Colorado’s New Oil and Gas Rules Raise the Standard for State Regulation, but Their Success Depends on Effective Enforcement
In the past two years, Colorado finalized rules designed to protect people, wildlife, and the environment from oil and gas drilling operations. The rules improve many facets of oil and gas regulation and are, in some areas, the strongest of any state in the nation. However, the rules have weak spots, and the oil and gas industry has already launched efforts to widen loopholes and chip away at the strongest protections. The rules’ ultimate success will depend on vigilant oversight and rigorous enforcement.
Colorado’s rules respond to the growing recognition that oil and gas development is bad for human health and the environment. In addition to fueling climate change—the significance and urgency of which cannot be overstated—oil and gas operations cause significant problems on a local scale. Modern well pads can span over 20 acres (the size of 15 football fields), replacing natural vegetation and wildlife habitat with networks of roads and pipelines feeding industrial complexes that roar with heavy machinery and glare with light, sometimes 24 hours a day. Companies can bore lateral wells up to three miles long, drilling through drinking water and other aquifers. When they reach target oil and gas formations, operators use cocktails of sand and chemicals to break up the subterranean rock, allowing oil, gas, and drilling fluid to flow back up to the surface. This “flowback” releases toxic chemicals into the air, causing headaches, nosebleeds, nausea, dizziness, asthma, low birth weight, and cancer.
In extreme cases, oil and gas operations can even be deadly. In 2017, a leaking gas flowline exploded beneath a house in the suburban town of Firestone, Colorado, killing two people and badly injuring another. Investigators determined that the flowline and associated gas well had not been abandoned properly, allowing gas to seep into the home’s basement. While the company responsible for the well claimed it had followed protocol, in reality it cut corners to save money. The Firestone incident is an extreme example of an all-too-common trend where companies neglect infrastructure that’s no longer profitable.
Recognizing these problems, the Colorado legislature in 2019 enacted a statute, Senate Bill 2019-181 (SB 181), aimed at transforming how oil and gas is regulated in the state. SB 181 changed the Colorado Oil and Gas Conservation Commission (COGCC)’s mission from “fostering” oil and gas development to “regulating” it for protection of public welfare, wildlife, and the environment. To implement the new mandate, COGCC undertook an extensive overhaul of its rules, conducted over the course of several separate rulemakings.
One of those rulemakings focused on “wellbore integrity,” intended to ensure proper construction of subsurface wells. A major focus of the rulemaking was protecting groundwater. Groundwater provides a significant percentage of Coloradans’ drinking and irrigation water, and as aquifer drawdown continues—exacerbated by climate change—deeper aquifers not currently in use will become increasingly important in the future. The COGCC initially proposed rules that ignored this long-term reality by allowing companies to drill without protecting many usable groundwater aquifers, including those deeper than 3,000 feet. Earthjustice intervened and persuaded the COGCC to require comprehensive protections for all usable and potentially usable groundwater, leading to final rules hailed by the COGCC, environmental groups, and industry alike.
In its “mission change” rulemaking, the COGCC revised its siting rules and above-ground operational requirements. The centerpiece of that rulemaking was the adoption of a setback requiring new oil and gas wells to be located at least 2,000 feet from homes, schools, and certain other buildings. The 2,000-foot setback is the largest of any state in the country and could pave the way for other states to follow suit. Another major improvement was the prohibition of routine venting and flaring of natural gas, a wasteful and outdated practice. The mission change rules include other favorable provisions like requiring operators to conduct an “alternative location analysis” before seeking approval for a well pad, requiring the COGCC to consider the cumulative impacts of its permitting, and defining and imposing heightened protections for disproportionately impacted communities.
In the last rulemaking, completed in early 2022, the COGCC revised its “financial assurance” rules. This rulemaking was intended to require oil and gas companies to post bonds ensuring that they, rather than the state, will pay for closing and cleaning up wells at the end of their lives. Currently, operator bonds cover only about two percent of the estimated cost to plug and abandon wells in Colorado, meaning the state is exposed to nearly $7 billion in cleanup risk. While the new rules are excessively complex and will only modestly increase the total amount of bonds held by the state, they made some improvements: state bonding rules will cover federal wells for the first time, and many of the highest-risk wells will require full-cost bonds.
