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Will Colorado’s New Oil and Gas Law Really Destroy the Industry?

SB-181 is on the way to Gov. Jared Polis for signature, but the controversy over the sweeping oil and gas reform legislation is just heating up. Here, we look at what the new law means for the future of the industry in Colorado.

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From the moment SB-181 hit the senate floor in early March, it sparked controversy. Introduced as a comprehensive overhaul of oil and gas regulation in Colorado, the bill led to fiery debate at the Capitol, weeks of protest from industry groups, and ultimately made it through both chambers of the Democratic-controlled state legislature on mostly party line votes. Once Gov. Jared Polis signs the bill, also known as Protect Public Welfare Oil And Gas Operations, Coloradans will see perhaps the most sweeping oil and gas reform in state history.

However, the contention is unlikely to cease once the law takes effect, as it’s still unclear how the industry—which has a $31 billion annual economic impact in Colorado, according to the American Petroleum Institute—will be impacted and whether new regulations will deter oil and gas development. Proponents of the law say the industry will be safer for communities and for the environment, while opponents say the law is really just burdensome regulation disguised as a win for local government. Some people say Colorado’s oil and gas industry will be crippled. Others say it will still thrive. We studied the bill and called a few experts to gauge what oil and gas in Colorado will look like now that SB-181 is set to become law.

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What the Law Actually Says

In short, the law will give more regulatory power to local governments so communities can set their own rules for oil and gas development. But the control granted to local governments does not allow them to enforce regulations less strict than what is mandated by the state. If local governments choose to enforce more stringent regulations (the law does not require them to do so), the stricter rules will take authority. It’s a win for communities that wish to impose limits to the oil and gas industry, but for the cities and counties that don’t, this law is an unwelcome product of a progressive legislative body.

The new law will also revise the makeup and the constitution of the Colorado Oil and Gas Conservation Commission (COGCC), the state agency responsible for overseeing oil and gas development. Currently, the COGCC’s mission is to “foster” the development of the oil and gas industry “in a manner consistent with” the protection of public health, safety, and environment. The new law says the mission of the COGCC is to “regulate” the development and production of oil and gas in a manner that “protects” public health, safety, and welfare, including the protection of the environment and wildlife resources.

That may read like mere semantics, but it’s important: The COGCC’s new mission will be to regulate the industry—rather than foster its growth—and places a greater emphasis on environmental protections.

Moreover, the COGCC, which is a nine-member body (seven of which are appointed by the governor), will now be a seven-member body, five of which will be appointed. Of the five appointees, only one is required to be “an individual with substantial experience in the oil and gas industry,” while the previous commission required three members with such experience. Of the four additional appointees, one must have experience in environmental protection, wildlife protection, or reclamation; one must have experience in public land use planning; one must have experience in public health; and one member must be capable of broadly aiding the commission.

How Severe Will the Impact Be?

Depending on who you ask, this law’s impact ranges from catastrophic to benign. During hearings, Sen. Rob Woodward (R- Loveland),  said the economic impacts will be so severe that marriages will crumble and suicides will increase. Democrats responded by saying these new regulations are merely “common sense” and will actually stabilize the industry.

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According to Matt Sura, an oil and gas attorney who works for landowners, government entities, and nonprofits in their disputes with the industry, the impacts will be noticeable but not extreme. “There will be several impacts,” he says. “But I don’t think those impacts will be as dramatic as the oil and gas industry is saying.”

Sura notes that there are parts of the state where we will see additional regulations placed on the oil and gas industry—potentially Adams County, which recently issued a moratorium on approving permits, and more liberal Front Range counties like Boulder. However, he notes, those counties are home to a relatively small portion of the industry. The bulk of oil and gas wells in Colorado are located in places that are unlikely to impose more (or any) self-regulation in addition to what the state mandates—like Weld, Garfield, and Mesa Counties.

Rose Pugliese, Mesa County District 3 commissioner, noted that while it’s true the new law does not require her or any other county commissioner to tighten local regulation, because she’s not empowered to enforce regulations that are less stringent than the state’s, this new law is effectively hollow. If the COGCC were to tighten its rules, Mesa County would be forced to fall in line.

“[This law] didn’t give me local control,” she says. “Because if you truly gave me local control, I’d be able to modify the standards for what works for my community, and I can’t do that under this legislation.” 

Pugliese also expressed concerns that it’s not clear how the COGCC will change its regulations based on the new language in its mission. For instance, current law mandates that industrial oil and gas operations must be set back 500 feet from occupied structures. If the COGCC were to decide the mandatory setback should be 2,500 feet (which failed as a ballot initiative, Proposition 112, in November), local governments would have little recourse to fight such a regulation.

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Pugliese says the oil and gas industry might scale down operations in places like Mesa County because it’s hard to know what new regulations are coming from the state. She even says one company based in Mesa County is leaving the state and moving to Oklahoma, and another company has been denied three contracts because of uncertainty over the new law (she kept the names of both companies anonymous).

“I don’t like the word extreme in general, but I think this is going to have major impacts,” she says. “Business instability is real…In Mesa County we’re already feeling the impact and it hasn’t [yet] been signed into law.”

Mark Squillace, a natural resources law professor at the University of Colorado, noted via email that oil and gas companies will also now have to file permit applications with all affected local governments during the siting process, an additional bureaucratic hurdle that could require fees depending on local law. Still, he doesn’t see this driving the industry out of the state.

“I don’t believe the claim that the law will destroy the oil and gas industry in Colorado,” Squillace wrote. “[SB-181] certainly imposes some new burdens on the industry…but the new requirements all seem pretty reasonable to me if your top priority is to protect health, public safety, and the public interest generally.”

The bill is still awaiting the governor’s signature, and already several ballot initiatives have been proposed to repeal it. At this point, only one thing is certain: The controversy surrounding SB-181 will continue for months and years to come. But will oil and gas development in Colorado move swiftly forward despite that uproar? That remains to be seen.

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