Bill Summary for Bill Number Fourth Meeting

Final
Fourth Meeting

WATER RESOURCES REVIEW COMMITTEE

Votes:

Action Taken:

Moved to draft a bill to require that the Board of

Pass Without Objection

9:06 AM -- Call to Order

Senator Isgar called the meeting to order, and summarized the meeting agenda.

9:08 AM -- Regulation of Produced Water

Shane Henry, Assistant Director with the Colorado Department of Natural Resources (DNR), began the panel presentation on produced water. He noted that similar panels have made several presentations around the state regarding the three agencies involved in regulating produced water in Colorado. Specifically, the Oil and Gas Conservation Commission (OGCC) in the DNR is responsible for issuing drilling permits for the natural gas well, and the Water Quality Control Division (WQCD) in the Department of Public Health and Environment is responsible for regulating water quality of produced water. If there is intent to put the water to beneficial use, the Division of Water Resources (DWR) in DNR is responsible for water rights issues.

Matt Sares, Chief Engineer, Colorado Geological Survey (CGS) noted that his part of the presentation would focus on geological history of Colorado (Attachment A). Over millions of years, deposits of carbonaceous material became coal beds. Coalbeds contain fractures known as cleats, which are important for coal bed methane (CBM) development. In Colorado, three basins are currently producing CBM: the San Juan Basin in southwest Colorado, the Raton Basin in south-central Colorado, and the Piceance Basin on the western slope. Mr. Sares explained that CBM gas is trapped in coal beds by the pressure of water in cleats. To release the methane, the water pressure is reduced by pumping water from the coal-bearing interval. Methane is transferred from the beds through well-bores to the surface. Coal-bearing intervals may be interlaced with known aquifers or may be connected directly to surface water systems. He also provided an overview of the various coal bed formations located in Colorado described the conditions under which CBM production would negatively impact the water quality of aquifers. He noted that in many cases, the water used to extract the methane is too saline to be considered a viable aquifer.

9:15 A.M.

Brian Macke, Director of the Colorado Oil and Gas Conservation Commission, provided an overview of oil and gas production in Colorado (Attachment B). Currently, the largest number of active wells (about 40 percent of the total) are located in the Denver-Julesberg (DJ) basin between Denver and Greeley. Shallow gas production occurs in northeast Colorado in Yuma County. CBM development is ongoing in the Raton Basin just west of Trinidad and in LaPlata County in southwestern Colorado. Northwest Colorado is home to about 40 percent of well development. The increase in activity is driven by high gas prices. Mr. Macke commented that the OGCC is responsible for reviewing several aspects of proposed wells before a drilling permit is issued. These include well location and the potential impact to other's mineral rights, well construction, and proposed production operations (including safety, noise abatement, and produced water aspects). The OGCC also regulates the plugging of wells and the reclamation of surface areas. There has been a large increase in the number of wells since 2000 due to increasing oil and gas prices. On September 23, the OGCC exceeded the previous year's record number of well permits. The OGCC expects about 1200 permits in Garfield County, and Yuma County is about to double the number of permits from the previous year. There has also been a steady increase in the number of active wells in Colorado. The largest number of active wells in Colorado are located in Weld County, followed by Garfield, LaPlata , Rio Blanco, Yuma, and Las Animas counties.

Senator Taylor asked how the OGCC determined if a well is active. Mr. Macke responded that a well is deemed active once it has been drilled and completed, that is once it is capable of production. Many wells that were temporarily abandoned are now producing because of high gas prices. Senator Taylor raised the concern that despite the increase in permits and wells being drilled, in Garfield County, they are unable to get these wells into production because insufficient collection infrastructure exists.

Mr. Macke provided a history of Colorado oil and gas production. Total production in the state has increased at a rate of about 5 percent per year. Newer wells are responsible for the increase since production in older wells declines over time. LaPlata County is currently the largest gas producing county with around 45 percent of total gas production, followed by Garfield County and Weld County. Historically, a capacity constraint in northwest Colorado has existed in transporting gas out of state. Current pipelines under construction are expected to add transport capacity to this area of 1.6 billion cubic feet (BCF) per day. This represents an addition of 50 percent to current transport capacity. Mr. Macke commented that it is his understanding that the large pipeline projects are expected to be completed by November of next year. The OGCC had no authority over pipelines, and construction efforts are largely driven by market forces.

