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Dispute over drilling rules remains hot

March 6, 2009

DENVER • Colorado's gas- and oil-drilling boom is turning to bust. The state is about to introduce new rules addressing what some see as excesses of the boom years. Some argue the first fact is being worsened by the second one.

Supporters say the rules preserve public safety, respect the rights of landowners and protect the environment.

Critics assail them as job- killers, and they have been trying to chip away at them ever since the passage in 2007 of laws adding "protection of the environment and wildlife resources" to the state Oil and Gas Conservation Commission's existing tasks of protecting "public health, safety, and welfare."

That's a pretty broad mandate, but the oil and gas industry, with the support of Republican lawmakers, has argued that the commission's draft rules are burdensome and would drive energy jobs out of the state.

"The rules go farther than we gave them the authority for," said Josh Penry, the Senate minority leader.

The proposed rules, which number nearly 100 and would be phased in beginning in April, restrict drilling near drinking-water sources and require drillers to place tighter controls on chemical emissions.

For the first time, the state Department of Public Health and Environment and the Division of Wildlife are granted input in the decision on how or whether to issue a drilling permit.

Also getting a seat at the table is the landowner who does not own mineral rights to the property, as well as the landowner's neighbors.

Critics say these new stakeholders will drag out the permit process.

"You've extended the permitting process to God knows how long, so you don't even really know how long the race is now," said John Harpole, president of Mercator Energy, a Littleton-based natural gas services consulting company. "So if you're in the board room of one of these companies and trying to decide, all other things being equal, where are you going to go?"

There's no question that Colorado's oil and gas industry is on the downside of the boom-and-bust cycle it has ridden for decades.

Dave Neslin, acting director of the Oil and Gas Commission, said applications for drilling permits are already down 29 percent from a year ago, and the Legislative Council is forecasting that the state's severance tax revenue from oil and gas extraction will plummet from $206 million to $44 million in the fiscal year that begins in June.

That's a drop of nearly 80 percent, and a serious issue for the cash-strapped state government and the gas-producing areas of the state.

The energy industry acknowledges that much of the slump in Colorado is part of the nationwide trend caused by declining demand and the 70 percent plunge in energy prices from their 2008 highs. But it blames part of the drop on the new regulations.

Harpole said that in the face of slumping gas prices, tighter credit markets, limited pipeline capacity and the state's new, stiffer regulations, exploration companies would shut down their Colorado operations and head to other regions where drilling is less of a gamble.

Neslin disputed the assertion that drillers are moving elsewhere.

"We're not seeing rigs leaving the state," he said.

Harpole said he expects conditions in the energy and credit markets to improve and delivery bottlenecks to be resolved by the completion in 2010 of a pipeline linking the Rocky Mountain gas fields to the West Coast.

"The only long-term issue of the four is this regulatory issue," he said.

Rep. Kathleen Curry, D-Gunnison, who sponsored the bill that the Oil and Gas Commission is now trying to codify, left out the regulations when she described the energy-sector slump as "a three-way perfect storm" of low energy prices, tight credit and pipeline capacity.

Curry said the proposed rules are "more comprehensive than what I had anticipated," but she discounted their impact on jobs in her district.

"My comfort level with the rules is high," she said.

Harpole wouldn't hazard a guess about how many jobs are at risk because of the new regulations. But he insisted that they are a significant factor.

"I used to run the half-mile in high school," he said. "It's like they've added high hurdles to the half-mile race."

Neslin said that more than 4,500 existing permits, which are not subject to the new rules, have not been used yet, and he argued that if the rules were that big an issue the drilling companies would be rushing to use the grandfathered permits before they expire by the end of 2009.

"We don't see any evidence," Neslin said, that the new rules "are having any material effect on drilling levels in Colorado at this point."

"We do not believe that these amendments will have a significant effect on jobs," he said.

"I've heard the references to ‘job-killing rules,' and I know that's maybe kind of a punchy term, but I don't understand the logic behind it."

At a hearing Friday to determine whether the Oil and Gas Commission rule drafters adhered to the intent of the 2007 laws, Republicans on the Legislature's joint Legal Services Committee, led by Rep. Bob Gardner of Colorado Springs and Sen. Greg Brophy of Wray, pecked away at the new rules but managed to kill only one minor measure.

This long-running skirmish now shifts to the full House and Senate.


Contact Toda at: 476-1654


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