Colorado oil and gas commission delays new bonding, orphaned-well rules until 2022

Hearings on financial-assurance rulemaking previously scheduled to start in September

By: - July 15, 2021 4:45 am

A pump jack is pictured near homes in Frederick on June 24, 2020. (Andy Bosselman for Colorado Newsline)

Days before a key rulemaking deadline, the Colorado Oil and Gas Conservation Commission voted on Wednesday to delay public hearings on a new set of financial-assurance rules from September until January.

The new rules relating to financial assurance, also known as bonding, would require oil and gas operators to provide payments to the state for each well they drill, in order to cover potential cleanup and mitigation costs in the event that the sites are abandoned. They were mandated by Senate Bill 19-181, the landmark drilling law enacted by Democrats in the Colorado General Assembly more than two years ago.

COGCC staff unveiled a draft set of rules last month, and the commission was scheduled to begin accepting testimony from outside parties this week, in advance of a series of hearings in September and October. But the commission voted unanimously in its weekly hearing Wednesday to adopt a motion that will significantly extend the process, with several rounds of staff revisions to the proposed rules scheduled throughout the remainder of the year before public hearings are held in January 2022.

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“I hope that everybody realizes that the commission, in adopting this, is looking to create the best path forward for Colorado,” COGCC chair Jeff Robbins said after the vote. “I think that this gives us the best chance for success. It’s a balancing act to move from the current state to a new state, and we want to make sure we get that right.”

COGCC officials said that under the new timeline, the effective date of the new rules would only be delayed by three months, moving from January 1 to April 1. But environmental activists cried foul over the abrupt schedule change, which they fear will give the oil and gas industry more time to get drilling permits approved under existing rules and lobby the commission to weaken new requirements.

“I’m appalled by the lack of transparency and the sudden announcement of the decision to postpone the effective date of the rulemaking,” Kate Merlin, an attorney with environmental group WildEarth Guardians, told the commission during a public comment period following the vote. “We’re well into the rulemaking process. Operators continue to benefit right now from what is essentially a free loan from the state. We have some number of operators who right now cannot afford to follow the rules.”

Environmental and community groups have long criticized Colorado’s existing financial-assurance rules as inadequate. Operators can cover up to 100 wells statewide with a “blanket bond” of $60,000, while operators with more than 100 wells can provide a blanket bond of just $100,000. That’s despite the fact that the typical cost to “plug” and reclaim a single well — a process that drastically reduces the potential for safety or environmental hazards — can exceed $80,000.

A small number of wells, typically those operated by smaller oil and gas companies, routinely end up “orphaned” to the state, leaving the COGCC’s Orphaned Well Program on the hook for cleanup costs. In 2020, the program spent more than $4.7 million on projects at 102 different sites, with only about 10% of that cost covered by bonds provided by operators; the rest was appropriated by the Legislature, which increased the program’s annual budget to $5 million in 2019. In all, the COGCC currently manages about 535 orphaned oil and gas sites, with a backlog of 239 orphaned wells remaining to be plugged at those sites, according to agency data.

That’s a relatively low number when compared to the tens of thousands of orphaned wells that are estimated to exist in some other states, like Pennsylvania and Oklahoma. Industry groups have questioned the need for significant changes to bonding rules, and they supported the commission’s vote to postpone the hearings.

“Financial assurance is a highly complex subject, and we appreciate the Commission’s decision to allow for more time so as to provide parties and stakeholders the opportunity to pursue a more thorough and thoughtful process,” Lynn Granger, executive director for the American Petroleum Institute’s Colorado chapter, said in a statement. “We remain committed to approaching this rulemaking, like all others, in good faith and with a collaborative spirit, with the ultimate goal of developing the best possible solution for the state of Colorado.”

Industry motion to delay

The COGCC formally began the financial-assurance rulemaking with a notice issued June 15. Its original deadline for “prehearing statements,” an initial phase of testimony from outside parties including environmental advocates and industry groups, was July 16.

Industry groups, however, filed a motion with the commission last week to postpone that deadline by two weeks, Robbins said during a July 9 meeting of commissioners.

“The draft rules are complex and highly technical,” said the motion, which was filed jointly by API Colorado and the Colorado Oil and Gas Association. “Briefing on the proposed rules and potential alternatives thereto would benefit from as much thought and consultation as possible within the outer constraints of the hearing dates.”

The motion led to a round of discussions between commissioners and COGCC staff about how to move forward, with Robbins’ initial suggestion for a “bifurcated” rulemaking — advancing some of the proposed rules while deferring consideration of others — scrapped in favor of delaying hearings altogether.

“I tended to agree that not bifurcating made a lot of sense,” Julie Murphy, the COGCC’s executive director, said during Wednesday’s hearing. “Everybody having to … go through this process twice, it didn’t feel very efficient.”

During public comment, Andrew Forkes-Gudmundson, deputy director of the League of Oil and Gas Impacted Coloradans, objected to the lack of public input on the commission’s decision, which he said could pose challenges for advocates and members of the public who engage with the commission on a part-time, volunteer basis.

“There’s a somewhat frustrating process problem associated with this delay,” Forkes-Gudmundson said. “These members of the public that have been educating themselves on this issue now have to stay engaged for another six months or however long it’ll take to do this process. I think many of them had been looking forward to engaging on this as soon as possible.”

Robbins, who led the COGCC as executive director before being appointed as commission chair last year, disagreed.

“I believe that this provides the public with more opportunities for engagement, not less,” Robbins said. “Hopefully folks will understand that what has (been) accomplished here is to ensure that we’re hearing from everyone as best we can.”

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Chase Woodruff
Chase Woodruff

Reporter Chase Woodruff covers the environment, the economy and other stories for Colorado Newsline.

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