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Colorado Producers, Environmentalists Back Drilling Compromise

Colorado is proving to be a testing ground for successful collaboration between what some may think are the most unlikely of allies -- the Environmental Defense Fund (EDF) and major oil and natural gas producers. Being part of the solution is better than being part of the problem, Noble Energy Inc.'s CEO said Tuesday.

CEO Chuck Davidson and EDF's Fred Krupp shared a podium at the Rocky Mountain Energy Summit in Denver, which is sponsored for the 26th year by the Colorado Oil & Gas Association. Davidson and some of his producer colleagues that work in Colorado, including Anadarko Petroleum Corp. and Encana Corp., have been working with EDF to find compromise in a state unlike any other in the country. The solutions the state's energy industry has helped to achieve with EDF may not work elsewhere, but it's a risk worth taking, Davidson said.

The question on everyone's minds was the tentative agreement achieved by Colorado Gov. John Hickenlooper and drilling opponents Monday to withdraw measures from the November ballot (Initiatives 88 and 89) related to local control over energy development (see Shale Daily, Aug. 5). Noble and other operators had fought to defeat the proposals, all of which were withdrawn by Tuesday afternoon. Hickenlooper announced the creation of an 18-member task force to craft recommendations to help minimize land use conflicts when oil and gas facilities are sited near residential and commercial areas.

"I'll be sleeping better going forward," Davidson said to laughter. The agreement, he said, is a "real breakthrough. I give a lot of credit to the governor," and to Democratic Rep. Jared Polis, a staunch opponent, who helmed with the compromise. "They came together and recognized that the time to regulate a complex area like oil and gas through constitutional amendments is not the right way. It exposed Colorado to a lot of unforeseen consequences."

The agreement they achieved "brings us to a really important pathway. We've got an opportunity to bring all of the constituents together to talk about what we know we need to address. We need to do it in a way to minimize the impact on people's lives. I am pleased we are going down a pathway, and yes, not on a ballot...We end up with a better solution."

The "energy" that helped push for the ballot initiatives "comes from really understandable frustration from people feeling the impacts on their lives, direct and otherwise," said Krupp. "I'm hoping this big step back gives space to everybody involved to create the sort of rules that give people more confidence. It's good to reduce frustration."

Although EDF wasn't directly involved in the local control efforts as it concentrates its efforts on environmental protections, it has become a broker for change in the state.

Last November, Hickenlooper issued a plan that had been in the works for 10 months for Colorado to become the first state to regulate methane emissions from drilling sites (see Daily GPI, Nov. 18, 2013). Work on the proposal was done by EDF with teams from Noble, Anadarko Petroleum Corp and Encana Corp. EDF also is cooperating with producers to lead emissions reviews at Colorado gas wells (see Daily GPI, April 3).

All sides have to come to the table to resolve the issues at hand, said Krupp. EDF has taken fire from peer groups for its willingness to sit down with energy operators. Noble and other producers have been criticized for compromising and agreeing to more regulations. Coming to the table to reach a deal with EDF on emissions reductions wasn't easy.

"Along the way, we took heat from some of our friends from working with natural gas companies," said Krupp. "It's no fun to have your friends raking you over the coals." However, "we can't ignore the fact that natural gas and oil are being developed here and around the country and it's going to continue. It's not right to not stand up for doing it the right way. I think it doesn't make sense. I'd rather engage, get good rules in place...Criticism will come anyway."

Anytime work is on something that could set a precedent, "you are going to get some heat," said Davidson. "There's no question about that...At the same time, you have to go where your heart is." In the case of methane emissions regulations, "as in other collaborations, we believed this was the right area and the right time. Our industry needs to address the issue of methane emissions. It needs to be more broadly than just a company…”

During the methane emissions negotiations, both sides threatened to walk out.

"Certainly, the easiest part for us was that we needed to do something" because stakeholders did not trust the energy companies, said Davidson. "Once we got in the mindset, we had to find a solution...From our perspective, we thought the time was right, that methane emissions needed to be addressed. That was our view. We believed that was the view of the state...If we did not do something, we thought the state of Colorado would do something."

Oil and gas operators decided to "face the issue head-on and not dodge it. The hardest part was persevering...It was long, it was difficult. It was one of those things where it would be easy to walk away. But we weren't walking away."

Krupp said the opposing sides had a "common objective. If we could agree on strong rules that were sane, sensible and cost-efficient, we could agree on that. Maybe we had different motivations, but we don't have to have the same motivation. We have to have the same objective."

The emissions compromise was "frankly, a spectacular result," said Krupp. "It was the first methane agreement in the United States..." Larger well pads have more stringent regulations; small operators have minimal requirements. "In sum, it doesn't cost that much, but it's really a substantial benefit to everybody who lives here. It will be a model for our nation."

Balancing the needs of an organization with that of competing viewpoints is not an easy task.

"It's important to start first with principles," said Krupp. "In our case, we're an environmental protection organization. We want to see people who live here be protected, to have clean air, clean water. And in Colorado, we've had a good experience of working with the governor" on fracture (frack) fluid disclosures, through fracfocus.org, and now with methane emission regulations.

To get the full value of developing energy resources, "we need to make sure all the rest of the public has confidence and trust in us to deliver this in a safe way," Davidson said. "This to me is all about ensuring you do have a social license to operate...What I'm relying on to give me strength is that this is the right thing to do."

Noble, which also operates in the Gulf of Mexico, stepped in to help address issues following the Macondo well disaster in 2010, helping to ensure blowout preventers were up to par and efficiently regulated.

"Sometimes, you just have to stick your neck out and listen to your heart, even if it means setting a precedent."

Whether Colorado's unique activism between opposing sides would work on the national stage is questionable.

"We want to be careful," Davidson said. "Do we need to look at methane more broadly? I believe so. But I'm not convinced that one size fits all. I feel the same on hydraulic fracturing...as geology changes...We have to be thoughtful before applying the Colorado model."

As to whether other states can find collaborative approaches, Krupp said "so many times, the stories are told as though it's a win/lose negotiation," but that's not true for all situations. "In some, there are win wins to be had...Finding a path forward, including how to develop shale resources in this country in a safe way can be a win-win."

It's not like it was 20 years ago, when companies didn't have to worry about the public's opinion on drilling for oil and gas. Besides the technological transformation, another one took place around seven or eight years ago as the scale of unconventional development climbed. That led to an "evolution in the public and the public's role in the development of resources,” said Davidson.

The public today is "interested in how our operations affect them. Certainly, that's been our experience in Colorado. While fracturing may be the first thing that's mentioned, that's really not necessarily the issue. We have found in Colorado significant support for hydraulic fracturing, but also for local control and community development. The real issue is underneath was some were saying about fracking," which wasn't actually to be the ballot this fall.

"We as an industry have to be more open to finding solutions...Until we find those solutions, our life as an industry will be very difficult."

EDF has not supported a ban on fracking but "we believe some places are not appropriate, those close to the water table, close to treasured national parks. Some states like New York are making their own decisions. The real issue is not whether or not to frack, but how to do it safely. Ninety-percent of all wells are being hydraulically fractured. And I agree with Chuck that most environmental issues don't have anything to do with shale, but with oil and gas development and its impact on roads, air pollution, problems with water contamination...Those are the real issues."

It's about problem solving, said Krupp. "We have to find cost effective ways to find solutions."

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