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Colorado Adopts 'Most Challenging' Drilling Regulations in the Nation

Colorado regulators last week adopted the most comprehensive state oil and natural gas drilling regulations in the nation. The unanimous vote drew scathing criticism from the Colorado Oil & Gas Association (COGA) and several state Republican lawmakers.

The final document had been reviewed by regulators, industry officials, environmental groups and other stakeholders for a year and a half (see NGI, Dec. 3, 2007). The nine-member Colorado Oil and Gas Conservation Commission (COGCC) was tasked with implementing the package following the 2007 Colorado legislative session, which passed House Bills 1298 and 1341 to revise the rules.

The rules package was considered one of Democratic Gov. Bill Ritter's key initiatives.

"These are rules that provide much more balance than we had in the face of unprecedented gas drilling," Ritter spokesman Evan Dreyer said. The revised rules "give Colorado a modern, 21st century framework to better protect Colorado's residents, water and wildlife...while also allowing one of our most important industries to thrive. The commission should be congratulated for successfully completing such an important task."

Michael Saul, an attorney with the Rocky Mountain Natural Resource Center called the rules "a model for the rest of the West."

However, COGA and state Republican leaders were not as kind.

"Not only is today a disappointing day for Colorado's No. 1 economic contributor, it is a sad day for Colorado's economic wellbeing," said COGA's John Swartout of Wednesday's vote. "The COGCC commissioners approved rules that create the most expensive, time-consuming and burdensome regulatory environment in the nation -- all at a time when Colorado should be fighting to keep jobs.

"The overall impact of the rules officially make Colorado the most challenging state in the nation for the natural gas and oil industry to conduct business," he said. "Particularly during these uncertain economic times, Colorado's natural gas and oil industry needs a stable regulatory environment to thrive and today what the COGCC commissioners approved were rules that create uncertainty and instability."

The approved package, said Swartout, does not achieve what the state legislature intended: "to create a 'timely and efficient' process for Applications for Permits to Drill (APD) because of the numerous and burdensome layers added to the already cumbersome process. Now, even after an operator receives approval on an APD, a host of new parties -- Colorado Department of Wildlife (DOW), the Department of Public Health and Environment and surface owners -- can appeal, thus expanding an already burdensome and time-consuming process. Nowhere else in the nation is this even possible."

Colorado House Republican Leader Mike May warned that the rules would hurt the energy industry -- and the state.

"We cannot afford to push the energy industry out of Colorado, given the current state of the economy," said May. "And many fear that the proposed rules will do just that."

Even members of the COGCC realized that the vote to implement the rules was difficult.

"It was a difficult choice," said commissioner Mark Cutright. He voted for the package even though he opposed many of the rules. However, Cutright said he voted for the package "to move these rules to the next step for legislative review and perhaps a review in the courts if parties choose to litigate."

The regulations impose several new requirements for producers including three rules that had been strongly opposed by the energy industry:

The opposition plans to take action in the upcoming state legislative session.

"We are going to spend the first part of the legislative session dealing with the mess that is these regulations," said State Sen. Josh Penry, a Republican from Grand Junction, CO.

Harris Sherman, who directs the Department of Natural Resources and who chairs the COGCC, said the legislature had given the commissioners "a difficult job of balancing wildlife protection and property rights, and we've tried to do that."

As to whether the rules would hurt the state's energy industry, Sherman said, "What is affecting the industry is the credit crunch and the fall in commodity prices."

Earlier this month several of the operators in Colorado's Piceance Basin said they were laying down rigs because of the credit crisis (see NGI, Nov. 24). Thursday EnCana Corp., whose U.S. subsidiary operates in the Piceance and Denver-Julesburg basins, said it would spend 43% less in Colorado next year, or $400 million, compared with $700 million this year (see related story).

The 177-page document is available at http://cogcc.state.co.us.

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