Shale & Fracking Tracker

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.

Colorado S.B. 19-181 Advancing Quickly As Hearings Continue

Colorado S.B. 19-181, the sweeping oil and gas reform legislation introduced last week in the Colorado General Assembly, is advancing quickly through the six committee hearings necessary to reach a floor vote. The bill has already been approved by the Senate Transportation and Energy Committee and the Senate Finance Committee after votes along party lines. The Senate Transportation and Energy Committee’s hearing on March 5th demonstrated the controversial nature of S.B. 19-181, drawing almost 200 people to testify over the course of a twelve-hour hearing. Thus far, the amendments made to the bill have been largely clarifying in nature, although additional amendments remain possible should the legislation continue to advance.

S.B. 19-181 is set for hearing by the Senate Appropriations Committee on March 8th. Given the pace at which this bill is currently moving, it remains imperative that all oil and gas operators in Colorado familiarize themselves with this legislation as soon as possible and monitor its continued progress through the General Assembly. Read our analysis of S.B. 19-181 here. The full text of the proposed legislation as introduced is available here.

Colorado S.B. 19-181 Proposes Sweeping Oil & Gas Reforms

On Friday, March 1, 2019, Democratic lawmakers in Colorado introduced Senate Bill 19-181, which, if enacted as proposed, would result in sweeping changes that would (i) re-envision the Colorado Oil and Gas Conservation Act to focus primarily on the protection of public health and the environment, (ii) fundamentally redefine the role and composition of the Colorado Oil and Gas Conservation Commission (“COGCC”), and (iii) elevate the power and level of input that local communities have with respect to oil and gas development activities. This far-reaching legislative proposal follows Colorado voters’ rejection of Initiative 97/Proposition 112 at the polls in November 2018 as well as the Colorado Supreme Court’s recent decision in COGCC v. Martinez, which affirmed the COGCC’s role in “foster[ing] the development of oil and gas resources” in Colorado. The newly-introduced legislation incorporates CCOGC reforms that were the subject of activist groups’ petitions to newly-elected Governor Polis in the wake of Initiative 97’s failure, and also constitutes a legislative response to the Colorado Supreme Court’s decision in Martinez. Governor Polis has announced his support for the proposed legislation, and hearings on S.B. 19-181 are set to begin Tuesday March 5,2019 in the Colorado Senate Committee on Transportation and Energy.

It is vital that all oil and gas operators in Colorado familiarize themselves with this legislation. We have prepared a full analysis of S.B. 19-181 here. The full text of the proposed legislation is available here.

Colorado Supreme Court Affirms COGCC Role In Fostering Oil and Gas Development

On January 14, 2019, the Colorado Supreme Court issued an opinion in Colorado Oil and Gas Conservation Commission (“COGCC”) v. Martinez, No. 17SC297, clarifying the role of the COGCC in implementing the Colorado Oil and Gas Conservation Act (the “Act”). The Court had granted certiorari to determine whether the COGCC had “misinterpreted” its statutory authority under the Act “as requiring a balance between oil and gas development and public health, safety, and welfare.” The Court’s opinion confirms the common sense result that the COGCC is required “to foster the development of oil and gas resources” while “prevent[ing] and mitigat[ing] significant adverse environmental impacts . . . but only after taking into consideration cost-effectiveness and technical feasibility.”

The Martinez lawsuit began in 2013 when Boulder, Colorado teen Xiuhtezcatl Martinez and a group of teenage Colorado citizens requested that the COGCC halt the issuance of any new drilling permits until studies from the best available science could demonstrate that the drilling did not pose a threat to human health or contribute to climate change. After COGCC denied the request, Martinez and the group appealed the decision in July 2014 to the Denver District Court. In February 2016, the district court affirmed COGCC’s refusal of the request, but on appeal in 2017, the Colorado Court of Appeals held that COGCC’s refusal was improper under the Act because, as that court reasoned, it requires COGCC to make and enforce regulations “in a manner consistent with” the protection of public health and safety—“a condition that must be fulfilled.” The Colorado Supreme Court’s opinion expressly rejects this reading in favor of one that requires the COGCC to balance various policy goals, including the development of oil and gas resources.

