Colorado's natural gas drilling shows unrelenting growth, and "nothing could be more critical" than having an open and transparent dialogue with the industry, the executive director of the Colorado Department of Natural Resources (DNR) said last week.

In his first major speech since the Colorado Oil and Gas Conservation Commission (COGCC) was revamped and expanded (see NGI, July 23), Harris Sherman told natural gas professionals that his door will remain open to discuss any and all concerns. He spoke to the Colorado Oil & Natural Gas Association's (COGA) Rocky Mountain Natural Gas Strategy Conference & Investment Forum.

"We absolutely need to talk frequently and often about where we are going," Sherman said. "We are important to you and you are important to us," and the industry and his office should work "individually and collectively" to resolve issues that may arise. Answering concerns, Sherman promised that COGCC's larger, more diverse commission would be balanced and professional as new regulations are developed.

The gas industry is growing at an incredible pace in the Rocky Mountains, and particularly in Colorado. Three years ago, the DNR was issuing about 500 drilling permits a year. Today, the number has grown to more than 6,000 a year -- and Sherman expects no slowdown.

"In the last...five years, as the price of natural gas has increased two or three times more than what it was before, this new elevated price has combined with technological advances, and Colorado has seen an explosion in the number of permits," said Sherman. "The degree of activity is extraordinary, and I don't see this activity abating at all."

In northwestern Colorado, the DNR is working with the Bureau of Land Management (BLM) on a resource plan that would allow 21,000-22,000 wells to be drilled in the next 20-25 years. To the south in the Glenwood, CO, area up to 17,000 wells are expected to be drilled in the next 20 years. In the Snake River area, another 3,000-4,000 wells are planned.

"And on top of that, on private lands, we expect tens of thousands of new wells," said Sherman. "You can begin to see the magnitude of the growth in Colorado." Both directly and indirectly, the benefits of the energy industry to the state "exceeds $20 billion a year." The energy industry is Colorado's largest employer, with about 70,000 jobs.

This "extraordinary increase in activity has created certain issues that have created challenges for the industry, the state and for local communities," Sherman said. "This is often because this development occurs in rural, scenic areas." The impacts on the wildlife, air and water within the state "are real issues that concern Colorado and ones that we need to address going forward."

The COGCC is working now on what Sherman called "practical steps" to reduce future conflicts. "We want to figure out how to act proactively to get ahead of the curve and foster understandings between your industry and others."

State regulators are monitoring recent legislation and court actions that could impact the oil and gas industry. Among other things, regulators are reviewing a Colorado Supreme Court decision concerning Gunnison County. There, the court upheld the right of the county to regulate oil and gas activity within its boundaries as long as the regulation was consistent with state rules.

"That's a new development that needs to be monitored," Sherman said.

In another case, the U.S. District Court for the Sixth District in Colorado last month found that if production water coming from coalbed methane drilling is diverted from a tributary to a stream, the operator will have to file for a water permit (see NGI, July 9).

The state has appealed the court's decision, but Sherman said that if the case is upheld, "it presents challenges for the state and for industry. We are watching it very carefully. There may be legal or legislative solutions that we will need to explore."

State oil and gas regulators also are having an ongoing dialogue with BLM officials "about when, where and to what degree drilling occurs where BLM or forest lands are involved. We are working cooperatively with BLM and we will continue to do so," he said.

Going forward, Sherman said the state needs to continue an "orderly, timely" processing for drilling permits and spacing orders. He also noted that as the DNR moves into the rulemaking phase in several areas, he wants to ensure that the process is transparent for all of the stakeholders involved.

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