Protect Public Welfare Oil And Gas Operations

Oil and gas operations - air quality regulation - local government authority - oil and gas conservation commission - composition - authority - financial assurance requirements - pooling - appropriation. The act prioritizes the protection of public safety, health, welfare, and the environment in the regulation of the oil and gas industry by modifying the oil and gas statutes and by clarifying, reinforcing, or establishing various aspects of local governments' regulatory authority over the surface impacts of oil and gas development.

Current law specifies that local governments have so-called "House Bill 1041" powers, which are a type of land use authority over oil and gas mineral extraction areas, only if the Colorado oil and gas conservation commission (commission) has identified a specific area for designation. Sections 1 and 2 of the act repeal that limitation.

Section 3 directs the air quality control commission to review its rules to consider whether to adopt more stringent rules and to adopt rules to minimize emissions of methane and other hydrocarbons, volatile organic compounds, and oxides of nitrogen.

Section 4 clarifies that local governments have land use authority to regulate the siting of oil and gas locations to minimize adverse impacts to public safety, health, welfare, and the environment and to regulate land use and surface impacts, including the ability to inspect oil and gas facilities; impose fines for leaks, spills, and emissions; and impose fees on operators or owners to cover the reasonably foreseeable direct and indirect costs of permitting and regulation and the costs of any monitoring and inspection program necessary to address the impacts of development and enforce local governmental requirements. Section 4 also allows a local government or oil and gas operator to request the director of the commission to convene a technical review board to evaluate the effect of the local government's preliminary or final determination on the operator's application.

Section 5 repeals an exemption for oil and gas production from counties' authority to regulate noise.

The remaining substantive sections of the act amend the "Oil and Gas Conservation Act" (Act). The legislative declaration for the Act states that it is in the public interest to "foster" the development of oil and gas resources in a manner "consistent" with the protection of public health, safety, and welfare, including protection of the environment and wildlife resources; this has been construed to impose a balancing test between fostering oil and gas development and protecting public health, safety, and welfare. Section 6 states that the public interest is to "regulate" oil and gas development to "protect" those values.

Currently, the Act defines "waste" to include a diminution in the quantity of oil or gas that ultimately may be produced. Section 7 excludes from that definition the nonproduction of oil or gas as necessary to protect public health, safety, welfare, the environment, or wildlife resources. Section 7 also repeals the requirement that the commission take into consideration cost-effectiveness and technical feasibility with regard to actions and decisions taken to minimize adverse impacts and repeals the limitation of the term "minimize adverse impacts" to wildlife resources.

The 9-member commission currently includes the executive directors of the departments of natural resources and public health and environment as ex officio members, 3 members who must have substantial experience in the oil and gas industry, and one member who must have training or experience in environmental or wildlife protection. Section 8 reduces the number of industry members to one and requires one member with training or substantial experience in wildlife protection; one member with training or substantial experience in environmental protection; one member with training or substantial experience in soil conservation or reclamation or technical expertise relevant to the issues considered by the commission; one member who is an active agricultural producer or a royalty owner; and one member with training or substantial experience in public health. This version of the commission is repealed on the earlier of July 1, 2020, or the date on which 3 specific rules promulgated by the commission have become effective. On that date, section 9, which creates a professional 5-member commission (along with the 2 ex officio executive directors), becomes effective.

Section 10 requires the director of the commission to hire up to 2 deputy directors. Upon receipt of a request for a technical review, the director is required to appoint technical review board members.

The Act currently specifies that the commission has exclusive authority relating to the conservation of oil or gas. Section 11 clarifies that nothing in the Act alters, impairs, or negates the authority of:

• The air quality control commission to regulate the air pollution associated with oil and gas operations;
• The water quality control commission to regulate the discharge of water pollutants from oil and gas operations;
• The state board of health to regulate the disposal of naturally occurring radioactive materials and technologically enhanced naturally occurring radioactive materials from oil and gas operations;
• The solid and hazardous waste commission to regulate the disposal of hazardous waste and exploration and production waste from oil and gas operations; or
• A local government to regulate land use related to oil and gas operations, including specifically the siting of an oil and gas location.