Across all these rulemakings, the COGCC consistently made meaningful improvements on critical issues—often breaking new ground with nation-leading regulation. But, equally consistently, the COGCC included offramps and exceptions that soften its bold approach. For example, the new financial assurance rules allow the largest operators to cap their bond amounts far below actual decommissioning costs, and any operator is eligible to submit its own customized bonding plan—with no guardrails on dollar amounts—if it believes otherwise-applicable rules are “unreasonable.” Similarly, an exception to the 2,000-foot setback rule allows well pads to be constructed closer than 2,000 feet from homes if the operator can demonstrate that its management practices and mitigation measures are “substantially equivalent” to complying with the setback. And any COGCC rule can be avoided by seeking a “variance,” with decisions on such applications subject to broad COGCC discretion.
It did not take industry long to test these exemptions. A few months after the 2,000-foot setback rule took effect, a subsidiary of Occidental Petroleum called Kerr-McGee submitted a proposal to drill over 30 wells less than 2,000 feet from 92 homes in the towns of Frederick and Firestone—the same town where the 2017 explosion happened. Kerr-McGee argued that the “substantially equivalent” exception applied because it would implement “stringent” protections that reduced impacts to nearby residents. In fact, these measures involved an ordinary set of best management practices and mitigation measures. Kerr-McGee also asserted that the “substantially equivalent” standard did not require comparing its mitigation measures with the benefits of moving the wells outside the 2,000-foot buffer. As a practical matter, accepting Kerr-McGee’s interpretation would have rendered the 2,000-foot setback meaningless.
Nevertheless, the COGCC appeared poised to approve the Longs Peak project until a local citizen group called the League of Oil and Gas Impacted Coloradans, along with several affected Firestone residents, asked Earthjustice to represent them. After we submitted comments and argued for denial, the COGCC found that Kerr-McGee had not demonstrated substantial equivalency and denied the permit. The COGCC’s decision appears to be the first time COGCC has ever denied a drilling permit application that made it past preliminary stages. In this early test, the COGCC chose to protect the people of Colorado over industry profit, as SB 181 intended.
However, in another test of the new rules, an oil and gas company called D90 Energy recently sought a variance from the prohibition on routine venting and flaring of natural gas. D90 operates wells in a cherished region of Colorado called North Park that’s known for its remote character and spectacular wildlife. The wells are not connected to pipeline infrastructure, making it harder to transport gas for sale. The prior owner of D90’s wells, a company called Sandridge Energy, was the poster child for the COGCC’s decision to ban routine venting and flaring in the first place: Sandridge flared 100 percent of its gas production in 2018 and 82.5 percent of its production in 2019—the epitome of needless waste. Nonetheless, the COGCC approved D90’s variance application for these wells, allowing this wasteful practice to continue.
These decisions demonstrate both the strengths and weaknesses of Colorado’s new rules. While rules like the 2,000-foot setback can be an important and effective safeguard for human health, it took immense, organized pressure to force the COGCC to do the right thing and deny the Longs Peak permit. When there was less public pressure, the COGCC approved the D90 flaring variance, badly undercutting its strong rule. Given the many other loopholes, offramps, and gray areas subject to COGCC discretion, close monitoring by groups like Earthjustice and its partners will be imperative.
The situation in Colorado is a microcosm of a larger trend. The fossil fuel industry wields extraordinary social, economic, and political power, and it’s been frustratingly effective in using that power to snuff out rules that affect its bottom line. As Colorado, other states, and, hopefully, the federal government ramp up the shift toward prioritizing people and the planet, it will take real and continued effort to ensure that better laws are both enacted and enforced against an industry with deep opposition to energy progress and even deeper pockets. Colorado’s continued leadership—which depends on its citizens’ support—will be critical in that endeavor.
From the Experts, Gas, Oil, Right To Zero