Colorado Legislature Passes Sweeping Oil and Gas Reform

Members of the Colorado State Senate, on a strictly party-line vote, approved amendments to SB-181 made by the State House.  SB-181 will now make its way to the Governor’s desk, where it is all but certain to be signed into law by Governor Polis.

As previously reported on this Blog, SB-181 drastically changes the focus of the Colorado Oil and Gas Conservation Commission (COGCC), which opponents claimed was too industry-friendly.  Among other changes, SB-181 replaces the COGCC’s current mandate of fostering and regulating oil and gas development to a mandate which is primarily focused on regulation.  The makeup of the COGCC will also change dramatically as only one member of the nine-member Commission will have training or substantial experience in the oil and gas industry.

In addition, SB-181 significantly increases local governments’ ability to control and regulate oil and gas operations.  The bill grants local governments authority to manage the siting and surface impacts of oil and gas development through local land use and development codes.  The bill also provides for increased air quality control regulation and grants counties authority to regulate noise associated with oil and gas development.

Assuming the Governor signs the bill, the COGCC will begin the process of writing and rewriting the current rules governing oil and gas development, operations and safety.  New rules will need to be promulgated by the Colorado Department of Public Health and Environment as well to meet the additional health and safety requirements of the bill.  From past regulation at the local level, certain localities will likely amend their codes and ordinances in a way that all but bans future oil and gas development.

While the future of oil and gas in Colorado is currently uncertain, there is no question that development will now be more difficult for operators.  Additionally, the costs associated with operations will also likely increase due to regulatory changes at the COGCC and at the local level, and from probable litigation over those changes.  In conjunction with future difficulties on the operations side, there is also the potential for a decrease in the property value associated with mineral rights in Colorado as minerals will not be as accessible and operators may choose to pursue development in other states.

The full impact to the oil and gas industry, jobs and the Colorado economy remains to be seen.