Currently, an operator first gets a permit from the commission to drill one or more wells within a drilling unit, which is located within a defined area, and then notifies the applicable local government of the proposed development and seeks any necessary local government approval. Section 12 requires operators to file, with the application for a permit to drill, either: Proof that the operator has already filed an application with the affected local government to approve the siting of the proposed oil and gas location and of the local government's disposition of the application; or proof that the affected local government does not regulate the siting of oil and gas locations. Section 12 also specifies that, until the commission has promulgated rules regarding 3 specific topics and the rules have become effective, the director may delay the final determination regarding a permit if the director, following a public comment period, determines that the permit requires additional analysis to ensure the protection of public health, safety, and welfare or the environment or requires additional local government or other state agency consultation.

Pursuant to commission rule, an operator may submit a statewide blanket financial assurance of $60,000 for fewer than 100 wells or $100,000 for 100 or more wells. Section 12 directs the commission to adopt rules that require financial assurance sufficient to provide adequate coverage for all applicable requirements of the Act. Current law allows the commission to set numerous fees used to administer the Act and sets a $200 or $100 cap on the fees. Section 12 eliminates the caps and requires the commission to set a permit application fee in an amount sufficient to recover the commission's reasonably foreseeable direct and indirect costs in conducting the analysis necessary to assure that permitted operations will be conducted in compliance with all applicable requirements of the Act.

Current law gives the commission the authority to regulate oil and gas operations so as to prevent and mitigate "significant" adverse environmental impacts to the extent necessary to protect public health, safety, and welfare, taking into consideration cost-effectiveness and technical feasibility. Section 12 requires the commission to protect and minimize adverse impacts to public health, safety, and welfare, the environment, and wildlife resources and protect against adverse environmental impacts on any air, water, soil, or biological resource resulting from oil and gas operations. Section 12 also requires the commission to adopt rules that require alternate location analyses for oil and gas facilities that are proposed to be located near populated areas and that evaluate and address the cumulative impacts of oil and gas development. Finally, section 12 directs the commission to promulgate rules to:

• Ensure proper wellbore integrity of all oil and gas production wells, including the use of nondestructive testing of weld joints and requiring certification of several categories of oil and gas workers;
• Allow public disclosure of flowline information and to evaluate and determine when a deactivated flowline must be inspected before being reactivated; and
• Evaluate and determine when inactive, temporarily abandoned, and shut-in wells must be inspected before being put into production or used for injection.

Section 13 modifies the commission's administrative procedures, including by taking into account determinations made by administrative law judges.

Current law authorizes "forced" or "statutory" pooling, a process by which "any interested person", typically an operator who has at least one lease or royalty interest, may apply to the commission for an order to pool oil and gas resources located within a particularly identified drilling unit. After giving notice to interested parties and holding a hearing, the commission can adopt a pooling order to require an owner of oil and gas resources within the drilling unit who has not consented to the application (nonconsenting owner) to allow the operator to produce the oil and gas within the drilling unit notwithstanding the owner's lack of consent. Section 14 requires that the owners of more than 45% of the mineral interests to be pooled must have joined in the application for a pooling order and that the application include either: Proof that the applicant has already filed an application with the affected local government to approve the siting of the proposed oil and gas facilities and of the local government's disposition of the application; or proof that the affected local government does not regulate the siting of oil and gas facilities. Section 14 also specifies that the operator cannot use the surface owned by a nonconsenting owner without permission from the nonconsenting owner.

Current law also sets the royalty that a nonconsenting owner is entitled to receive at 12.5% of the full royalty rate until the consenting owners have been fully reimbursed (out of the remaining 87.5% of the nonconsenting owner's royalty) for their costs. Section 14 raises a nonconsenting owner's royalty rate during this pay-back period from 12.5% to 13% for gas and 16% for oil and makes corresponding reductions of the portions of the nonconsenting owner's royalty from which the consenting owners' costs are paid.

Current law requires the commission to ensure that the 2-year average of the unobligated portion of the oil and gas conservation and environmental response fund does not exceed $6 million and that there is an adequate balance in the environmental response account in the fund to address environmental response needs. Section 15 directs the commission to ensure that the unobligated portion of the fund does not exceed 50% of total appropriations from the fund for the upcoming fiscal year and that there is an adequate balance in the account to support the operations of the commission and to address environmental response needs.

Section 16 specifies that for permit-specific conditions for wildlife habitat protection, the commission is required to consult with and obtain consent from a surface owner only if the permit-specific conditions directly impact the affected surface owner's property or use of that property.

Section 17 amends preemption law by specifying that both state agencies and local governments have authority to regulate oil and gas operations and establishes that local government requirements may be more protective or stricter than state requirements.

Section 18 appropriates $851,010 to the department of natural resources to implement the act.

(Note: This summary applies to this bill as enacted.)