Presentation by the Department of Natural Resources
COMMITTEE ON JOINT SELECT COMMITTEE ON JOB CREATION AND ECONOMIC GROWTH
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11:47 AM -- Department of Natural Resources
Mr. Harris Sherman, Colorado Department of Natural Resources, gave a power-point presentation (Attachment C) about the new oil and gas regulations. He explained that the rulemaking is being done to implement legislative changes passed in the 2007 session in HB 1298 and HB 1391. These bills directed the Colorado Oil and Gas Conservation Commission (COGCC) to consult with both the Colorado Department of Public Health and the Environment and the Colorado Division of Wildlife. He further said that the regulations were approved by COGCC.
Mr. Sherman stated that the new rules are important to the future of Colorado's economy and discussed the permitting process in Colorado. He said Department has issued a record number of permits, over 8,000 in 2008, which amounts to 30 permits per day. According to Mr. Sherman, this is more permits than any of the states in the Rocky Mountain region. He also stated that New Mexico has a larger staff but issued only a quarter of the permits that the Colorado Department of Natural Resources issued during that same period.
Mr. Sherman said the current rules comply with the legislative intent of HB 1341 and HB 1298.
Mr. Sherman stated that the recent oil and gas rules are one of the most extensive and transparent rulemaking activities in state history, with more than eighty hours of deliberation and unanimous approval by COGCC. He stated that the rules had substantial input from oil and gas companies, local governments, property owners, conservation and wildlife groups.
Committee discussion ensued about whether the decline in natural gas activity was because of the Department rules. Mr. Sherman said he does not agree that the decline in natural gas activity is a result of the rulemaking, and believes it is market forces driving the decline, specifically four main factors. According to Mr. Sherman, these factors include: the reduced price of natural gas, the credit crunch, competition in the market, and regional pipeline constraints. He also stated that as the price has fallen, the rig counts have also declined.
Mr. Sherman responded to questions from the committee regarding several issues, including market factors and the impacts of the rules on drinking water, the environment and the public.
Committee discussion ensured round the authority of other agencies in issuing a final permit. Mr. Sherman stated it is important for all legislators to review the regulations carefully and stressed that only the Department has the authority to issue a permit. The only role of the agencies is to make a recommendation. Mr. Sherman also stated it is rare that a petition for a hearing is filed to the COGCC
Mr. Sherman also stated that new pipelines will likely need to be built in the next two years.
Mr. David Neslin, COGCC, continued the presentation before the committee. Mr Neslin said that COGCC adopted many industry proposals verbatim in the final rules, including rule 25 about chemical inventory and rule 1203 regarding wildlife operating requirements. In addition, he stated that COGCC will issue permits under the old rules until May 2010. The permits will be good for one calendar year, and operators can use these permits to drill under the old rules until the end of April 2010. In addition, companies can obtain multi-year planning certainty with approved Comprehensive Drilling Plans (CDPs). He stated the CDPs are voluntary and not mandatory.
Mr. Neslin continued his testimony, stating that permit applications need to be examined closely because drilling is an industrial activity. In 2008, 3,500 new wells were drilled in Colorado, according to Mr. Neslin. He further stated the rules ensure the permitting process is timely and efficient.
Mr. David Neslin responded to questions from the committee that were raised about multiple environmental issues, including groundwater contamination, the impacts of the rules on wildlife, restricted surface occupancy, and endangered species, among others.
Senator Schwartz thanked the presenters and recognized the members of COGCC. The committee continued its discussion of the regulations and the potential impacts of the rules on the oil and gas industry, specifically with respect to drilling, pipelines, and the creation of new jobs in Colorado.
Committee discussion ensured regarding whether to delay the rules and regulations for a year. Mr. Sherman said he believes it would be a mistake to delay the regulations because the proposed rules strike the right balance, and will help Colorado's economy.