While the Court’s opinion in Martinez is welcome news for the oil and gas industry, it is likely that it will not be the last chapter in this story. Legislation to codify the holding of the Colorado Court of Appeals was introduced in the Colorado General Assembly in January 2018. While that measure was postponed indefinitely by the Senate Agriculture, Natural Resources, & Energy Committee in March 2018, similar measures could be introduced in the future, and may find a more receptive audience in Colorado’s newly-elected General Assembly and Governor. Read the Court’s opinion in full here.

With Industry Support, Colorado Extends Setbacks from Schools Amid Continued Fight Over Broader Measures

On December 18, 2018, the Colorado Oil and Gas Conservation Commission (“COGCC”) voted unanimously to increase the setback distance from schools for new oil and gas wells or production facilities. The measure approved by the COGCC maintains Colorado’s existing 1,000-foot setback requirement, but measures the setback distance from newly-defined “school facilities,” which may include any “discrete facility or area . . . that students use commonly,” whether indoor or outdoor. Previously, Colorado had applied the 1,000-foot setback from school buildings.

The COGCC’s approval of the school facility setback measure comes roughly six weeks after Colorado voters rejected Proposition 112 (formerly Initiative 97) at the polls. That measure sought to more broadly increase oil and gas facility setback distances on non-federal lands to 2,500 feet, thereby foreclosing oil and gas development on an estimated 54% of Colorado’s total land surface, including 85% of the non-federal lands in the state. Unlike Proposition 112, the school facility setback measure was supported by industry, including the Colorado Petroleum Council.

While environmental groups also praised the COGCC’s approval of the school facility setback measure, it appears that the larger fight over oil and gas setbacks in Colorado will continue for the foreseeable future. 350 Colorado, a “grassroots network focused on taking action to stop climate change,” has released a petition that it intends to deliver to Governor-elect Jared Polis the day before he takes office. The petition calls for the increase of oil and gas facility setback distances to 2,500 feet and the legislative reform of the COGCC to change its focus away from “fostering” oil and gas development, as well as the suspension of further oil and gas permitting until the COGCC reforms have been achieved. Colorado Rising, the organization that sponsored Proposition 112, has also stated that it “definitely” plans another ballot initiative in 2020. While the COGCC’s approval of the school facility setback measure represents a significant moment of collaboration among the various stakeholders in Colorado, the broader debate over oil and gas facility setback distances in the state remains heated, and the potential consequences remain severe.

Read the final draft school facility setback measure here.

Federal Court Issues Injunction Preventing Issuance of Pacific Offshore Hydraulic Fracturing Permits, Pending ESA and CZMA Consultations

On November 9, 2018, the United States District Court for the Central District of California issued an injunction preventing the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement (collectively, the “Agencies”) from issuing any plans or permits for well stimulation treatments—namely, hydraulic fracturing and acidizing treatments—on the Pacific Outer Continental Shelf. In Environmental Defense Center et al. v. Bureau of Ocean Energy Management et al., plaintiffs the State of California and several environmental non-governmental organizations (“Plaintiffs”) challenged an Environmental Assessment (“EA”) prepared pursuant to the National Environmental Policy Act (“NEPA”) and issued by the Agencies examining the environmental impacts of well stimulation treatments on the Pacific Outer Continental Shelf. The Plaintiffs also alleged that the Agencies failed to complete necessary consultations under the Endangered Species Act (“ESA”) and Coastal Zone Management Act (“CZMA”) in connection with the Agencies’ proposed action. Both Plaintiffs and defendants (which include both the Agencies as well as industry intervenors) filed cross motions for summary judgment.

The opinion issued on November 9 grants in part and denies in part each of the seven motions for summary judgment. Specifically, the court found that (i) the Agencies’ EA complies with NEPA, (ii) the Agencies completed the required ESA consultation with the National Marine Fisheries Service, (iii) the Agencies began, but did not complete, the required ESA consultation with the U.S. Fish and Wildlife Service (“FWS”), and (iv) the Agencies failed to undertake the required CZMA consultation with the California Coastal Commission (“CCC”), the state agency responsible for managing the ocean up to three miles away from land. Due to the failure to complete the consultations with FWS and CCC, the court issued an injunction prohibiting the Agencies from issuing any plans or permits for well stimulation treatments on the Pacific Outer Continental Shelf until these consultations have been completed. Importantly, the opinion makes clear that the Agencies may proceed to issue such plans and permits once these consultations have been completed. While it remains to be seen whether and when the Agencies will complete the required consultations, the opinion acknowledges that relatively few operations are expected to be delayed as a result of the injunction; throughout the course of the proceedings, the Agencies noted that “operators are only rarely expected” to request permits authorizing well stimulation treatments on the Pacific Outer Continental Shelf. Read the court’s opinion in full here.

