In 2019 the state of Colorado passed Senate Bill 19-181 ("SB-181") to “Protect Public Welfare Oil and Gas Operations.” SB-181 both created new regulatory authority and amended the "Oil and Gas Conservation Act" rules to protect public safety, health, welfare, and the environment. The bill has made the oil industry in Colorado more restrictive and granted local governments more authority to promulgate rules regarding drilling and infrastructure.

How has SB-181 changed Colorado oil and gas industries?

SB-181 vastly changed the way that Colorado had previously conducted business by granting local governments significant control over the oil and gas industry, where they had previously been hesitant. The bill's only limitation on local regulatory powers is that they must be exercised in a “reasonable manner” and that the regulations must be “necessary and reasonable” to protect public health and the environment.

The Different Sections of SB-181

The Colorado General Assembly provides a summary of SB-181 that helps break down the different sections to clarify the most relevant changes.

Section 3

Section 3 of the bill directs the air quality control commission to minimize methane emissions and other hydrocarbons, volatile organic compounds, and oxides or nitrogen by creating or modifying rules.

Section 4

Section 4 clarifies that local governments can implement regulations to promote public safety, health, welfare, and the environment. Local governments may regulate the use of land based on the impact on the community. They may also regulate the surface impacts of oil and gas operations in a reasonable manner, including the regulation of:

• Land use
• Location of oil facilities
• Impacts on public facilities
• Water quality and source
• Odor
• Dust
• Vibration
• Noise
• Air emissions and air quality
• Emergency Preparedness
• Cultural Resources
• Land disturbance
• Reclamation procedures
• Coordination with first responders
• Transportation Impacts
• Traffic Impacts
• Security
• Financial Securities
• Any other potential nuisance-like effects from oil and gas developments.

Section 5

Local governments may inspect facilities, impose fines and fees, and issue final determinations on sitting oil and gas facilities to enforce their regulations. Section 5 removes an exemption for oil and gas facilities from local governments' authority to regulate noise.

Section 6

Through section 6 and revisions to the "Oil and Gas Conservation Act," SB-181 altered the mission of the Colorado Oil and Gas Conservation Commission (COGCC). The former goal of the COGCC was "to foster the development of oil and gas resources" to achieve the maximum efficient production rate.

Now, however, the mission of the COGCC is primarily to protect public health and safety, as well as the welfare of Colorado citizens, the environment, and wildlife resources. The COGCC now must regulate oil and gas, how it is developed and produced, and its impact on natural resources.

Restructuring and Professionalization of the COGCC

Additionally, SB-181 calls for the restructuring and professionalization of the COGCC to more accurately represent its new mission statement. The COGCC has nine members, three of whom were required to have experience in the oil and gas industry.

Section 8 of the bill reduced the number of members who must have industry expertise to one but added the requirement that there must be:

• One member who has the experience and/or is trained in wildlife protection;
• One member who has the experience and/or is trained in environmental protection;
• One member who has the experience and/or is trained in soil conservation or reclamation or technical expertise relevant to the issues considered by the commission;
• One member who is a royalty owner or an active agricultural producer; and
• One member who has the experience and/or is trained in public health.

Other Changes to the Members

After extensive planning, it was determined that the commission would also be reduced by two members, from nine to seven. The governor will appoint five members with demonstrated expertise. At the same time, the remaining two shall be the Executive Directors of the Colorado Department of Natural Resources and the Colorado Department of Public Health and Environment (CDPHE).

Section 10 requires the commission director to hire up to two deputy directors, and Section 11 clarifies that the commission has exclusive authority concerning oil and gas conservation.

What rules can the commission promulgate?

Section 12 states that the commission may promulgate rules to ensure:

• Proper wellbore integrity;
• Allow public disclosure of flowline information; and
• Determine when inactive, abandoned, or shut-in wells must be inspected before being used for production.

These sections emphasize the objective of SB-181 to change how the oil industry conducts business in Colorado to protect the environment. The changes, however, have been met with mixed enthusiasm by different state actors in the industry. For example, Dan Haley, President, and CEO of the Colorado Oil and Gas Association, said, “Colorado now undoubtedly has the toughest oil and natural gas development regulations in the country” and argued that the new rules lacked a clear scientific basis.

Three Plans for Drilling, Oil and Gas Development

Currently, three plans for the continuation of drilling and oil and gas development in Colorado are undergoing commission review and approval. Comprehensive area plans (CAPS) cover thousands of acres. Within those CAPS, oil and gas development plans cover wells on one to a few dozen acres and individual permits for each well.

The three pending plans for drilling are the following:

• Kerr-McGee Bronco CAP;
• PDC Energy's Guanella CAP; and
• Box Elder CAP

These areas cover nearly 100,000 acres of land in Weld, Adams, and Arapahoe counties. These plans project hundreds of new wells and dozens of drilling sites.

New Wells Approvals

As the commission continues to approve new wells, they seemingly contradict the CDPHE and their Air Pollution Control Division, which aims to cut oil and gas greenhouse emissions by 60% by 2030. Mike Foote, an environmental lawyer and former legislator wonders, "[h]ow is Colorado going to meet its greenhouse gas emission reductions while it keeps approving thousands of new wells? It is inherently contradictory and nobody seems to want to deal with that issue.”

Effects on Oil and Gas Industry Employment

Aside from the environmental impact of the new regulations, there has been an effect on employment in the oil and gas industry. As of 2020, the energy sector in Colorado has lost nearly 650 jobs, and there is potential for more. These losses may come because of new oil and gas regulations, but the pandemic and the global energy market have also had an adverse effect.

Whiting Petroleum, a Denver-based energy company, for example, laid off 16% of its workforce, while other companies are in talks of filing for bankruptcy. Fortunately, as of 2022, the energy sector is rebounding from the pandemic, exhibiting employment growth. Furthermore, the restrictions on oil and gas may have contributed to a six percent increase in clean energy jobs in Colorado.

How have environmental activist groups responded?

Though environmental activist groups initially met the changes with enthusiasm, some are unhappy with how the commission has acted thus far. Kate Christensen, oil and gas campaign director for 350 Colorado, a climate activist organization, said in an email, “[t]he COGCC is not following their mandate to protect public health, safety, welfare and the environment with their approval of permits,”  “it seems like the COGCC is working hard to set off the carbon bomb that is fracking in the American West.”

However, the new oil and gas regulations have given activists new tools to fight against harmful environmental practices and allowed the public to pressure the commission and local governments to combat new drilling sites. Though Colorado has not been perfect through their implementation and has much room to grow, some industry watchers believe that Colorado's approach may spread across the country as investors demand environmental sustainability.

Therefore, it may be unsurprising if other states begin adopting stricter regulations on their oil and gas markets while simultaneously trying to shift to environmentally friendly alternatives.

Conclusion

Overall, SB-181 vastly changed the way that Colorado structured their oil and gas regulations by granting local governments wide discretion and authority to regulate the industry. Moreover, the regulators' mission has shifted from promoting economic growth to regulating in a manner that protects public health, safety, welfare, the environment, and wildlife resources.

While the newly formed COGCC has the authority to inspect potential drilling sites and plans, the degree to which they intend to crack down on oil manufacturers remains to be seen. Some climate activists continue to call for a harsher crackdown from the COGCC as they approve many new drilling facilities. Nonetheless, SB-181 is a remarkable demonstration of industry regulation that could spread to many states looking to follow Colorado's example.

Questions?

If you have any questions about how SB-181 may affect you and your business, contact our attorneys at Newburn Law today for a free consultation.