Representative Hoppe commented that she is also frustrated with the delay in getting the product to market. She asked if the OGCC issued the permits for pipeline construction. Mr. Macke commented that permits for major gas transmission lines are issued by the Federal Energy Regulatory Commission (FERC). Mr. Macke commented that no one anticipated the large increases in natural gas prices that occurred over the last year, and the resulting rush by producers to get the product to market. He noted that while last year production value was estimated to be $6.5 billion, the OGCC conservatively estimates production value this year at near $8.2 billion. Currently, about 44 percent of Colorado's production is from CBM wells and 56 percent from conventional techniques.

9:40 A.M.

Debbie Baldwin, Supervisor of Environmental Division, OGCC noted that active CBM production in Colorado occurs in the Piceance Basin (255 wells), the San Juan Basin (1,700 wells) and the Raton Basin (1,900 wells). Although there are fewer wells in the San Juan Basin, they account for 85 percent of CBM production in Colorado. In La Plata County, produced water is re-injected into deep-rock formations (4,000 - 9,000 feet below the coal bed). An important question is the depth of the proposed water re-injection wells and the location of the shallow aquifers needing protection.

Representative Curry asked whether the original well was used to re-inject the water. Ms. Baldwin answered that another well is drilled for re-injection, and produced water is conveyed by pipeline to that well. Typically, water produced in CBM production has too high a content of dissolved solids to be usable. Ms. Baldwin noted that across state, there is about 170.8 acre-feet of water produced per day from all oil and gas wells, including 35.8 acre-feet from CBM wells and 135.0 acre-feet from conventional wells. Water disposal methods is similar for both types of wells. About 19.6 acre-feet is discharged into surface water annually. Ms. Baldwin noted that typically, human drinking water required a total dissolved solids (TDS) level of less than 500 milligrams per liter. In Las Animas County, the TDS level in produced water ranged from about 1,200 to 6,000 milligrams per liter and around 1,200 to 10,000 milligrams per liter in La Plata County. Without treatment, the quality of produced water is not adequate for either irrigation or human consumption. Representative Curry wondered about the disposal for produced water from conventional gas wells. Ms. Baldwin responded that generally water from conventional wells is re-injected, and is discharged in only a couple of places. In contrast to conventional production, water from CBM production doesn't contain liquid hydrocarbons. President Fitz-Gerald asked if the fluctuation in TDS levels depended upon well depth or well location. Ms. Baldwin commented that both factors are important.

9:57 AM

Mr. Andrew Neuhart, WQCD provided an overview of permitting process for discharges of produced water into "waters of the state" (Attachment C). The WQCD receives its regulatory authority from the EPA. The WQCD issues two kinds of discharge permits: individual and general permits. Permits issued for the discharge of produced water from CBM production are "general" permits because they are easier to administer. While the permit does go through a public notice process, any resulting changes easier to make, and the process has an easier permit application and a lower permit fee. Senator Isgar asked if the "waters of state" included arroyos and gulches. Mr. Neuhart responded that essentially, any discharge requires a permit, unless it goes into an evaporative pond. He explained that the WQCD has authority to permit general point sources. In a CBM operation, all individual discharges have to meet all specified requirements. Criteria include results of water quality samples and an effluent toxicity test. Certification under general permits can take only a number of days. A typical CBM permit will contain flow limitation, PH, TDS, and effluent toxicity limitations. Discharge permit fees vary by flow range. Discharge permits are considered for renewal every five years, including another public comment period.

