’ preliminary or final siting determinations. Eventually, local governments’ regulation of oil and gas surface impacts is likely to result in challenges by the industry, as S.B. 19-181 limits such regulation to that accomplished “in a reasonable manner,” a phrase begging for judicial interpretation by Colorado courts.

In addition to the above, S.B. 19-181 sets into motion a series of complex regulatory procedures and changes. In many ways, the lasting impact of S.B. 19-181 remains unknown pending the outcome of these regulatory actions. For example, S.B. 19-181 directs the COGCC to: minimize certain emissions, review existing rules for production facilities and compressor stations, adopt an alternative location analysis process, specify criteria used to identify oil and gas locations “to be located near populated areas,” etc.

Most importantly, S.B. 19-181 changes the playing field for these and other future regulatory proceedings in Colorado. For example, the bill repeals the requirement that the COGCC take into consideration cost-effectiveness and technical feasibility with regard to actions taken to minimize adverse impacts to wildlife resources. More broadly, it remains to be seen how the newly recomposed COGCC will implement its revised mandate, which now will no longer include the directive to “foster” the development of oil and gas resources in Colorado. The final impacts of S.B. 19-181 remain to be seen.

Recent Developments

Initiatives to Suspend or Ban Hydraulic Fracturing

In recent years, a number of Colorado communities have taken actions aimed at banning or limiting hydraulic fracturing activity within their jurisdictions. Several local initiatives were deemed to be preempted by state law,^[41] but this was prior to the passing of S.B. 19-181. Courts have not decided whether S.B. 19-181 allows local jurisdictions to prohibit fracking.

Denver – Clean Air Act “Serious” Non-Attainment

On December 16, 2019, the United States Environmental Protection Agency (“EPA”) designated the Denver Metro/North Front Range region of Colorado as being in “serious” violation of the 2008 National Ambient Air Quality Standard (“NAAQS”) for ozone.^[42] Reclassifying the region as being in serious nonattainment will require additional restrictions, including applying a lower threshold for permitting large sources of the pollutant and revisions to Colorado’s State Implementation Plan (“SIP”).^[43] Revisions to the SIP may impose greater restrictions on oil and gas production.

S.B. 19-181 Rulemakings

S.B. 19-181 initiated a series of complex regulatory processes that would overhaul significant portions of the regulatory scheme applicable to the oil and gas industry. Several of these rulemakings are still ongoing, but several major revisions have been finalized by both COGCC and CDPHE.

On December 19, 2019, the Colorado Air Quality Control Commission (“CAQCC”)—a division of the CDPHE—approved rules to require more extensive emissions monitoring for oil and gas production facilities in the state.^[44] On September 23, 2020, CAQCC adopted further regulations, becoming the first state to require emissions monitoring during pre-production, i.e. from drilling through flowback.^[45] The rules also require oil and gas facilities to report on carbon dioxide and nitrous oxide emissions, in addition to achieving certain emissions reductions for volatile organic compounds.^[46] Additional rulemakings are likely out of the CDPHE, as the agency works to fulfill the demands of S.B. 19-181.

Similarly, the COGCC has been working on rules to align with its reoriented focus. On September 28, 2020, COGCC, in a preliminary final vote, voted to approve 2,000-foot setback rules for drilling and fracking operations statewide, effective January 1, 2021, a significant expansion from the previous 500-foot requirement.^[47] Some individuals and groups have called the rule a “de facto ban”; however, other groups pointed out that the regulation provides for a variance process to reduce setback limits to as little as 500 feet in certain situations.^[48] Although the rule received a preliminary final vote, the official adoption of the rule will not take place until COGCC’s meeting on November 6, 2020. Challenges to the rule are possible from both sides, likely focused on either the variance process or a regulatory takings claim.