Both Proposition 112 and Amendment 76 Rejected by Colorado Voters

On November 6, 2018, Colorado voters rejected both Proposition 112 and Amendment 76, sparing both the oil and gas industry and the state economy more broadly from uncertain and potentially disastrous consequences. Proposition 112 (formerly Initiative 97) sought to increase oil and gas facility setback distances on non-federal lands to 2,500 feet, which would have foreclosed oil and gas development on an estimated 54% of Colorado’s total land surface, including 85% of the non-federal lands in the state. Amendment 74 (formerly Initiative 108), which was widely viewed as a response by the oil and gas industry to Proposition 112, would have required that property owners be compensated for any reduction in property value due to any new governmental law or regulation.

The final voting margins are not yet available. Colorado counties have until December 3 to compile their returns (including any ballots received by mail and any provisional ballots) and submit them to the Colorado Secretary of State. Both Proposition 112 and Amendment 76 will be officially rejected once the Colorado Secretary of State issues the final certification of the election results, an action likely to follow by mid-December.

The voters of Colorado have decided that the status quo will prevail, for now. For oil and gas operators in the state, that means that Colorado’s current setback measure, which requires setback distances of 500 feet from “Residential Building Units” such as single-family residential homes, and 1,000 feet from “High Occupancy Building Units” such as schools, hospitals, and nursing homes, will continue to apply without change.

The broader question moving forward is whether the voters’ rejection of Proposition 112 will be revisited by a future measure, leaving the Colorado oil and gas industry facing some degree of continued uncertainty even after voters’ sound rejection of Proposition 112. In certain jurisdictions, supporters of ballot initiatives seeking to place limits on oil and gas development have continued to push rejected measures in successive election cycles, even in the face of repeated failures. For example, voters going to the polls in Youngstown, Ohio on November 6, 2018 voted on a proposed ban on hydraulic fracturing and related oil and gas activities for the eighth time in five years, having rejected the prior seven attempts. It remains to be seen whether supporters of Proposition 112 in Colorado will pursue a similar approach in future elections and force Colorado voters to regularly reaffirm the results of the 2018 election going forward. Similarly, groups opposed to oil and gas activities in other jurisdictions may copy Proposition 112’s “setback as a sword” approach in an effort to disguise future efforts to all but ban oil and gas activities under the pretext of a “setback” measure that may appear more palatable to voters.

Colorado Secretary of State Certifies Initiatives 97 and 108 for November Ballot

On August 29, 2018, the Colorado Secretary of State (the “Secretary”) certified that Initiative 97, which would increase oil and gas development setback distances to 2,500 feet from “occupied structures” and “vulnerable areas,” had gathered a sufficient number of valid signatures to appear on the ballot this November.  The certification of Initiative 97 comes the day after the Secretary similarly announced that industry-backed Initiative 108 will also appear on the November ballot.  A direct response to Initiative 97, Initiative 108 would provide property owners with just compensation when a state or local government takes action diminishing the “fair market value” of their properties.  Initiative 108 appears designed to provide a compensation mechanism for oil and gas interests on private property that would no longer be exploitable because of setback distances such as those made effective and enforced as a result of Initiative 97, among other things.

The certification of both Initiatives 97 and 108 sets the stage for a showdown on the November ballot which is sure to be preceded by 9 plus weeks of intense campaigning given the significant effects these measures would have on Colorado’s oil and gas industry as well as the state economy more broadly.  For example the Colorado Oil and Gas Conservation Commission has estimated that Initiative 97 would foreclose oil and gas development on 54% of Colorado’s total land surface, including 85% of the non-federal lands in the state.  Although both of Colorado’s gubernatorial candidates—Democrat Jared Polis and Republican Walker Stapleton—have announced publicly that they do not support Initiative 97, the fates of both Initiatives 97 and 108 will lie solely with the voters on November 6.

Read more about the potential consequences of these ballot initiatives on the Colorado oil and gas industry on the Vinson & Elkins Environmental Blog here.