Representative Curry wondered about the number of discharge permits that were being processed by the WQCD. Mr. Neuhart responded that it was difficult to know as a single general permit can cover multiple wells (sometimes up to 300 per permit). Senator Isgar asked if the produced water was of good enough quality for cattle, would a permit be required for a discharge into a stock tank. Mr. Neuhart responded that if the discharge did not enter into the "waters of state", a permit was not required. Representative Curry asked how the WQCD monitor's these discharge permits. Mr. Neuhart responded that every point of discharge permitted was monitored by the owner of permit. Monitoring usually occurs on a monthly basis, and each permit will have its own report submitted by the operator to the WQCD. President Fitz-Gerald asked for confirmation that discharge permits represented a system of self-regulation by the industry. Mr. Neuhart responded that the operator was required to do monitoring and testing and submit results on a periodic basis. The WQCD does not provide much oversight, although with larger permits, they may do an inspection. Such an inspection would involve prior notification for the operator. President Fitz-Gerald asked about what happens if permit limits are exceeded. Mr. Neuhart responded that if an excessive violation was found, appropriate fines would be levied. Operators are required to submit reports concerning how and why the violation occurred, and what efforts were made to correct the problem. The operator is responsible for conducting the testing and mitigating the problem. The operator can be fined up to $10,000 per day until the problem is corrected. Representative Curry wondered how long are active wells monitored. Mr. Neuhart responded that active wells are monitored and permitted for as long as discharges are occurring to "waters of the state". Debbie Baldwin commented that out of 29,000 active wells, perhaps only 1,900 have discharge permits.

10:17 A.M.

Dick Wolfe, Division of Water Resources (DWR) provided an overview of his agency's regulatory authority over produced water that is discharged and put to beneficial use (Attachment D). Produced water, just like other water, is allocated under the doctrine of prior appropriation. To put water to beneficial use, one must have an intent to use, the water must be diverted in priority, and the water must not be wasted. He explained that under the Groundwater Management Act, all groundwater is presumed tributary until proven otherwise. If produced water is non-tributary, then the operator can apply for a permit , regardless of land ownership. Determination of whether the water is non-tributary is typically made through a modeling effort. It is not necessary to determine whether the water is unappropriated if it is non-tributary. If the water is tributary, it is necessary to determine if the water is unappropriated. In basin's which are over-appropriated, the producer would need an approved augmentation plan in order to use the produced water. In Colorado, about 16 million acre-feet of water is annually generated from all sources. Total groundwater generated is about 2.3 million acre-feet annually and produced water from CBM wells is about 0.013 million acre-feet.

Representative Curry asked about how the DWR finds out about new natural gas wells, and what the process is for determining whether the produced water is tributary or non-tributary. Mr. Wolfe replied that when the operator submits an application to beneficially use the produced water, they are required to submit an engineering report documenting whether the water is tributary or non-tributary. Applicants must also submit this information to the water court.

10:30 A.M.

Dick Wolfe and Matt Sares presented an overview of the CBM Stream Depletion Assessment study currently underway in the San Juan basin (Attachments E, F, and G). The study is a joint effort between the DWR, the CGS and the OGCC. Its purpose is to determine the magnitude of stream depletion from CBM production and define non-tributary areas in the Colorado portion of the basin. The study uses the Glover methodology for groundwater modeling. While this method is less rigorous than others, Mr. Wolfe believes it is adequate for this study. Other methods take longer and cost more, and this study must be completed by December 1, 2005. The OGCC will provide a current baseline on CBM production in Colorado. The study will then project future production at build-out. A key question is whether the aquifers are being fully penetrated within basin. They also seek a better understanding of how water moves through coalbeds and sand within the basin. Mr. Wolfe noted that the study would also investigate post-pumping ramifications once CBM development in the San Juan Basin is complete. The study will attempt to identify deficiencies in the regulatory framework, and potential beneficial uses for the produced water. The project will be completed by December 1, 2005, and has a total budget of $64,000. Mr. Wolfe noted that this effort could lead to similar studies for other basins if money is available.

10:44 AM

Representative Butcher asked how many years of data were available and who collected it. She also wanted more detail on the Glover methodology. Mr. Sares responded that the San Juan Basin was chosen for this initial effort because of the data available. He summarized the list of data references to be used in the study, and noted that overall, the data is very current. He also provided a brief overview of the Glover method.

