Colorado continues to struggle to find a compromise strong enough to prevent the unraveling of an uneasy truce on oil and gas drilling in populated areas.
After 14 months of work, talks effectively stalled during Colorado Oil and Gas Conservation Commission rule-making hearings last week, with oil and gas companies, local governments and other stakeholders lined up on opposite sides of a bitter divide.
The unresolved issues include how to define which drilling projects will fall under the scrutiny of the new rules, whether state regulators have the power to limit the length of time drilling occurs, and whether the regulations as proposed are meaningful or necessary.
“I will admit we didn’t get as far as we hoped we might,” said Matt Lepore, director of the COGCC, which held two days of hearings on Nov. 16 and 17. “People are still fighting for what they want.”
On an issue that is fundamentally about giving more parties a voice, the COGCC, for now, has become the conversation commission.
“The commissioners want to make sure everybody has an opportunity to be heard,” Lepore said. “They are taking the time to do that.”
Two days of hearings, each with eight hours of testimony, weren’t enough. A third hearing is set for Dec. 7, with a fourth day expected, possibly this year but most likely next. If the COGCC had hopes of getting a set of final rules out before the legislative session starts on Jan. 13, that isn’t going to happen.
And there is a question on whether it can close the wide divide that still exists.
The local control rules follow recommendations coming out of a blue-ribbon task force Gov. John Hickenlooper convened in September 2014, in return for pulling citizen initiatives from the fall ballot that sought to place drilling restrictions in the state constitution
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The group, which met for six months, consisted of seven representatives from the industry, seven from local government and citizens, and seven “respected” Colorado citizens.
More than 100 ideas were thrown out for consideration, resulting in nine recommendations the group passed by the required two-thirds vote. Of those nine, seven required specific legislation, and two, known as recommendations 17 and 20, were sent to the COGCC for a rule-making.
No. 17 defines what facilities fall under the new rules, requires operators to notify and consult with local governments before receiving a state permit and provides extra protections to reduce the impact of drilling on nearby communities.
The other recommendation requires operators to provide good-faith estimates of their plans — including wells they intend to drill in the next five years but have not yet applied to the COGCC for — that local governments can incorporate into their land use plans and maps.
The task force, however, left the task of crafting the details — including the basic question of when the new rules would apply — to the COGCC.
For that reason, a lot of the debate last week centered on what task force members really meant in their recommendations and whether the drafted rules go too far or not far enough.
Staff at the COGCC interpreted the new local control measures as applying only to large-scale operations in urban mitigation areas.
State rules define urban mitigation areas as 22 or more residences, or a large facility like a school or hospital, within 1,000 feet of an oil and gas facility.
After meetings across the state, COGCC staff proposed defining large scale as 90,000 feet of well bore or 4,000 or more barrels of storage for petroleum products, not including wastewater.
Lepore said the proposed limits allow operators to spend their drilling capacity as they see fit. It also gives producers a strong incentive to replace tanks with pipelines, which reduces truck traffic, cuts emissions and puts the hulking metal structures out of sight.
But some local governments want the threshold cut in half or, in the case of Erie Mayor pro tem Mark Gruber, put on a sliding scale, with tougher limits the closer people are.
And Bernie Buescher, the former Colorado secretary of state who drafted recommendation 17, testified that he had intended a broader application of safeguards in populated areas than what the COGCC staff came up with.
The oil and gas industry insists that the task force’s recommendation directly links large-scale to urban mitigation areas, an argument that seemed to resonate with the commissioners.
Alternative versions
Oil and gas groups have drafted their own alternative versions of the rules.
They want large-scale to be defined by well count, which the public can see, rather than underground drilling distances.
Large-scale in the alternative rules would start at 12 horizontal wells or 16 vertical or directional wells or 9,600 barrels of storage. That number is based off a median of the 13 drilling applications the COGCC has approved the past two years that were within urban mitigation areas.
“This is a tough issue and even we struggled with it. We thought it was best to keep it simple,” said Tracee Bentley, executive director of the Colorado Petroleum Council.
Operators are drilling wells with longer and longer horizontal bores and prefer a definition that doesn’t lock them into certain lengths. One mile used to be the standard, but 2 miles is now more common and 3 or 4 miles may be in the future.
Drilling longer distances from one pad location helps keep the work farther from populated areas and can help generate the larger production volumes needed to justify pipelines, noted Dan Haley, president and CEO of the Colorado Oil and Gas Association.
But critics of the proposed thresholds argue that only 0.8 percent of all applications the COGCC recently approved would qualify for review under the new rules. Going with the industry’s well-count limit would bring that closer to 0.4 percent.
“The rule as currently drafted falls miserably short,” said Boulder County Commissioner Elise Jones. If only a small handful of facilities ever fall under the rules, why even bother, she wondered.
But industry representatives testified they have held back on plans to drill in more populated areas and that larger-scale operations are coming, driven in part by the efficiencies that lower commodity prices are forcing.
Anadarko Petroleum, the largest producer in the state, estimates about 40 percent of its future well sites will occur within or near municipal boundaries.
Regarding scale, if some local governments want half and industry wants double, then state regulators are already in the middle.
But the question of how to define large-scale, from which everything else flows, must be resolved.
A greater say
A key purpose of the rules is to provide local governments a greater say on where large-scale oil and gas facilities locate and how they operate.
