Briefline

Colorado oil and gas regulators release updated bonding proposal ahead of January hearing

By: - December 15, 2021 1:30 pm

Fossil fuel extraction infrastructure is visible from the backyard of a home east of Longmont on June 24, 2020. (Andy Bosselman for Newsline)

Colorado regulators have released their latest proposal for a new set of rules governing the financial assurance payments that oil and gas companies must provide to cover potential cleanup costs, with hearings on the proposed rules scheduled to begin in January.

The Colorado Oil and Gas Conservation Commission, the state agency that oversees drilling, was required to revise its regulations on financial assurance, also known as bonding, by Senate Bill 19-181, a major package of reforms passed by Democratic state lawmakers in 2019. The financial assurance rulemaking is the last major set of changes required by the bill, aimed at strengthening bonding requirements that environmental groups have long criticized as too lax.

Under current rules, 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.

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Oil and gas wells are routinely “orphaned” to the state as a result of bankruptcies, especially among smaller operators. The COGCC’s most recent report identified 236 orphaned wells and 547 associated sites across Colorado as of July 2021.

Advocates for stronger environmental protections have called for a “full-cost bonding” approach, requiring bonding amounts of $78,000 per well or more — a rule that would, in effect, force operators to secure surety bonds on the private insurance market.

Industry groups have labeled such an approach as a “nonstarter,” acknowledging that the premiums and collateral requirements demanded by insurers would put many operators out of business.

The latest draft of the COGCC’s new rules would sort most operators into one of two tiers. Smaller, low-producing operators deemed to be at greater risk of bankruptcy and abandonment would be required to provide full-cost bonds of between $35,000 and $105,000 per well, depending on its depth and location. Larger operators would still be able to provide blanket bonds to cover hundreds or thousands of active wells, though the amounts would be significantly higher.

Environmental advocates said the agency’s latest proposal represented an improvement over its previous draft, released in October, but called for further changes, like removing an exemption for wells on federal public lands and clearer directions relating to the “plugging lists” that the new rules would require operators to maintain.

“We’re close to ensuring that Coloradans don’t have to clean up the oil and gas industry’s messes, but we’re not across the finish line yet,” Beau Kiklis, a public lands advocate with Conservation Colorado, said in a statement. “It’s time for the commission to lead by strengthening rules to hold industry accountable and protect Colorado’s communities, public lands, and climate. Coloradans have their back.”

The COGCC will hold formal hearings on the new rules beginning on Jan. 20, 2022.

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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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