10:51 A.M. -- Produced Water Issues in Las Animas County

Ken Torres, County Commissioner for Las Animas County and Jerry McDaniels, legal council for the county, presented information on the issue of produced water in that county. Mr. Torres noted that the issue arose during the 2002 drought, when many farmers and ranchers wanted to make use of produced water. Some of the produced water is of similar quality to water that is already being used. They approached the DWR to determine how this water could be put to beneficial use. Mr. McDaniels noted that some key policy issues are determining whether the water was tributary or non-tributary, and who should make this determination (Attachment H). The only area with decent quality discharge is the Raton Basin, where wells are producing lots of water but not much gas. A small window of opportunity (maybe 15 years) exists because the majority of water is produced early in the production cycle. He wondered whether it was possible to decree the produced water and re-inject the better quality water into the ground to save for a later time when it is really needed.

Representative Curry asked about the current status of water rights application. Mr. McDaniels responded that the application is pending, but dormant. Mr. Torres noted that several land owners have offered to contribute for the cost of determining if the water is tributary or not. Mr. McDaniels commented that the producing oil and gas companies ought to be responsible for the determination. He acknowledged that if the water was tributary, every well would need an augmentation plan. However, no augmentation water was available in the area. Mr. McDaniels reiterated that in Las Animas County, discharged water is flowing into reservoir, and is being used. In 2001, when there was a major drought, the water was in fact being used by the conservancy district and Trinidad.

11:08 A.M.

Senator Entz asked about the volume of water at issue. Mr. McDaniels estimated that roughly 6 to 7 million gallons per day discharged. Mr. McDaniels commented that the question of whether produced water is tributary or non-tributary should be resolved in any basin opened up for CBM production, and that this will require legislative involvement. He also noted that future ownership issues regarding this water could prove to be complex.

11:17 A.M. -- Public Testimony

Ken Wonstolen, Colorado Oil and Gas Association, briefly addressed the self-testing issue discussed earlier. He explained that self-testing is featured in every environmental statute, and is very involved. Producers hire environmental consultants to do the testing, and a well-developed procedure exists, including sampling protocols overseen by regulatory agencies. President Fitz-Gerald responded that she felt some governmental oversight was necessary to ensure the monitoring was being done correctly. Mr. Wonstolen responded that the level of oversight would be a function of the agency involved and its budget resources. Mr. Wonstolen addressed the pipeline-related questions raised by Senator Taylor and Representative Hoppe. He noted that the delay was occurring in the gathering phase, which was typically done by operators in Pieance basin. Both Garfield and Delta counties have recently adopted regulations concerning the installation of gathering systems that may be slowing down the process. Some of the delay may also be occurring due to the inability to finish a cultural historical survey as part of the environmental impact statement. Representative Hoppe asked if it would be helpful if this committee sent a letter to its congressional delegation and FERC expressing concern about the delays, and recommended that such a letter be drafted. A discussion ensued regarding the appropriate body for drafting such a letter. Senator Isgar suggested that Representative Hoppe have the letter drafted, and anyone who wanted to could sign it.

11:29 A.M.

Julie McKenna, Colorado Water Resources and Power Development Authority (CWRPDA), recommended a statutory change to the requirements for a member of their CWRPDA Board of Directors. Specifically, she recommended that one board member have a water quality background, as the number of requests for water quality projects is increasing.

11:29 A.M. - Request for Draft Legislation


BILL:	Fourth Meeting
TIME:	11:29:02 AM
MOVED:	Isgar
MOTION:	Moved to draft a bill to require that the Board of the Colorado Water Resources and Power Development Authority include a member with expertise in water quality issues. The motion passed without objection. This bill will be considered for final action at the October 26, 2005 meeting of the Water Resources Review Committee.
SECONDED:
		VOTE
	Butcher
	Entz
	Fitz-Gerald
	Grossman
	Hodge
	Hoppe
	Taylor
	White
	Curry
	Isgar
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection

11:32 A.M.

The meeting was adjourned.