Colorado Regulations on Oil and Gas Are Ruling with an Iron Fist. What Now?

The oil and gas industry has had a huge positive impact on Colorado over the years. In terms of state and local taxes, oil and gas industry employees contribute a whopping $1 billion to the economy.

In 2017, the industry employed 30,000 people. It also created another 51,000 additional jobs. All told, the industry added $13.5 billion to Colorado’s domestic product.

It also had a measurable impact on the state’s educational system. 81 percent of Public School Trust distributions came solely from oil and gas funding.

Yet, Colorado Governor Jared Polis recently signed legislation to revamp the industry’s regulations. Senate Bill (SB) 181 was crafted to regulate emissions from oil and gas — “from cradle to grave.”

This ambitious directive will rewrite how gas and oil companies do business in the Centennial State. Read on to learn more about these new Colorado regulations. Find out what they could mean for this multi-billion dollar industry.

Colorado Regulations and Impacts on Emissions Statewide

As lawmakers and members of the oil and gas industry scramble to understand the implications of this new legislation, one thing’s for sure. It’s an ambitious directive. One that will require the development of many new rules over the next year.

Also known as “Protect Public Welfare Oil and Gas Operations,” SB 181 is certain to do one thing. Bring about the state’s most sweeping oil and gas reforms ever.

This is not the first move by Colorado to tighten regulations on the oil and gas industry when it comes to emissions. The main sources of emissions include ozone (a.k.a. smog) and methane.

But many small to mid-sized oil and gas companies fear what it could mean when it comes to scaling their business in Colorado.

What We Know About SB 181

But what effect will these new emissions regulations have? Based on other recent regulatory trends, here’s the picture that’s currently emerging.

At multi-well sites, state regulators will now require continuous methane emission monitors. The same will hold true for sites near occupied dwellings and sites known for high emissions.

State regulators will also monitor equipment at sites more closely. This means looking for and repairing leaks. It also involves the further reduction of emissions through the installation of pneumatic devices.

On the surface, SB 181 gives local governments more regulatory power over the oil and gas industry. It allows communities to set their own rules for oil and gas development.

But here’s the caveat. Local governance only goes one way. If a community wishes to alter regulations to be less strict than state law, it’s prohibited.

Local autonomy loses out when it comes to de-regulation. As a result, it has been seen as a win for communities who’d like to strengthen regulations against oil and gas. And it’s a loss for communities who support the industry.

Revisions to the Colorado Oil and Gas Conservation Commission

The new legislation also entails revamping the constitution of the Colorado Oil and Gas Conservation Commission (COGCC). Currently, the COGCC is the state agency in charge of monitoring oil and gas development.

Its mission involves fostering and developing the oil and gas industry. It must do so in such a way that the public welfare is also protected. But through some fancy semantic moves, the COGCC’s role has been substantially redefined with SB 181.

Instead of fostering industry growth, it will now regulate development and production, especially within the context of what’s good for the public health, safety, and welfare.

This regulatory function will also extend to the protection of the environment and wildlife resources.

The COGCC’s New Role

In a nutshell, the COGCC must reinvent its relationship to the oil and gas industry. How this reinvention unfolds could have a drastic impact on the industry and its ability to expand.

Besides the change in mission, the COGCC is also getting a serious facelift. What’s now a body of nine members with seven governor appointees will be reduced to seven members. Five will be appointed.

Of these five appointees, only one individual will now be required to have significant experience in the industry.

This has sent off many alarm bells for members of the oil and gas industry. Before SB 181, at least three members of the COGCC had to have substantial gas and oil industry experience.

Besides one appointee with experience in the oil and gas industry, at least one must have a background in public health. One must have the requisite knowledge to broadly aid the commission.

And yet another member must have wildlife protection, environmental protection, and reclamation experience.

The Impact of This Legislation Viewed Through Rose-Colored Glasses

Some gas and oil industry representatives remain optimistic about the outcome of these new regulations. But others have met it with trepidation and fear that the industry will be crippled by unnecessary legislation.

In recent years, there have been many regulatory changes that have impacted the oil and gas industry, particularly when it comes to methane emissions. In each case, the industry has responded by cutting emissions as required.

Instead of being crippled by increased legislation, the oil and gas industry has enjoyed production increases. What’s more, many companies have participated in voluntary emissions program, particularly during the summer, when ozone is worse.

Gas and oil industry representatives hope that their record will be considered as the conversation over new emissions monitoring requirements begins. They also hope their past achievements and progress will be taken into account.

Exciting new developments in innovative technology could also help. These could help the oil and gas industry detect methane leaks sooner, thereby streamlining and tightening the oil and gas supply chain.

Dealing with the Cumulative Effects of This New Legislation

While the oil and gas industry tries to remain optimistic in the face of these far-reaching changes, there are areas of the legislation that remain highly uncertain. Especially when it comes to current practice.

For example, companies in the oil and gas industry are currently permitted to break up emission sources into smaller units. This allows them to deal with emissions in a more manageable, reasonable way.

But if, as some environmentalists are calling for, companies are suddenly forced to deal with the effects of oil and gas emissions cumulatively, this could prove disastrous for many small to mid-sized companies.

Reconsidering the Industry’s 90-Day Exemption Rule

There are also questions about whether or not oil and gas companies should continue to be permitted a 90-day window to drill and begin production before applying for a permit.

This rule has traditionally allowed companies within the oil and gas industry to gain a better handle on their emission levels. Before limits get set by a permit.

Since companies within the 90-day window still operate within the state’s standards, it has never been deemed an issue. But due to the passage of SB 181, all bets may be off when it comes to the 90-day exemption.

As it stands, companies must verify their compliance during the permit process. But some organizations, including the WildEarth Guardians, have attacked this exemption. Especially as it currently applies along Colorado’s Front Range.

Changes to the 90-day exemption could send shockwaves through Colorado’s industry. They could also represent one of the first places that SB 181 shows its legislative teeth.

The Future of the Oil and Gas Industry in Colorado

What will become of the oil and gas industry in Colorado? With the signing of SB 181 into law, that will depend on a variety of moving parts. Many of which fall well outside of the control of the industry.

Some politicians and public figures have decried the new legislation as the nails in the coffin of the oil and gas industry in Colorado. But others feel they are benign. Only time will tell.

Since the vast majority of the oil and gas wells in the state fall within areas that support the gas and oil industry, it’s unlikely that much new regulation will be imposed at the local level.

That said, many Colorado citizens feel frustrated by the new legislation, which is supposed to give them more local control. Yet, it doesn’t allow them the ability to modify current standards to work for their communities.

In essence, it’s a hollow law for those who support the oil and gas industry and aren’t interested in additional legislation. But it could have severe consequences when it comes to the risk oil and gas lenders perceive in Colorado.

But when it comes to how the revamped COGCC will do business, all bets are off. And this will depend upon a variety of factors including the members of the body,  the decisions that they make, and how they interpret the intent of SB 181.

What Colorado’s New Legislation Means for You

What will SB 181 mean for your company? The jury’s still out.

But you don’t have to go it alone. At EnRes Resources, we understand how precarious it can feel to be a small to mid-sized oil and gas company in the face of unprecedented Colorado regulations.

We also understand that as the state ramps up its new regulatory authority, the last thing you want is a cash flow problem. We’re here to help with oil and gas funding that you can depend on.

Our sole purpose is to provide oil and gas funding to independent producers who have current production. If this fits your company, then contact us today to get the conversation going when it comes to funding options.

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