But places like Weld and Garfield counties, which have long lived with oil and gas extraction, consider the new rules duplicative, even a power grab by the state.
“We feel they are unnecessary,” said Weld County Commissioner Barbara Kirkmeyer. “It is an attempt to usurp our authority.”
In a sense, such places are already achieving what the state is seeking, and the rules acknowledge that by providing an opt-out provision where local government can say pass.
But more drilling activity is coming into areas not accustomed to it, where governments want a greater say in controlling land use and protecting their citizenry.
“Any industrial facility will feel too large when it is placed in a residential neighborhood,” said Matt Sura, a Boulder attorney who was on the task force. “Colorado needs to decide whether balanced oil and gas development can happen on every acre throughout Colorado.”
Texas, a state no one can accuse of being anti-petroleum, is much more protective of homeowner and community interests than Colorado will be even after these new rules, he said.
If not done right, the rule-making will provide the industry the cover it needs to locate practically anywhere, he said.
One benefit the rules do provide local government is delaying state permit approvals until after community consultations. Some operators have used having a state permit in hand as a hammer on local governments in land use negotiations, Sura said.
But if the threshold defining large-scale is set too high, then that rebalancing of power won’t happen. And there needs to be an acceptance that there are populated places were oil and gas development simply needs to remain off limits, he argues.
One of the topics up for discussion Dec. 7 will be who gets a seat at the table as governments and operators discuss well and facility locations.
Right now, the government with land use jurisdiction at the drilling site takes the seat. But a drilling site located in unincorporated Weld County may impact residents in Firestone or Windsor. The new rules will give those nearby governments a greater say.
Large landowners and the holders of royalty rights aren’t invited, but during the hearings last week they argued to be included.
Also, some homeowners testified that when push came to shove, they aren’t sure they can trust their elected officials to balance their interests against that of industry.
Lowell Lewis, a Greeley resident, said in an interview that he and his neighbors face that predicament. Extraction Oil & Gas pledged to replace unsightly tanks with pipelines, use quieter electric-powered drills and relocate a proposed 22-well pad farther out to create less of a disruption.
The company has been held up as a good neighbor, including during the hearings. But those offers were made more than a year ago, when oil prices were more than double their current level of about $42 a barrel.
Extraction now claims it needs to use tanks instead of pipelines and that it must slow down its drilling schedule, creating an indefinite series of disruptions, Lewis said.
Will Greeley officials hold the company to its pledges or even pull the plug on what some homeowners view as a bait and switch?
“We harbor no illusions about how successful we can be,” Lewis said.
Line in the sand
Oil and gas groups have mostly focused on rewording definitions and terms, items where there is some flexibility. But they’ve drawn a line in the sand about the inclusion in the draft rule the ability of the state to set a limit
for how long an operator can drill and complete wells in populated areas.
The argument behind limiting duration is that homeowners may not be able to avoid the noise, smells, dusts and heavy truck traffic that come with living near a well. If that suffering is necessary, it must have limits agreed to in advance.
But allowing state regulators to limit production schedules represents a power that industry isn’t willing to cede and one it argues was never part of the task force recommendations.
Lepore allows that the task force recommendations don’t formally spell out issues related to duration, but said the limits are a way to reduce community impacts.
“If you put it in a rule that you need to shut down, there is no way to build an economic model on that,” the Colorado Petroleum Council’s Bentley said. “We can’t operate under those rules. We want duration out.”
Inherently, the industry’s motivations line up with those of communities — to finish wells as quickly and efficiently as possible and move on.
And in theory, questions like how long, how loud and during what hours are what the consultations between operators and local governments intend to resolve in advance.
But if they can’t be worked out, the COGCC wants the ability to enact limitations, ones that will have wiggle room.
Bentley also notes that the rules require the submittal of five years of plans to local governments. Some may argue that’s not a big deal, but the industry is in such flux that no one knows what tomorrow looks like now, much less 2020.
“In this price environment, we don’t have one-year drilling plans. It will be null and void. That doesn’t seem fair,” she said.
Square one
Largely absent in testimony at the hearings last week were environmental groups, who have gone from initial excitement about a compromise to disillusionment.
“We find that the proposed rules contain far too many flaws, failures and harmful concepts to serve or advance the public interest,” testified Lauren Swain, a fracking issue specialist with 350 Colorado, an advocacy group on climate change.
She asked the commissioners to pull the kill switch and added that her group would work to build support for legislation to disband the COGCC and replace it with two other agencies.
The threat is based in a distrust that a regulatory body primarily tasked with promoting the development of the state’s oil and gas resources can also adequately protect public health and the environment.
Any such bill, however, would represent a political statement more than viable legislation. But if enough people feel disenfranchised with the final rules, the state could find itself back to square one, fending off ballot initiatives.
“The current rule-making is not yet complete so we will wait to see what emerges,” said Pete Maysmith, executive director of Conservation Colorado. “But if the final product does not give local governments the tools they need to protect their residents, then the rule will be inadequate. It is time that we put the needs of Coloradans’ health and environment ahead of the profits of oil and gas companies.”
Lepore said it was understood from the get-go that not everyone would be happy with the end results — such is the nature of compromise.
But getting the various sides from “I’m not happy with this” to “I’m not happy with this, but I can live with it,” he emphasized, is still achievable.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
