California Legislature Looks to Colorado in Considering Increased Setbacks
On April 22, 2019, the California Assembly’s Natural Resources Committee passed Assembly Bill 345 (“AB 345”), which, similar to Colorado’s failed Proposition 112 ballot initiative, would require that all new oil and gas development and rework operations on non-federal land be located at least 2,500 feet from any residences, schools, childcare facilities, playgrounds, hospitals, and health clinics. These requirements would take effect beginning on January 1, 2020. In addition, the bill authorizes cities and counties to impose setback requirements even greater than the 2,500-foot base requirement.
The bill includes a variance mechanism whereby operators could obtain a reduction to the “maximum achievable” setback distance where necessary to access legal subsurface rights. Applications for a variance must include “competent, substantial, and relevant evidence” demonstrating, among other things, that the proposed variance is “consistent with the intent” of AB 345 and “protect[s] public health and safety.” Such variance requests would be subject to review by the state’s Oil and Gas Supervisor. However, an analysis prepared by the Assembly’s Natural Resources Committee observed that “it is unlikely the variance could ever be used” because, counter to the requirement that a variance be “consistent with” AB 345, the bill explicitly declares that “[p]roximity to oil and gas extraction, including the use of hydraulic fracturing, well acidization, and other nonconventional oil and gas extraction techniques, adversely impacts public health and safety.”
As was the case with Proposition 112 in Colorado, implementing the requirements of AB 345 could have a devastating impact on new oil and gas exploration and production activities in California, which currently ranks fourth among states in annual oil production. The Natural Resources Committee’s analysis states that even a lower 1,500-foot setback from only residential developments would have affected 65 permits issued in Los Angeles County alone in 2018. Even more troubling for California operators is the Committee’s observation that, as currently drafted, the “definition of new oil and gas development and rework operations may capture any permit necessary to keep existing wells producing.” The California Division of Oil, Gas, and Geothermal Resources issued 1,100 such permits last year, amounting to 15% of the total permits it issued. Similarly, the Committee found that AB 345’s definitions of “oil and gas development” and “rework operations” subject to the setback requirement could include routine repairs, the addition of new flowlines, or additional treatment of waste.
The bill will now move to the Committee on Appropriations for further consideration. Should the bill advance out of committee, it would move to the Assembly for further readings and a vote. To become law, the bill must be passed by the Assembly and Senate, and then approved by the Governor, who can either sign the bill into law, or allow it to become law without signature. Read the current text of AB 345 in full here.
Finally, AB 345 was not the only bill affecting the oil and gas industry to advance out of the Assembly’s Natural Resources Committee on April 22. The Committee also passed AB 1440, which would again borrow from Colorado by eliminating language encouraging the development of oil and gas resources from the statutory mandate of the California’s Oil and Gas Supervisor. Colorado, of course, recently enacted legislation that revised the mandate of the Colorado Oil and Gas Conservation Commission to focus primarily on the protection of public health and the environment, rather than “fostering” the development of oil and gas resources. Like AB 345, AB 1440 will now move to the Committee on Appropriations for further consideration. Read the current text of AB 1440 in full here.
Colorado House Passes S.B. 19-181, Sending the Amended Bill Back to the Senate
On March 29, 2019, the Colorado House of Representatives
passed S.B. 19-181, the sweeping oil and gas reform legislation introduced by
Senate Democrats on March 1. The final House vote to pass the legislation
followed nearly six hours of floor debate, the adoption of almost a dozen
amendments, and the rejection of several others. While the majority of
the amendments adopted by the House are minor and clarifying in nature, several
affected the substance of S.B. 19-181:
- New language requires local governments to regulate the
surface impacts of oil and gas operations “in a reasonable manner.”
