Oil and Gas Bill Advances as Questions Loom

Attorneys mull Senate Bill 181’s proposed changes to local government powers and the state oil and gas commission

A bill that could bring sweeping changes to Colorado’s oil and gas law rolled through Senate committee hearings last week, but debate over Senate Bill 181 is far from over.

Oil and gas attorneys are still chewing over the provisions of the 27-page bill, which has proposals ranging from revising the state oil and gas oversight agency’s mission and makeup to giving local governments power to regulate the industry in their borders. 

On Tuesday, the Senate Transportation and Energy Committee approved SB 181 on a 4-3 party-line vote at the end of a 12-hour hearing. Hundreds of witnesses signed up to testify despite the hearing being held two business days after Democrats introduced SB 181 on March 1. By press time on Friday, the bill passed the Senate Finance and Appropriations committees as well.

SB 181 would change how the Colorado Oil and Gas Conservation Commission makes decisions about approving new drilling projects and regulating oil and gas development, tipping the scales toward environmental, wildlife and public health concerns. It will also allow municipalities to pass their own ordinances to regulate oil and gas projects, such as well setback and site inspection requirements. SB 181 would require oil and gas developers to follow whichever rule has the higher environmental or health protection standard — the municipality’s or the state’s.

Phil Barber, a Denver-based oil and gas attorney whose current work focuses on municipalities and mineral owners, said SB 181 will ensure those clients “have a seat at the table” when operators plan drilling projects in their communities. 

“Local government would have some control over what happens in their jurisdiction, which they really don’t have now,” Barber said.

One question SB 181 presents to oil and gas practitioners is how varied the patchwork of regulations would be across Colorado if the bill becomes law. Barber said the more operator-friendly jurisdictions, like Weld and Mesa counties and municipalities on the Eastern Plains, might be reluctant to pass any laws that go beyond the commission’s regulations. But more populous counties along the Front Range, where well proximity to residential areas is a bigger concern, might see “fairly robust efforts to make site-specific regulations,” Barber said. “There will be a rainbow of responses, is my guess.”

Mark Barron, a partner at BakerHostetler who heads its Denver office’s energy litigation department, agreed that SB 181 could set up Colorado for a varied landscape of oil and gas regulations, municipality by municipality.

“I think you’re going to see some pretty diverse rules,” Barron said. “The geographic location of the project is going to be more important than it’s ever been.”

What Barron’s oil and gas producing clients would have to see is whether the more stringent regulations simply raise their compliance and project planning costs, or if the rules end up precluding their projects in some cases.

SB 181 also has a swath of provisions directed at the nine-member Colorado Oil and Gas Conservation Commission that approves new drilling permits in the state. One provision would dilute the number of representatives the COGCC must have from the oil and gas industry from three to one.

But more impactful than SB 181’s changes to the commission’s structure, and even its local government powers provision, would be the bill’s tweaks to the COGCC’s mission, Barron and Barber each said.

The bill would amend the Colorado Oil and Gas Conservation Act to direct the commission to “regulate” — not “foster” — oil and gas development, and in a manner that protects public health, safety and welfare — not “consistent with the protection of” those values. The current statute also requires the commission to consider the “cost-effectiveness and technical feasibility” of measures that would minimize harm to wildlife; SB 181 would remove that requirement.

Those words were at the center of one of the most contentious cases the Colorado Supreme Court decided so far this year. In Martinez v. COGCC, the court unanimously determined that the commission was within its rights when it refused to consider a rule that would effectively require permit-seeking operators to show that a drilling project wouldn’t contribute to harming the environment, wildlife or public health.

The petitioners in that case argued that the Colorado Oil and Gas Conservation Act requires the commission to use a balancing test, which would weigh the public’s interest in oil and gas development against the public’s interest in public health and the environment. But the court disagreed, and said the COGCC’s mission “do[es] not allow the Commission to condition all new oil and gas development on a finding of no cumulative adverse impacts to public health and the environment.”

The legislature’s intent “was not to create a condition precedent to further oil and gas development,” according to the opinion by Justice Richard Gabriel. “Rather, its intent was to minimize adverse impacts to public health and the environment while at the same time ensuring that oil and gas development, production, and utilization could proceed in an economical manner.”

By revising the commission’s priority to “regulating” oil and gas development to protect the environment, wildlife and public health, SB 181 seems intent on reversing the Martinez decision, Barron said.

The amendment would shift the commission’s priorities toward protecting public health and safety, Barber said. “With no disrespect to the commission, it hasn’t been clear that that’s their primary role.”

Barron said that when a commission decision gets challenged, the new language under SB 181 would change the standard of review over whether the decision was arbitrary or capricious, or whether the commission properly accounted for “responsible development” of oil and gas. “This will definitely take the standard of review … and flip the current law.”

If SB 181 passes, oil and gas lawyers would be watching to see how exactly the COGCC and other state agencies would interpret its new standards for protecting public health and the environment, Barron said. But that, as with so many other regulatory gray areas, will likely require the courts to clarify.

“It will take a couple of cases and a couple of years for those questions to be answered,” Barron said.

— Doug Chartier

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