The latest chapter in the ongoing fight over the future of oil and gas development in Colorado has now opened. On Friday, March 1, Democratic proposals for an overhaul of Colorado oil and gas law that have been anticipated since November took concrete form with the introduction of S.B. 19-181 in the state Senate. Sponsored by Senate Majority Leader Steve Fenberg and House Speaker K.C. Becker with the support of Governor Jared Polis, the bill would result in fundamental changes to the way oil and gas operations are regulated at both the state and local level.

Pressure for Change Continues
This past November, voters in Colorado rejected Proposition 112--which would have imposed 2,500-foot setbacks for new oil and gas facilities in the state and severely restricted new oil and gas development in some areas--by a significant margin. Nevertheless, at the time many felt that the defeat of Proposition 112 would not end the pressures for change in how the state regulates oil and gas operations that led to Proposition 112 being placed on the ballot. That pressure was in no small part a product of increasing oil and gas production meeting expanding residential development, particularly in Colorado's Front Range. To some, the need for further reforms was highlighted by a 2017 explosion at a home in Firestone, Colorado that claimed two lives; the explosion resulted from an uncapped flowline. The prospects for further action appeared to increase as a result of the November elections, in which Colorado voters elected a new governor with a history of supporting stricter regulation of the oil and gas industry and gave Democrats control of the state Senate to go along with their continued majority in the House.

Those seeking reform found new cause for concern in January when the Colorado Supreme Court issued its decision in Colorado Oil and Gas Conservation Commission v. Martinez, 433 P.3d 22 (Colo. 2019). In that case a number of Colorado youth challenged the COGCC's rejection of a petition seeking to have the Commission promulgate a rule providing that no permits to drill would be issued unless the best available science demonstrates (and a third party confirms) that drilling can occur in a manner that does not cumulatively impair the state's atmosphere, water, wildlife and land resources, does not adversely affect human health and does not contribute to climate change. The court ruled in favor of the COGCC, rejecting the argument that under the Colorado Oil and Gas Conservation Act the protection of public health, safety and welfare is a prerequisite to any oil and gas development. The court found instead that the Commission is required to foster the development of oil and gas resources and in doing so must prevent significant adverse environmental impacts to the extent necessary to protect public health, safety and welfare after taking into consideration cost-effectiveness and technical feasibility.

A Wide-Ranging Bill
The predictions regarding likely legislative action have proved to be accurate. S.B. 19-181 is in part a response to the calls for more local control of oil and gas development that helped fuel support for Proposition 112 and in part a response to the Martinez decision. It would significantly revise a number of aspects of Colorado oil and gas law relating both to state and local regulation of oil and gas operations. Among the notable provisions of the bill are the following:

• The bill would revise the mandate of the COGCC by deleting reference to fostering oil and gas development and would instead require regulation of oil and gas resources in a manner that protects public health, safety and welfare, a change that would effectively nullify the Martinez decision and push the Commission to place greater emphasis on protection of public health and safety in making permitting decisions and promulgating regulations.
• Consistent with this change, the bill would clarify that "waste" as applied to oil and gas does not include oil and gas left in the ground to the extent deemed necessary to protection public health, safety and welfare, the environment or wildlife resources.
• The bill would modify the makeup of the Commission itself, reducing the number of required representatives of the oil and gas industry from three to one and eliminating the requirement that two members have degrees in petroleum geology or petroleum engineering while adding requirements that (i) one member have formal training or substantial experience in environmental protection and another in wildlife protection (as opposed to one member having training or experience in environmental protection or wildlife protection), and (ii) one member have formal training or substantial experience in public health. Overall, these changes would likely have the effect of decreasing representation of industry on the Commission while increasing representation of environmental protection and public health professionals.
• In further response to the Martinez decision, the bill would require the Commission (in consultation with the Colorado Department of Public Health and Environment) to evaluate and address the potential cumulative impacts of oil and gas development.
• The Commission would be required to adopt a process for analyzing potential alternative locations for facilities that would apply to facilities proposed to be located near populated areas.
• The bill would increase the power of local governments to regulate oil and gas development by (i) amending state law to specifically provide that local governments can regulate oil and gas operations to address land use and to minimize adverse impacts to public health, safety and welfare, the environment and wildlife, including the authority to impose fees and issue fines, and (ii) providing that in case of a conflict between state and local oil and gas regulations, the regulation that is more protective of public health, safety and welfare, the environment or wildlife resources would prevail. In addition, local governments would be able to exercise their 1041 powers (i.e., regulatory authority under the Areas and Activities of State Interest Act) with respect to oil and gas development even in the absence of a Commission identification of an area as an area of state interest. Moreover, an Application for Permit to Drill ("APD") would have to include proof that the applicant was taking steps to satisfy any local requirements regarding siting.
• The rules for forced pooling would be revised, with the consent of the owners of a majority of the interests to be pooled being required for a pooling order.
• The Air Quality Control Commission would be required to adopt rules to (i) minimize emissions of methane and other hydrocarbons as well as nitrogen oxides from the entire oil and gas fuel cycle, and (ii) mandate continuous emissions monitoring for methane, hazardous air pollutants and volatile organic compounds.
• The COGC would be required to promulgate rules to ensure wellhead integrity and--in response to the 2017 Firestone incident--to review existing rules regarding flow lines and inactive and shut-in wells.
• Finally, COGC would have the authority--but would not be required--to withhold drilling permits until all required rulemakings had been completed, which could potentially take many months.

Potential for Significant Impacts
Collectively, these revisions to the Oil and Gas Conservation Act and other provisions of state law would lead to substantial changes in the way oil and gas operations are regulated in Colorado, potentially resulting in a significant further tightening of what are already among the most protective regulations in the country. The COGCC--reconstituted to include fewer industry voices--would have the authority to weigh potential impacts to human health and the environment more heavily when considering APDs and other requests for approval. The impact of these revisions would play out over time as the reconstituted Commission considered permit decisions and new rulemakings under a new set of standards designed to put greater emphasis on environmental protections, perhaps with renewed pressure from the Martinez plaintiffs or others.

At the same time, local governments would have expanded authority to regulate the siting of oil and gas facilities as well as their operations. As a result, while this bill would not mandate 2,500-foot setbacks as Proposition 112 would have done, local governments would have the authority to accomplish the same result within their jurisdictions if they chose to do so. While counties that generally support oil and gas development (e.g., Weld County) might not make aggressive use of this new authority if the bill is passed, other counties might take a different approach.

Despite widespread calls to avoid rushing through a measure with such potential impacts on a key sector of the state economy, the bill appears to be on a fast track. In an unusual move, the first hearing on the bill was held before the Senate Transportation and Energy Committee only four days (and two business days) after introduction. The committee approved the bill on a 4-3 party-line vote after 12 hours of testimony from hundreds of people across the state. The bill must be approved by at least one other Senate committee and the full Senate before being taken up in the House. With Democrats in control of both chambers of the state legislature and Governor Polis supporting it, this bill is certain to have traction and bears close watching by those with an interest in oil and gas development in Colorado.

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.