COLORADO MOVES TO RESOLVE LAND DISPUTES

The Colorado legislature has passed a bill aimed at resolving conflicts between mineral and surface rights in one of the busiest oil and gas drilling theaters of the U.S.

The measure, Senate Bill 177, broadens powers of the Colorado Oil & Gas Conservation Commission (Cogcc) to regulate drilling and production operations and deal with surface issues.

In a controversy that developed over several years, land owners complained that the state wasn't protecting surface interests in its regulation of oil and gas operations.

At the center of the issue was Weld County, site of big Wattenberg oil and gas field and one of the country's leading agricultural counties.

Cgocc eased the problem with special Wattenberg rules that answered some of the surface owners' concerns. But several city and county governments, including Weld County, threatened to adopt their own rules governing relationships between surface and mineral owners.

Producers and industry associations feared the result would be a regulatory patchwork harmful to drilling and production in the state (OGJ, Oct. 25, 1993, p. 30).

Officials of the Colorado Petroleum Association say the new legislation, which they expect to be signed into law, gives Cogcc powers to address surface owner concerns.

Weld County commissioners, citing passage of SB 177 and Cogcc's recent extension of the Wattenberg rules to all of Weld County, suspended a proposal to begin regulating oil and gas operations.

The cities of Thornton and Broomfield, as well as Boulder County, have enacted local rules for oil and gas operations. Lafayette proposes an extensive regulatory scheme.

But SB 177 received support from at least one county, besides Weld, that had been considering local regulation.

THE LEGISLATION

SB 177 adds a surface dimension to the "legislative declaration" underlying Cogcc's work. The commission will not just encourage oil and gas development but do so "in a manner consistent with protection of public health, safety, and welfare."

The state Supreme Court had cited absence of such a dimension as a reason to allow local governments to regulate oil and gas work.

SB 177 also increases the scope of Cogcc's oil and gas authority to include a range of surface activities.

It raises Cogcc's membership to seven from six persons and stipulates backgrounds of members. Two members must have agricultural, land reclamation, soil protection, or environmental experience. Five must have oil and gas experience, with two holding geology or engineering degrees.

Under SB 177, operators will receive a list of options, which are subject to approval, for meeting Cogcc financial assurance obligations. The options include a guarantee of performance backed by a financial statement, certificate of insurance naming the state as an insured party, bond or equivalent, letter of credit or certificate of deposit, escrow account or sinking fund, and hen or other security interest.

Cogcc will be able to assign inspection and monitoring, but not enforcement, work to contractors or local governments. But it can't allow any new fee or tax or make the assignment contingent on numbers or types of violations reported back to it.

Penalties for violations not resulting in significant waste of oil and gas, damage to correlative rights, or harm to public health, safety, and welfare will be limited to $10,000/fine.

Violations will be handled by, in order: corrective action order, cease and desist order, and court action. Cogcc can revoke a permit if, after a hearing, it determines that an operator has failed to comply with a cease and desist order. It can suspend issuance of permits to an operator it finds to be responsible for a "knowing and willful pattern of violation."

SB 177 makes the Environmental Response Fund, previously applicable only to improperly plugged and abandoned wells, accessible for investigation, prevention, monitoring, and mitigation of "significant adverse environmental impacts." In environmental regulation, Cogcc can act only as necessary to protect public health, safety, and welfare and must take into consideration "cost effectiveness and technical feasibility."