- The House made significant changes to the provisions
relating to the composition of the Colorado Oil and Gas Conservation
Commission (“COGCC”). The amended bill now requires a seven-member,
“professional” COGCC. This means that the five COGCC members
appointed by the Governor (subject to the consent of the Colorado Senate)
will be excluded from other employment and entitled to compensation. The remaining two COGCC members comprising the seven-person commission
will consist of the directors of the state agencies for natural resources
and public health and environment, who will serve as non-voting members.
- New language clarifies that the reports issued by the
technical review board, the COGCC-appointed body made available to review
“issues in dispute” as between local governments and operators in the
siting process, must not address the economic effects of local
governments’ preliminary or final siting determinations.
- The House lowered the percentage of owners necessary to
force pooling from 50% to 45%.
Despite these amendments, the key provisions of S.B. 19-181 remain in place. The bill will now return to the Senate
for a floor vote to consider the amended legislation. That vote is
currently scheduled for April 2, although additional delays remain possible. If the Senate votes to pass S.B. 19-181 as amended, the bill would move to
Governor Polis’s desk for signature. Governor Polis has already expressed
his support for the legislation. Read the current version of S.B. 19-181
as amended here.
Colorado S.B. 19-181 Passes Senate
The Colorado Senate voted along party lines on March 13, 2019, to pass S.B. 19-181, the sweeping oil and gas reform legislation introduced by Senate Democrats less than two weeks ago. The Senate vote was not without controversy. In an attempt to delay action on S.B. 19-181, Senator John Cooke requested on March 11th that a 2,000-page bill be read in its entirety on the Senate floor. Senate Democrats responded by using five computers to simultaneously read various portions of the bill out loud at speeds well beyond the capacity of human speech. Cooke, along with other Senate Republicans, brought suit against Democratic leadership on March 12th, arguing that the bill must be read intelligibly. Although a Denver judge has issued a temporary restraining order against Democratic leadership and further proceedings in that case are scheduled for March 19th, the fact remains that the Colorado Senate has passed S.B. 19-181, which will now move to the Colorado House of Representatives for further consideration.
The precise timing for House action on S.B. 19-181 remains unknown; currently, the bill does not appear on the House calendar. Nonetheless, given how quickly the bill has moved thus far, and the composition of the Colorado House—41 Democrats to 24 Republicans—the bill could reach the Governor’s desk as early as the week of March 18th. Governor Polis has already expressed his support for the legislation.
While additional amendments remain possible, oil and gas operators in Colorado should consider the version of S.B. 19-181 that passed the Senate likely to become law, and likely very quickly. The reengrossed version of the bill—including all amendments—passed by the Senate is available here. Notable amendments include:
- requiring the Colorado Oil and Gas Conservation Commission (“COGCC”) to review its leak detection and repair rules to consider making them more stringent;
- requiring the COGCC to promulgate rules (i) regulating wellbore integrity and (ii) requiring certification for certain oil and gas industry workers, including compliance officers responsible for OSHA and industry standard codes, those handling hazardous materials, and welders;
- allowing local governments and operators to seek review of local governments’ location and siting decisions by a technical review board appointed by the COGCC Director to assess any “issues in dispute,” including whether (i) the local government’s siting determination “could affect oil and gas resource recovery,” (ii) the local government’s determination is “impracticable” or would require technologies that are “not available,” and (iii) the operator is proposing to use “best management practices”;
- stating explicitly that local governments may regulate the land use and siting of oil and gas facilities in a manner “more protective or stricter” than the state-level requirements; and
- requiring the COGCC Director to submit a report to the Colorado General Assembly by January 1, 2021, regarding “any recommended structural changes to the Commission.”
The REMI Partnership, a “partnership of public and private organizations” that aims “to develop independent, fact-based analysis that quantifies the broader economic impacts associated with policy changes” in Colorado has estimated that if S.B. 19-181 cuts new oil and gas production in the state by 50%, Colorado would lose 120,000 jobs, more than $8 billion in state and local tax revenue, and over $58 billion in GDP by 2030. Read our updated analysis of S.B. 19-181 in its entirety here.