By David A. Hill, Executive Editor

Last Friday the Legislature’s Joint Committee on Legal Services approved 98 of 100 rules drafted by the Colorado Oil and Gas Conservation Commission to regulate the state’s oil and gas industry. The rules now go to the Legislature and, no doubt, an intense debate at the State Capitol will ensue.

The one major change was a rule that requires oil and gas operators to consult with the Colorado Division of Wildlife on minimizing adverse impacts to wildlife resources, which the commission repealed.

Dave Neslin, the oil and gas commission’s acting director, said there were two conflicting rules on wildlife. One made it clear the Division of Wildlife must consult with the operator, the surface owner and the commission, while the other said an operator must consult with the commission, the surface owner and the Division of Wildlife.

The nearly two-year rule making process has been a long and winding road and a bitter battle for many. According to the COGCC, the new rules are intended to provide increased protection for wildlife, the environment and public health.

Given the sweeping changes being implemented, it is no surprise the industry and the state remain at odds over what the long term effects of the new regs will mean to the oil and gas business. Those who argue the pending regulations package is driving oil and gas companies out of the state are ignoring two more obvious reasons for the reduced drilling activity - slumping commodity prices and a severe recession that is hammering the energy industry, as it is virtually everything else. On the other hand, state regulators don’t see any problem with implementing the new rules package in one fell swoop.

That’s a problem.

Two complaints from industry continue to resonate. Number one, they argue that the new rules should, indeed, be phased in gradually over a period of time, instead of the “all in” deadline set by the commission. What’s more, a phased in period would provide the state with a greater opportunity to train operators on the myriad of rules. As it is, the COGCC is offering only an upcoming two-day meeting in Grand Junction, March 16th and 17th, to help the drilling companies learn the new rules. Many in the industry, however, say this is simply not enough time to get up to speed on such a large number of regulatory changes.

“The State is not even ready. If they’re unprepared, how can we be prepared?”, asks Wayne Berkert, Senior Regulatory and Environmental Coordinator for Laramie Energy II, speaking to Western Slope media. “The training for such a major change in regulations should have started January 1st.” Berkert is pushing for a question and answer session to be included in the training session, but the commission says there simply is not enough time for a Q & A to be added.

Another major concern of operators is the time frame for obtaining drilling permits under the new rules. The COGCC anticipates it will take roughly 40 days for an operator to be granted a new permit, but that may be too optimistic says the industry because the Colorado Department of Wildlife, the public health department or others involved in the application process may need more time for reviews of specific applications. True, the 40-day estimate is less time than the current 60 days currently required to obtain a drilling permit, but it is still far longer than what takes place in neighboring states.

COGCC acting director, Dave Neslin, says “We think the process we’ve developed is good for Colorado and the resources of Colorado, with its significant wildlife issues, weather, drinking water supplies and topography. The legislative direction is to protect the environment and wildlife, and the requirements include the time to do that.”

Neslin and his fellow commissioners say they expect to see fewer drilling applications this year because of the economic recession and low commodity prices. Their latest report predicts a 14 percent drop in permits this year to about 6,880, compared to the record number of 8,027 issued in 2008. Still, many industry experts cite the new regulations as a major reason why drilling activity has been curtailed more in Colorado than in other states. The Western Slope’s Piceance Basin, in particular, has seen a significant drop in oil-and gas-related jobs across the board, from drillers and truck drivers to consultants and well service workers.

Doug Hock of EnCana Oil & Gas (USA) points to the new rules as a factor in his company’s drilling operations being reduced more in Colorado than elsewhere.

“There’s uncertainty about the rules, and regulations carry a cost — companies evaluate the risk of increased costs and they take those costs into consideration, if not explicitly then implicitly,” Hock told a Grand Junction newspaper. “The concern for us in the long term is when prices do recover, it’s more likely that rigs will return to states with transparent and quantifiable regulatory cost structures.”

Still Unclear On The COGCC Regulation Changes? Three local companies are teaming up to help educate the community on the new regulations. Next free webinar will be on March 25, 2009 and will focus on the 200, 300 & 1200 Series of the regulations. Registration is required. Click here.