Ballot Initiative Block

After the repeated battles over the oil and gas industry at the ballot box, government officials have stepped in to provide some calm while S.B. 19-181 is implemented. Governor Polis announced that he would be working to oppose ballot measures related to oil and gas extraction through 2022, in an effort to allow S.B. 19-181 to take effect before any further referenda are held.^[49] Certain local jurisdictions, such as Boulder County, have likewise worked to prevent such ballot measures, at least in 2020.^[50]

Last updated October 2020.

^[1] See Geography: Maps: Oil and Gas Related Exploration, Resources, and Production: Shale Gas and Oil Play, Lower 48 States, U.S. Energy Info. Admin. [“USEIA”] (June 30, 2016), https://www.eia.gov/maps/images/shale_gas_lower48.pdf.

^[2] Dennis Webb, An Even Bigger Beast? Industry Thinks Huge USGS Mancos Shale Estimate May Be Low, Daily Sentinel (June 25, 2016).

^[3] Id.

^[4] Colo. Rev. Stat. § 34-60-100, et seq.

^[5] See http://cogcc.state.co.us/reg.html#/rules [hereinafter “COGCC Rules”].

^[6] Colo. Rev. Stat. § 34-60-106(2)(d).

^[7] Bob Randall, Colorado Department of Natural Resources, Colorado Oil and Gas Conservation Commission Rules and Regulations, Presentation at BLM Colorado Resource Advisory Council Meeting (Mar. 7, 2012).

^[8] COGCC Rule 205A, supra note 5.

^[9] Id. COGCC Rule 609.

^[10] Id. COGCC Rule 317.

^[11] Id. COGCC Rule 317B.

^[12] See, e.g., id. COGCC Rules 318, 318A, 603, 604, 605.

^[13] See generally Colo. Div. of Water Res., http://water.state.co.us/Home/Pages/default.aspx (last visited Sept. 23, 2016).

^[14] Memorandum of Agreement for the Implementation of SB181 Amendments to the Colorado Water Quality Control Act (25-8-101, et seq.) (Aug. 28, 1990), https://www.colorado.gov/pacific/sites/default/files/moaogcc.pdf.

^[15] 5 Colo. Code Regs. § 1001-8 to 1001-9available at https://www.sos.state.co.us/CCR/NumericalCCRDocList.do?deptID=16&agencyID=7.

^[16] Id.

^[17] Id. § 1001-8.XIX, see supra note 15.

^[18] Id. § 1001-8.XVII.

^[19] Id. § 1001-8.XIX.

^[20] See generally id.; 40 C.F.R. §§ 60.5360–.5499.

^[21] Maeve Reston, Deal will keep fracking battle off Colorado ballot, L.A. Times (Aug. 4, 2014), http://www.latimes.com/nation/politics/politicsnow/la-pn-colorado-deal-fracking-ballot-20140804-story.html.

^[22] Colorado Department of Natural Resources: Oil and Gas Task Force.

^[23] Colorado Oil and Gas Task Force, Final Report (Feb. 27, 2015).

^[24] Cathy Proctor, Colorado oil and gas sites near neighborhoods to get more local scrutiny, Denv. Bus. J. (Jan. 25, 2016), http://www.bizjournals.com/denver/blog/earth_to_power/2016/01/colorado-gives-local-officials-a-say-on-big-new.html.

^[25] See COGCC Rule 305A, supra note 5.

^[26] See, e.g., Town of Superior, Ordinance No. O- Series 2020 (April 13, 2020), available at https://townofsuperior.granicus.com/MetaViewer.php?view_id=4&event_id=1424&meta_id=66440.

^[27] Anthony Hahn, Erie approves ‘odor’ ordinance, a win for advocates of local oil and gas regulation, Boulder Daily Camera (July 25, 2017), http://www.dailycamera.com/erie-news/ci_31168995/erie-approves-odor-ordinance-fete-advocates-local-oil.

^[28] Id.

^[29] Unified Development Code – Oil and Gas, Erie Colorado, available at https://www.erieco.gov/DocumentCenter/View/13854/11102020-Oil-and-Gas-Regulations?bidId=.

