SB-181 passes into law, bringing some changes to oil and gas industry

On April 16, Governor Jared Polis signed SB-181, also known as “Protect Public Welfare Oil and Gas Operations,” into law. The bill, which had originally proposed significant changes to Colorado’s long-standing oil and gas regulatory system, changed shape as it passed through both the state House and Senate and weathered the amendments that allowed it to land on the Governor’s desk.

While neither the proponents nor the opponents of the bill are entirely satisfied with its final form, its existence, according to Anna Lee Foster, Communications Director of Colorado Rising, the grassroots citizen group behind Prop 112, represents a sea change in how the industry will be controlled and regulated in Colorado.

“While SB-181 does not address all of the concerns and threats associated with industrial fracking activity, it is a desperately needed tipping back of enormously unbalanced scales in favor of people and environment. SB-181 is the most substantial shift we have seen in decades and puts communities on much better footing when confronted with industrial oil and gas in their backyards,” Foster said in a statement.

“For decades, Colorado residents have pushed for common sense protections (Protect Act, Regulate Oil Gas Operations for Protect Public Safety bill, Operators Liable For Oil And Gas Operations bill, etc.) to prioritize health and safety that have died at the hands of an oil and gas controlled legislature,” Foster said.

“Without the constant pressure and environmental advocacy applied by Colorado Rising and partner organizations, the oil and gas industry would still be operating in its usual haphazard and dangerous manner. Our success in getting Prop 112 on the ballot and securing 45 percent of the electorate despite being outspent at least 40-1 last year, forced lawmakers to take heed to citizen pleas and reckon with this reckless and monied industry.”

Colorado Petroleum Council (CPC) spokesman Ben Marter said in a statement, “Governor Polis’ signature makes Senate Bill 181 law, which fundamentally alters the natural gas and oil industry’s future in the State of Colorado. From the introduction of the measure early last month, our industry vigorously opposed the policy and the process. Senate Bill 181 remains a threat to one of the foundations of Colorado’s economy.”

Marter stated, “We are appreciative that legislative leaders heard our concerns and worked with us to begin to address them. Colorado’s energy future is too important to be wielded as a partisan weapon, and all Coloradans deserve to know the consequences of this bill, both intended and unintended. While Senate Bill 181 remains deeply flawed, Governor Polis and state officials have pledged to work with industry to create a reasonable regulatory framework that works for all Coloradans, and we are committed to that process.”

While the bill moved through several changes in the House and then Senate, there were four key amendments that helped it make it to Governor Polis’ desk. They included more regulatory power to local governments; a restructuring of the Colorado Oil and Gas Conservation Commission (COGCC); more direction in enacting new emissions rules; and adjustment to consent percentages in pooling applications:

More regulatory power to local governments means that local governments will have more say in well placement. The bill’s original language gave localities the power of “regulating oil and gas development” in order to generally “minimize adverse impacts… on public health and the environment”, and this language remained mostly intact as the bill matured. However, final amendments limit that power to “regulating the surface impacts of oil and gas development,” and have also tailored local impact minimization measures “to the extent necessary and reasonable to protect public health, safety, and welfare and the environment…”, leaving some room for interpretation. There will now be a technical review board procedure to provide qualified input on local well siting determinations, allowing a locality or operator to request that COGCC-appointed experts report on the technical and operational suitability of the locality’s preliminary or final well siting decision, with the stipulation that local governments will not be required to reconsider or amend siting decisions based on technical review board reports.

The restructuring of the COGCC must be final by July 1, 2020. The current COGCC de-emphasized oil and gas qualifications among its nine members, but the revamped COGCC will have seven members, including at least one member with substantial experience or formal training in the oil and gas industry; planning and land use; environmental and wildlife protection or reclamation; and public health. The mission of the COGCC has shifted substantially, as well, from “fostering” the growth of the oil and gas sector to “regulating” it and prioritizing the protection of public safety, health, welfare, and the environment in the regulation of the oil and gas industry.

As far as the bill’s impact on enacting new emission rules, SB-181 now directs the COGCC to re-examine its existing rules and consider stricter requirements with respect to: leak detection and repair; pipeline inspection; emissions from pneumatic tools (e.g. gas-driven pumps and compressors); and continuous methane monitoring “at facilities with large emissions potential, at multi-well facilities, and at facilities in close proximity to occupied dwellings.” Conversely, the new law no longer requires emissions monitoring installation at every oil and gas facility in the state.

Forced pooling only underwent some minor changes with the new law. The original language of SB-181 would have required a 50 percent minimum consent threshold on forced pooling applications and a 15 percent statutory royalty on oil and gas for non-consenting, unleased owners. The final bill instead requires consent to be pooled from parties comprising 45 percent of the interest of reasonably locatable owners and a statutory pooled royalty of 13 percent on oil and 16 percent on gas.

As expected, ballot initiatives are already in the works to attempt to reverse and repeal the new regulations. As with any new law and revamped regulations to such a large industry, the impacts, both positive and negative, are unknown. According to the University of Colorado Leeds School of Business, about 30,000 people are directly employed by the oil and gas industry in Colorado. And there is certain language in some last-minute amendments that requires any new rule change be "reasonable and necessary.”

Dan Haley, president of the Colorado Oil and Gas Association, said, “We feel like that adds a degree of certainty for our industry.” Others feel as though that amendment leaves too much interpretation as to what the industry might find “unreasonable.”

"I think there are some concerning amendments that open up local governments and even the state to litigation," said Colorado Rising’s Foster.