Colorado regulators on Tuesday approved a sweeping set of new financial requirements for oil and gas companies that operate within the state, completing the last major rule change mandated by a landmark drilling reform law passed by Democrats in the General Assembly three years ago.
The five-member Colorado Oil and Gas Conservation Commission voted unanimously to adopt the new rules on financial assurance, also known as bonding. When they take effect in April, the changes will significantly increase the amounts of the bonds that oil and gas producers must provide to the state to cover potential cleanup costs, and new fees will raise millions of dollars to fund the plugging of wells that are abandoned, or “orphaned,” typically as a result of bankruptcy.
In a press release, COGCC officials called the new rules “the strongest in the nation.” Commissioner John Messner, a former Gunnison County commissioner, said prior to Tuesday’s vote that the rules represent a “paradigm shift.”
“I think they fundamentally change how financial assurance for oil and gas activities in the state of Colorado are addressed,” Messner said. “They were an outcome of over a year’s worth of collaboration and input from a really diverse group of individuals and stakeholders.”
The financial assurance changes were the last major rulemaking required by Senate Bill 19-181, a law that overhauled the COGCC itself and tasked it with reorienting state oil and gas policy to be more protective of health, safety and the environment. The commission is still set to consider additional rulemakings on worker safety certifications and permit application fees at a later date.
“These innovative rules will allow the COGCC to continue its oil and gas regulatory duties in a meaningful, impactful and protective manner for all of Colorado,” agency director Julie Murphy said in a statement. “Staff will begin the work to integrate these new rules into daily operations.”
The COGCC’s new requirements are structured around six different tiers or “options” through which operators can provide financial assurance to the state. The largest operators, which are considered to be at the lowest risk of abandoning wells, could continue to provide statewide “blanket” bonds set at amounts as low as $1,500 per active well, while smaller, riskier operators will be required to provide “single well” financial assurance, at a cost of $110,000 per well or more.
Additionally, the new rules establish an annual well registration fee that is projected to raise $10 million annually to fund the cleanup of orphaned wells. That money will be augmented by the $10 million or more annually that the COGCC expects to receive for orphaned-well cleanup from the federal government as a result of last year’s infrastructure law.
In a statement Tuesday, Lynn Granger, executive director of the American Petroleum Institute’s Colorado chapter, called the approved rules “the epitome of a ‘belt and suspenders’ approach.”
“We extend our gratitude to the commission, in particular commission staff, for their tireless work on this incredibly complex issue,” Granger said. “Their efforts have gone a long way toward developing a workable framework for most of Colorado’s natural gas and oil industry.”
Environmental groups, who had long criticized the state’s bonding requirements as inadequate, applauded the new rules. Between the higher bonding amounts, incentives for operators to plug existing wells and the expanded orphaned well program, they’re hopeful that up to one-fifth of the state’s 50,000 active wells could be plugged in the coming years.
“For too long, the oil and gas industry dumped their responsibility for low-producing wells onto the people of Colorado, and our health, safety, and environment paid the price,” Kelly Nordini, CEO of Conservation Colorado, said in a statement. “By requiring industry to pay for and plug 10,000 high-risk wells and so many others that dot our landscape, the COGCC moved one step closer to ensuring that Coloradans’ health and safety always comes before oil and gas industry profits.”
“The new bonding requirements are a major step forward,” Jacob Smith, executive director of Colorado Communities for Climate Action, said in a statement. “They could have been stronger, but this is a dramatic improvement, and it includes mechanisms for making adjustments if these rules prove to be inadequate.”
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