^[30] Scott Taylor, Thornton pipeline rules overturned, Northglenn Thornton Sentinel (April 30, 2018), http://northglenn-thorntonsentinel.com/stories/thornton-pipeline-rules-overturned,261544?.

^[31] Id.

^[32] Id.

^[33] Jennifer Rios, Broomfield Issue 301 passes as voters seek more oil and gas oversight, Broomfield News (Nov. 7, 2017), http://www.broomfieldenterprise.com/broomfield-news/ci_31437164/broomfield-issue-301-passing-voters-seek-more-oil.

^[34] Anthony Hahn, Lafayette approves 6-month fracking moratorium on eve of election, Boulder Daily Camera (Nov. 6, 2017), http://www.dailycamera.com/lafayette-news/ci_31433472/lafayette-oil-gas-moratorium.

^[35] Kristina Pritchett, Lafayette Council extends oil and gas moratorium to Nov. 30, Colorado Hometown Weekly (May 11, 2020), available at https://www.coloradohometownweekly.com/2020/05/11/lafayette-council-extends-oil-and-gas-moratorium-to-nov-30/.

^[36] John Fryar, Longmont approves $3 million deal to end oil and gas surface drilling in city, Denver Post (May 23, 2018), https://www.denverpost.com/2018/05/23/longmont-oil-and-gas-drilling-vote/.

^[37] Shay Castle, Boulder City Council extends fracking moratorium by 2 years via emergency vote, Boulder Daily Camera (May 15, 2018), http://www.dailycamera.com/news/boulder/ci_31880916/boulder-city-council-extends-fracking-ban.

^[38] Id.

^[39] Jackie Fortier, Boulder County’s New Fracking Rules: 3 Things To Know, KUNC (Mar. 27, 2017), http://www.kunc.org/post/boulder-county-s-new-fracking-rules-3-things-know#stream/0.

^[40] Id.

^[41] City of Fort Collins v. Colo. Oil & Gas Ass’n, 369 P.3d 586 (Colo. 2016); City of Longmont v. Colo. Oil & Gas Ass’n, 369 P.3d 573 (Colo. 2016).

^[42] Press Release, EPA, EPA reclassifies Denver area to “Serious” nonattainment for ozone (Dec. 16, 2019), available at https://www.epa.gov/newsreleases/epa-reclassifies-denver-area-serious-nonattainment-ozone.

^[43] Id.

^[44] See, e.g., John Herrick, Colorado begins new phase of reining in emissions from oil and gas, Colorado Independent (Dec. 19, 2019), available at https://www.coloradoindependent.com/2019/12/19/aqcc-leak-inspection-repair-methane-voc/.

^[45] Tripp Baltz, Colorado OKs Oil and Gas Monitoring Rules That All Sides Like, Bloomberg Law (Sep. 23, 2020, 12:26 PM), available at https://news.bloomberglaw.com/environment-and-energy/colorado-oks-oil-and-gas-monitoring-rules-that-all-sides-like.

^[46] Id.

^[47] Dennis Huspeni, Colorado oil and gas commission OKs 2,000-foot setbacks for drilling and fracking, Gazette (Colorado Springs), https://gazette.com/colorado_politics/colorado-oil-and-gas-commission-oks-2-000-foot-setbacks-for-drilling-and-fracking/article_7c74012a-3c10-5918-94c6-792675efb2c2.html.

^[48] Id.

^[49] Jared Polis, Give pivotal new oil & gas law a chance to work, Colorado Politics (Sep. 17, 2020), available at https://www.coloradopolitics.com/opinion/give-pivotal-new-oil-gas-law-a-chance-to-work/article_8eb26b64-cd67-11ea-9565-d790872378e8.html.

^[50] Nell Salzman, Oil and Gas Initiatives Pulled from 2020 Ballots in Colorado, Westword (Jul. 28, 2020, 6:55 AM), available at https://www.westword.com/news/colorado-oil-and-gas-initiatives-2020-ballots-fracking-11759615.